Standard Business Roadmap

Implementation Manual

LEAN MANUFACTURING OVERVIEW

In 1910 Charles Sorensen and Henry Ford created the first moving assembly line as a way of reducing wasted motion and handling complexity in automotive assembly.  Without question, the lean manufacturing system pioneered by the Toyota Motor Company has a common beginning with these early “work flow” improvements.  However, this common heritage led to two very different manufacturing systems:  mass production  and lean production.

The objective of mass production is to maximise economies of scale through high capital utilisation.  At Ford, the emphasis on flow was limited almost exclusively to the final assembly line, while subassembly processes, suppliers and distribution operated on almost independent production schedules, resulting in large batch sizes and high inventory levels.  Inventory at all points was accepted as a necessary buffer to survive schedule and output instability.  Quality was inspected and projected into the system through mass inspection and inventory buffers.  Capital was a solution to the relentless push for capacity.  Finally, production was driven from forecasts, pushing material through the plant in anticipation of actual customer demand.  The mass production system flourished in the high growth, boom phase of the automotive industry and was widely copied in other sectors.

The objective of lean production is the elimination of waste through the efficient use of all resources.  In 1945 the president of Toyota Motor Company issued an edict to the company to catch up with America in three years otherwise the automotive industry of Japan would not survive.  At the time, labour productivity in Japanese factories was 1/10 that of US automotive manufacturers.  Scarce capital and small, highly diverse “island” market did not support large-scale, mass production.  Finding a solution to the challenge led to a fundamentally different “Lean Production” system, which ultimately triumphed over mass production during the 1973-4 oil crisis.  At a time of global recession and slow growth, Toyota sustained profits and grew US market share while US companies lost on both counts.

A new paradigm

The lean production system pioneered at Toyota created a new paradigm for excellence in manufacturing.  This paradigm is founded on the belief that cost reduction is sometimes the only viable mechanism for a corporation to increase profit; price is not always an effective lever.  Today, some organisations are fortunate enough to determine their selling price by first taking the product cost and adding on a sufficient profit margin:

A company can therefore increase profit by raising the price of its product.  However, in a diverse marketplace, most companies do not have this advantage as consumers and market conditions largely determine price.  In these markets, companies face the following equation:

This is often referred to as the “cost-minus” principle because the company can only increase profit through cost reduction.  Cost reduction in a manufacturing environment occurs through the elimination of waste.  Waste can be defined as something for which the customer is not willing to pay; it is a non-value adding activity.  The elimination of such activities shortens the lead time, so value is delivered to the customer faster and with less effort.

The new paradigm of lean manufacturing transcends more than just a production system – it is a new way of thinking about organising the improving operations.  Traditionally one often associates lean manufacturing with a collection of tools and techniques on the factory floor.  However, there are several tiers in how the new thinking can be applied.  At the highest level, the concepts of lean manufacturing can be successfully applied across any industry or sector of the economy, such as the construction, aerospace, and financial environments.  At the next level down, the operating practices of lean manufacturing need to be tailored to a degree, such as the high-level design of a pull system.  On the most pragmatic level, the tools and techniques of lean manufacturing aim to identify and eliminate waste in the particular environment.  These tools must be tailored to the particular environment, such as the particular types of kanban comprising a pull system.