Operation management

1. Module 4 – Lean Management
Dr. M. Ramkumar
Assistant Professor
Indian Institute of Management Raipur

2. Agenda for Module 4
• What is the philosophy of lean management?
• What are the structural and planning elements required for a lean manufacturing
system?
• What is the difference between push scheduling and pull scheduling methodologies?
• How is Kanban used as a production planning and control tool in just-in-time
systems?
• What are the elements of continuous improvement process?
• How one can create a context for continuous improvement of operations in an
organization?
• What are the tools available for continuous improvement?
• How are the tools such as BPR and process mapping used for continuous
improvement?
• What is an appropriate organizational structure for implementing lean management?
What are the implementation challenges? What is the role of top management?

3. Origins of lean management
• Manufacturing process  turn of events in the history
• In the beginning of 20th century, Henry ford pioneered the mass production system
• Several OM tools developed during that time sought to promote the mass production philosophy
• During world war 2, flexibility was a key requirement, and this altered the manner in which OM
theory and practice developed.
• During the oil crisis, recession put new pressures on the manufacturing system and demanded
better methods of managing operations.
• Customers demanded better products at lower prices. They increasingly demanded more options,
along with the commitment to deliver the products and services faster.
• In response to these changing requirements, new principles of managing operations were
required.
• Managing the operations efficiently, developing alternative methods for quality management,
and creating responsive organizational structures – newer requirements
• Notably, the Japanese manufacturers developed a set of tools and techniques over a period of
two decades that addressed many of these requirements – lean management

4. Why Lean Management?
• The emerging situation points to one of improving productivity and
response time and cutting costs
• The automobile sector in the US and the global auto majors are facing severe
problems due to economic slowdown. General motors had lost $82 Billion
since 2004. GM announced $10 billion cost cut in July 2008 and additional $5
billion in November 2008.
• Due to mounting cost of crude and the competition in the civilian aerospace
market, Boeing and Airbus are working with a central theme of enhancing
efficiency and cost cutting
• In textile sector Indian companies suffer from long lead time, low productivity
and small sized plants compared to Chinese plants. Therefore, the Indian
textile industry was not able to benefit much from the multi-fibre agreement
that promotes free global trade in garment sector.

5. Lean Management
• Manufacturing and service organizations are required to understand
• how to develop better operational systems and deliver better quality
products and services
• using fewer resources
• To be competitive in the market organizations need to ensure less is
more productive
• Lean Management principles address these issues directly and
efficiently

6. Lean Management
Relevant terms
• Value added (VA): Activities are classified as value added as long as the
customer is willing to pay for that activity
• Non-value added (NVA): All those activities for which the customer may
not want to pay are classified as non-value added activities
• Necessary but non-value added (NNVA): the set of activities that are to be
eventually eliminated as and when better systems are developed in an
organization
• Waste: Any process or a set of activities that do not add value as perceived
by the customer
• Value stream: All activities that need to be performed (VA and NNVA) from
the time the customer order is received to the time the order is fulfilled will
make up the value stream
• Lean Management: Process by which continuous efforts of all concerned
parties enables an organization to create a channel for the value stream by
eliminating waste from the system

7. Comparison of two enterprises
Competitor A Competitor B
40 days of inventory 20 days of inventory
150 employees in factory 120 employees in factory
Layout – jobs travel 6km (raw material stage to
finished goods
Layout – jobs travelling less than 3 Km on the shop
floor
Inward goods inspection – 3 employees Direct in-line supply of materials by the suppliers

8. Common Sources of Waste
Category Manufacturing Organizations Service Organizations
Inventory
Related Waste
• Accumulating Inventory
• Waiting for material to work on
• Stock verification
• Counting the number of parts
• Temporary Storage
• Parts Shortage
• Overflowing “In Baskets”
• Duplication of work
• Too much of paper work
• Incomplete information leading to
pending decisions
Waste Due to
Processes
• Defects & Rework
• Machine Breakdowns
• Watching the machine run
• Payments not made on time
• Wrong service delivery (Service Failure)
• Proposals not completed on time for
the bid
• Customer Orders taking too long to be
filled
Waste Due to
Planning
• Looking for tools
• Carrying heavy pieces
• Transferring parts over long
distances
• Over Production & Double
Handling
• Complicated office layouts
• Poorly planned meetings
• Documents handled many times before
a decision is taken
• Extra signature needed that hold up
completion
• Teams with incomplete or no direction.

