The Lean Process and Its Impact on Manufacturing and Distribution


Friday, February 01, 2008

By Patrick Penfield
Whitman School of Management
Syracuse University

Many companies have adopted the “Lean” culture. But what exactly is “Lean” and where did it come from? On what does it focus and what type of training is needed in order to implement this process? Why are so many companies enamored with this process? How has it impacted manufacturing and distribution?

The Start of Lean
Many people trace the origins of Lean back to the Toyota Motor Company. In Jeffrey Liker’s book The Toyota Way he states that the Toyota Production System is the basis for much of today’s lean process. After Japan was decimated and occupied by the Allies during World War II, the Marshall plan (an economic aid package) was introduced in order to revitalize the country and improve its economy.

The Toyota Motor Company was struggling to survive during this time period. Unfortunately inflation in 1950 was very high and the yen was basically worthless.Taiichi Ohno, the plant manager of Toyota, was given the task of getting his productivity levels on a par with the most dominant automobile company in the world, The Ford Motor Company, while decreasing costs. “Ford’s mass production system was designed to make huge quantities of a limited number of models. In contrast Toyota needed to churn out low volumes of different models using the same assembly line, because consumer demand in their auto market was too low to support dedicated assembly lines for one vehicle. Ford had an extremely generous amount of cash and a large U.S. and international market. Toyota had no cash and operated in a small country. Toyota needed to adapt Ford’s manufacturing process to achieve simultaneously high quality, low costs, short lead times and flexibility.” 1 Hence the Toyota Production System (TPS) was born! JIT (Just-in-Time), Lean and TPS mean the same thing and are interchangeable.

Forms of Waste
The greatest fact about the Lean process is its simplicity. “Typically companies using Lean will focus on eliminating eight forms of waste (muda in Japanese).

  1. Overproduction – caused by inflexible or unreliable processes that cause organizations to produce goods before they are required.
  2. Waiting – caused by the inefficient layouts or an inability to match demand with output levels.
  3. Unnecessary transportation – transporting goods always increases costs and the risk of damage, but it does not necessarily provide value to the final customer.
  4. Inappropriate process – using overly complex processes when simpler, more efficient ones would do.
  5. Unnecessary inventory – caused by uncertainty with regard to quality levels, delivery lead times, and the like.
  6. Unnecessary/excess motion – caused by poorly designed processes.
  7. Defects – not only do defects create uncertainty in the process, they rob production capacity by creating products or services that require rework or must be scrapped.
  8. Underutilization of employees – the newest form of waste added to the list, which recognizes that too often companies do not fully utilize the skills and decision-making capabilities of their employees.” 2

Lean Training
Once a company decides that they want to adopt and incorporate the Lean process within their company, training needs to occur throughout the entire organization. All employees must be trained on the Lean program! This is a “bottoms up” organizational initiative and employees are the key to the success of this program. During training an overview is given on Lean and employees are taught several tools and processes. Typically the focus of the training is eliminating the eight forms of waste and this type of training can be easily adapted to warehousing or manufacturing.

Most Lean training covers the following topics; 5s, value stream mapping, kaizen, lead time & setup time reduction, inventory management, layout and flow of material, total preventive maintenance, scheduling, mistake proofing and team building. Some companies also introduce Six Sigma into their Lean process. Six Sigma looks at processes from a quantitative standpoint and drives results through statistical analysis. Your company can work with your Lean trainers to select the training that is going to benefit your company the most.

Lean’s Impact on Manufacturing
Lean has had a tremendous impact on manufacturing. Companies are constantly under pressure to improve operational performance and reduce costs. The major benefits of a lean implementation are improving quality, reducing inventory, increasing floor space, increasing productivity, reducing cycle time, improving on-time shipments and reducing lead times.

One company that has enjoyed a tremendous amount of success using Lean is Toyota. They are the most profitable automobile manufacturer in the world (in 2005 they made a profit of $11.5 billion more than the combined profits of GM, Chrysler and Ford). In the next five years (or sooner) they will sell more automobiles then General Motors.

