Operation Management 10-006-1170
Lean Production System: Theories and Applications

Introduction

In the recent decades, it is witnessed that the business environment is becoming more and more competitive. This is particularly true in China, where the various multinational firms are competing to gain market share in the fastest growing emerging country in the world. The local companies in China are facing huge and tremendous pressure to restructure or to redefine their strategic direction in order to survive and thrive in the new competitive economic and business environment. In this paper, a local canned food manufacturing company in China will be used as the example to compare its existing operation management practices to the modern operation management theories developed in the Western world. A review of the existing weaknesses in the company will be performed and relevant strategies, recommendations and action plans will be provided to assist the management in the company to improve the operational management practices, policies and strategies in the future.

Background of the Company

AnnJoo Canned Food Manufacturing Plant (“AnnJoo”) is a manufacturing plant that started its business since 1982. The manufacturing plant is located in Tianjin. The company manufactures various types of canned food. However, the main product of the company is to produce canned sardine fishes for the consumption of the local market. Currently, the manufacturing plant is still small and growing steadily. The company has a total of 50 staffs including senior management and supervisors. AnnJoo management is ambitious and has several plans to grow the company, despite the challenging environment in China. However, despite the revenue is growing, the company has only been breaking even in terms of the company financial performance. It is found that such a problem occur because the operational management in the company is outdated and inefficient. It is believed that a lot of wastages occur in the manufacturing plant because there is no proper process flow of wastage control system in the company. All these wastages are costing the company a great deal of financial resources, in which if they are eliminated, can means a meaningful return to shareholders.

Problem Statement

There are various operational related issues found in AnnJoo. The main reason causing all of these problems to occur in the organization is because the manufacturing plant is operating on the traditional Chinese management style, in which many of the operational process, practices, policies and standards are purely dependent on the decision of supervisor on an ad hoc basis. In fact, it is found that the manufacturing plant has virtually no standard practices or policies in handling the many operational issues. Although the supervisors and the management are indeed knowledgeable and are highly hand-on in handling the daily operational issues, they are currently facing critical issues due to high wastages occurring in the manufacturing process. As the revenue grows higher, the orders from the customers are increasing, and the management soon found out that without a proper system in work, they are indeed working on a fire-fighting basis. The production process in the company become too messy and without a proper system in work, many of the issues occurring in the company cannot be solved in a proactive or preventive manner. This is causing the management to become responsive to the problems occurring in the organization. One of the most serious issues found is that the production process incurs a lot of wastages. The organization is currently requiring new operational management philosophy in eliminating the various wastes occurring in the production process. Apart from that, the management is also seeking for a new operational management philosophy to enable the company to solve any issues on a proactive manner and apply preventive measures to guide the operational process in the company. In short, it is the management imperative in the organization to eliminate all sorts of wastes occurring in the production process and to find ways to handle the issues on a preventive and proactive manner in the future.

Literature Review

Lean Production System

It is widely discussed and argue that in future will be an ear of economic turbulence where the business environment will becoming more competitive, while the slowdown in many of the Western countries in GDP growth rate will surely dampen the economic activities around the world. If many of the macroeconomic issues cannot be solved, businesses may face issues such as a reduction in sales volume, lower purchasing power from consumers in the Western countries, intensify of pricing competition, and even forced to involve in industry consolidation exercises to achieve economies of scale for cost saving purposes. It is thus argued by some researchers that no production company can achieve real success without employing lean production methods in the business process flow (Davis et. al., 2005). To begin, the lean production system or process is suggested firstly by Taiichi Ohno, whereby to create a successful, competitive and modern material flow is management imperatives in the next decades (Chase et. al., 2005). There are several concepts associated with the lean production system in a company. These concepts will be discussed as follow.

Discovery and Elimination of Wastages in organization

To become a lean company, it is management imperative to have preventive and proactive measure to eliminate waste. If such a step is being ignore, various negative development in the production process may occur. Thus, it is critical that any lean organization to have a systematic approach in elimination of waste in the production process (Heizer & Render, 2006).

Poka Yoke

The Poka Yoke method is an error-prevention strategy. Such a philosophy stresses the idea where the design of a process until it is impossible for errors to happen; and if errors do happen, they are eliminated immediately (Chase et. al., 2005). In the production process, error prevention devices can be designed so that errors cannot be made. It is very common that such devices can operate by detection with modern sensor technologies (Heizer & Render, 2006).

Just-in-Time

Just-in-time is a supply chain management concept, where it demands the supply of material at the right time, of the right quality and quantity to the right location. It is important to ensure that all of these elements must be ‘right’ so that the production flows can be optimized in a holistic manner. Through such a concept, many manufacturing companies, particular in the automobile industry, able to eliminate wastes in the production process while at the similar time enhancing the quality of the end products (Heizer & Render, 2006).

Kaizen

Kaizen is the concept of continuous improvement, and it is often employed in the management of production process. Such a philosophy stresses continuous improvement because it is through such consistency that an organization able to achieve competitive advantage in the competitive business landscape (Heizer & Render, 2006).

Waste in Manufacturing Process

Generally speaking, it is widely agreed by researchers that those activities that do not add value to the production process is considered as waste. To ensure efficiency in any production or manufacturing process, it is important for the management to ferret out all sorts of waste and then to eliminate these waste accordingly. Toyota is a leading company in the world in waste elimination. Accordingly, there are seven types of waste that can occur in a manufacturing process (Chase et. al., 2005).

Waste of Overproduction

Overproduction issue happen when more end products are being produced than the quantity stated in the production plan, or when the products are produced faster than it was planned. When that is happening, the storage places are taken up, and products that are piled in the warehouses may be damages by many unforeseen circumstances. Besides, the opportunity costs of having a warehouse to store the products can be considered as a waste in the organization as well (Chase et. al., 2005).

Waste of Waiting

Waiting time can be considered as a form of waste. It can be either visible or not. The visible waste in waiting time is the time where the workers have to stop down to wait for something in the process flow to be done. In contrast, the hidden waste in waiting time is happening when there are difficulties in operating a particular production process, waiting time incurred due to machinery break down, damages on materials, the time required to perform machine set-up, change of new devices, or maintenance of machineries (Heizer & Render, 2006).

Waste of Transport

Waste of transport is the waste incurred in the logistic related issues. For example, such waste may be incurred when the transportation is excessively long, there are too many intersecting transportation paths, the costs due to temporary storage, the time required in loading or unloading of goods, raw materials or end products, and the unnecessary equipments used for transportation purposes (Heizer & Render, 2006).

Waste of Inappropriate Processing

Waste of irrelevant processing is a result of a badly planned production process of the product. Thus, the product does not fulfill the requirements and has to be reworked. In some cases, where rework is impossible, the product may become useless (Chase et. al., 2005). The various causes due to waste of irrelevant processing can be investigated by using the fishbone diagram. Waste of irrelevant processing can be prevented by a detail and in-depth analysis on the process flow and application of the continuous improvement concept in the production process (Heizer & Render, 2006; Stevenson, 2007).

Waste of Unnecessary Inventory

Waste of unnecessary inventory is related to waste of overproduction. Similar to the situation in overproduction, if the final products produced are too large in terms of quantities, it can lead to the waste of unnecessary inventory. Costs upon exit from the warehouse include costs required in purchasing raw material and products, order-launch related costs and inventory storage costs. High costs are therefore caused by the need for extra storage and researcher is speculating that it can amount up to 20% of the product revenue (Chase et. al., 2005). Waste of unnecessary inventory can be mitigated by properly investigating and adopting the optimal, maximum and minimum inventory level, as well as specifying the exact time when the ordered quantity should reach at the warehouse (Stevenson, 2007).

Waste of Unnecessary Motion

Waste of unnecessary motion can be obvious if management observe the workers’ actions in holding, depositing or handling of production process or products. For example, very often, workers can be found to sit by the conveyor belts and put together parts in order to make the final product. The main cause for waste of unnecessary motion is very often the sitting work of workers, that will reduce workers’ moving area and limits mutual help of workers (Davis et. al., 2005).

Waste of Manufacturing Defects

Waste of manufacturing defects happens on site where half-manufactured products accumulate and therefore incurring intermediate storage costs (Stevenson, 2007). In a lean manufacturing process, it is possible to eliminate waste of manufacturing defects by instructing the workers to control the workplace, product and circumstances. To explain, the worker who produces a particular part should be granted the duties or responsibilities in supervising how this particular part was manufactured at the previous stage in the process flow. Besides, to mitigate the waste due to defects, any worker who has just finished a particular part should check it immediately to prevent the defects from propagating to the next few stages in the production process (Davis et. al., 2005).

Recommendations

Adopting New Management Philosophy

To solve the various operational problems in AnnJoo, the company management needs to adopt a few new concept or philosophy, and then to incorporate such ideas into design, execution and control of the production process in the company. Firstly the company should have awareness in realizing the importance of waster discovery and elimination process. It is management imperative to start ferreting out the possible causes of waste and then to solve those issues. Management no longer can just perform their daily tasks in the traditional methods. Instead, they should take proactive actions to streamline the operational process in the organization. Currently, there is no proper operational process in the organization. It is important that such a streamlined process flow be formulated and documented.

Besides, the Poka Yoke method is planning, running, executing and controlling the process flow should be performed as well. Various error prevention strategies should be implemented. The various possible actions taken according to the Poka Yoke philosophy can be outlined by referring to the process flow of leading Japanese manufacturing companies. In fact, there are many consultants available in the market on the subject. It is useful for the organization to employ external consultants that are qualified to handle the quality issues in the process as currently; none of the existing management in the organization has such kind of expertise.