“Japanese auto makers have set the pace on productivity, forcing GM, Ford, and Chrysler (DCX ) to get in step. In 1999 those companies all needed at least 24 hours to assemble a car. Now it’s closer to 20 hours, while Japanese plants do it in about 18, says Harbour Consulting Inc. in Troy, Mich.”3

Lean’s impact can be found in other operational performance indicators such as warranty costs. For most companies warranty has become a large drain on profits but not for the Japanese automobile companies. “Japanese warranty costs per new car sold may be less than $75 per car. The Big Three on average pay an average warranty cost of over $500 per new car.”4 GM and Ford’s cost structure (labor, material, medical and pensions) are crippling their ability to make money.

Another company that has done a magnificent job in controlling their production costs through Lean is Dell. “Dell dispels the myth that you have to be an automobile company in order to implement Lean. Dell’s JIT and lean production processes allowed it to wring out a half billion dollars out of manufacturing costs in 2002.” 5

“The Aberdeen Group based out of Boston, Massachusetts commissioned a Lean Strategies Benchmark Report they found that the top five market factors for adopting Lean strategies all point to manufacturers using Lean programs to help boost profit in the face of price concession and increased customer service demands. Those manufacturers that fully embrace Lean programs and stick to the journey reap the rewards; the number of best-in-class performers triples when Lean programs extend beyond two years.” 6

Lean’s Impact on Distribution
Many companies are now applying Lean concepts to distribution. The focus is applying the Lean Tools to inventory, material handling (receiving, put away, pick, pack and ship process), freight, forecasting and eliminating the non-value added activities from these processes.

There are two schools of thought on applying Lean tools to distribution. The first is to automate and use new technologies to Lean out our processes (RFID, GPS etc.). “Apple and Wal-Mart have streamlined the Global Distribution model. The model is to reduce contact time, reduce time to consumer and completely eliminate as much cost as possible. The ideal solution is direct from source to consumer.”7 The use of RFID tags has reduced out-of-stock merchandise by 16 percent at the company’s stores that have begun to use the technology over the past 12 months, said Linda Dillman, Wal-Mart’s chief information officer, at the company’s annual analyst meeting. Walk into an Apple retail store and purchase an item. An Apple representative will take your transaction via a handset (versus a cash register) and offer to e-mail you your receipt.

Another school of thought is to strip out all automation and simplify the process. An example of this lean concept adopted by Menlo Worldwide is described in the article “The Skinny on Lean.”

Conclusion
Many companies are implementing the Lean process and are seeing great results. Continuously improving or refining a process for some can be tedious. Management in many organizations and their employees in the West are starting to see what the Japanese understand and that is a major investment is not needed to improve a company’s performance. The beauty of Lean lies in its simplicity. Lean is a “culture change” and companies have to be willing to adapt this process in order to be successful. Lean is another step in the journey of excellence!

 

To learn more about how to make lean work for your company, make plans to attend the ProMat 2007 Keynote Forum: Three Roads, One Destination: The Journey to Becoming a World Class Company detailing the success stories of Lean Leaders.

About the Author
Patrick Penfield teaches Supply Chain Management and is the Director of Supply Chain Executive Management Programs at the Whitman School of Management, Syracuse University. He can be reached at 315-443-3428 or via e-mail at Pcpenfie@syr.edu.

Footnotes
1 J. Liker, The Toyota Way, (New York: McGraw-Hill, 2004)
2 J.Womack and D.Jones, Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Revised and Updated (New York: Free Press, 2003).
3 Richard Allen, Manufacturing Engineering, June 2001
4 Business Week Online – February 13, 2006
5 J.Womack and D.Jones, Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Revised and Updated (New York: Free Press, 2003).
6 http: www.accessgroupllc.com – accessgroupllc-Aberdeen_LeanBestPractices_Study.pdf.url
7 K. Zylstra, Lean Distribution, (New Jersey, Wiley Publications,2005)