Implementation of Just-in-time methodology can be effective in eliminate wastage while at the similar time enhancing the product quality of the organization. Similar to the case above, JIT is a huge concept and the implementation of such a system in the organization will require some time. Besides, as the management has little knowledge on the subject, it may be useful for them to seek the help from external consultants to restructure their organizational process, while at the same time, to provide third party opinions to the company.

Last but not least, the final piece of philosophy to be incorporated into the management thinking process is the need for continuous improvement, or namely, kaizen. Through such an idea, the management will not be satisfy with the status quo, but rather, keep thinking on how to further improve the operational process in the organization.

Elimination of Waste in the Company

There are many wastes occurring in the organization. From a comprehensive review of the operational process in the company, there are three types of wastes most prevalent in the production process. The recommendations on solving such wastes in the organization are presented in section below.

Waste of Overproduction

It is observed one of the factors contributing to high wastage in the company is overproduction. As the company overproduce, the storage cost is increased. Thus, the management has been renting unnecessary storage places or warehouses to stock the products. Thus, a new method to control and optimize the production volume is required. For example, workers should be prevented from continuously engage in the production process when the inventory or final products is sufficient. They are better to directed to perform other job function such as elimination of waste in the company. Not only that, the arrival of raw materials should be controlled as well. The reason is that when the raw materials are piling up, management is forced to take these raw materials and proceed with the production process, even though that the stock is sufficient and abundant. Thus, it is crucial for the management to implement JIT system; as such system can prevent the situation of overproduction.

Waste of Unnecessary Inventory

It is found that the company builds up a lot of inventory in the process. Some of these inventories are semi-processed. Thus, it is then not surprising that the defects in end products or the work-in-progress inventories are high, where the company is then required to disburse such defected items with a loss. Thus, the implementation of a JIT system is truly essential, so that the entire process flow can be streamlined and the situation of stocking up of work-in-progress can be prevented. It is also acknowledged by the management in the organization that when the work-in-progress inventories are piling up, defects can happen due to the change of weather condition, the increasing rate of accidents in the workplace, and the threats from pests such as mice and flies.

Waste of Manufacturing Defects

It is also discover that there are a lot of manufacturing defects occurring in the production process. It is estimated that around 2% of the goods produced suffer from defects and must be disposed off. To handle such a problem, it is important for the management to understand the impacts and effectiveness of being right the first time. Thus, quality control or defects mitigation objectives can only be achieved by taking preventive and proactive measures in the early stages of the production process. First of all, the management must have a new awareness on how the inefficient process flow contributes to the high defect level in the organization. The design and control of the process flow should follow the JIT system, and with the kaizen approach, to continuously improve the process so that the defects are minimized.

Conclusion

“Waste” is those activities that do not add value or worse, destroy value in an organization (Davis et. al., 2005). As discussed above, there are seven categories of waste. By understanding where the possible process in which the waste occurs is, a company can then implement plans or control system to eliminate it. This is critically important for organization such as AnnJoo. With such a mindset, the productivity of the workforce (and the organization) will increase. At the similar time the amount of defects will be reduced. This will in turn causing the moral of employees will rise, as they will be able to significantly contribute to better and tidier work. It is useful to mention that management and designers of new products, production process planners and toolmakers have an important role in the company. To formulate and continuous improving the operation processes in a firm so that the process is optimized is crucial. Currently, elimination of waste in the company is the most important strategy for the firm to secure its profitability and financial resources in the future.

Acknowledgement

I wish to express my acknowledgement to the management team of AnnJoo for allowing me to investigate the operational issues in the organization. They have provided me great details on the issues that the company is facing right now. Besides, I also wish to thank my good friend, Mr. Soo for networking and assisting me to persuade his father (i.e., the Chief Financial Officer of AnnJoo) to allow me to have access to the management team in AnnJoo. Without their help, it is impossible for me to complete such an assignment.

References

Chase, R. B., Aquilano, N. J., and Jacobs, F. R. (2005). Production and operations management:  manufacturing and services.  Boston, MASS.:  Irwin/McGraw-Hill.

Davis, M. M., Aquilano, N. J., and Chase, R. B. (2000). Fundamentals of operations management. Boston, MASS.: Irwin/ McGraw-Hill.

Gaither, N., and Frazier, G. (1999). Production and operations management.  Cincinnati, OH: South-Western.

Heizer, J. H., and Render, B. (2006). Operations management. Upper Saddle River, N.J.: Prentice Hall.

Krajewski, L. J., and Ritzman, L. P. (2008). Operations management: strategy and analysis. Reading, MASS.: Addison Wesley.

Markland, R. E., Vickery, S. K., and Davis, R. A. (2001). Operations management: concepts in manufacturing and services.  Cincinnati, OH:  South- Western College Pub.

Montana, P. J., and Charnov, B. H. (2000). Management. Barron’s, New York, USA.

Stevenson, W. J. (2007). Production/operations management. Boston, MASS.: Irwin/ McGraw-Hill.

 

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