9. Just in Time Philosophy
Salient features
• The notion of waste in any operating system
• JIT as a philosophy of elimination of waste
• As a deliberate and a systematic attempt
• On a continuous basis

10. Lean Management
Processes & Outcomes
Total Quality Management
(TQM)
Just in Time (JIT)
Elimination of waste & creating a value stream for
products & services
• Manufacturing Architectural
Changes
• Set-up time Reduction
• Small Lot size processing
• Pull Scheduling
• Simplified Operation Control
(Kanban)
• Process Mapping, Non-value
added analysis
• Continuous Improvement
• Kaizen, Small Group
Improvement
• Benchmarking
• Quality Circles
Less is more Productive !
Accrued Benefit
Tools &
Techniques
Used
Basic Enabling
Mechanisms
Basic Premise

11. Just In Time Manufacturing
Water Flow Analogy
Unrealistic Variable Defective Poor
schedules Lack Processing Material Quality
of Times
training
Machine Inadequate Bottleneck
Breakdown Information
Behavioural/Managerial constraints

12. JIT Philosophy
Core Logic
Source: Schonberger, R..J. (1982), “Japanese Manufacturing Techniques: Nine hidden lessons in simplicity”, Free Press, pp 26.

13. JIT Philosophy
Overall Impact
JIT Logic JIT Overall Impact
 Withdraw buffer “deliberately”  Faster feedback on Quality
 Thereby expose hidden
problems in the system
 Quality Improvement
 Identify solutions to the
problems, implement and
attain smooth production rates
 Tightly linking preceding and
subsequent processes
 Repeat the above steps  Increased responsibility effects

14. JIT Manufacturing
Basic Elements
• Manufacturing system should conform to a flow process
• Total Quality Management to be deployed
• Kanban based scheduling
• Standard Containers
• Constantly eliminate waste
• Setup time reduction – Lot size reduction
• Inventory reduction – Removing Kanbans
• Quality improvement – Small group improvements
• Defect free supplies – Supplier collaborations

15. PUSH Scheduling
INVENTORIES
Quantity
Driven
Measurements
Push
Utilisation
Internal
Focus
High Fixed
Costs
Long Lead
Times
High
Demand
Forecast
INVENTORIES
Quantity
Driven
Measurements
Push
Utilisation
Internal
Focus
High Fixed
Costs
Long Lead
Times
High
Demand
Forecast
Quantity
Driven
Measurements
Push
Push
Utilisation
Internal
Focus
High Fixed
Costs
Long Lead
Times
High
Demand
Forecast
Forecast drives production

16. PULL Scheduling
Customer Order
Finished Goods
Flexibility
Profit Based
Measurement
PULL
External Focus
Faster
Response
Factory
Low
Demand
Customer triggers production

17. PUSH – PULL
Impact on the system
Issues to Consider Push Scheduling Pull Scheduling
Responsibility to
monitor
Scheduler/system People in
manufacturing
Flow control If all standards are met Always
Signal to build Schedule/system Visible - from customer
Inventory No limit – higher Limits – lower
Problems Can be hidden Exposed - creates
urgency
Communication
between Operations
By chance – operations
work on their orders
By necessity
React time:
Changes/problems
Through the system -
rescheduling required
Immediate - on-line
and visible
Visible indication of
problem
Inventory Production Stops
Shop floor control System, transactions,
paper work
Automatic, Visible &
Simple

18. Kanban as Planning Tool
Terminologies
• Preceding & Succeeding Processes
• In-bound & Outbound Buffers
• Design of Kanban System
• Types of Kanbans
• Production Order Kanban (P-Kanban)
• Conveyance Kanban (C-Kanban)
• Standard Containers
• Number of Kanbans
• Kanban Post

19. Kanban rules
Implications for PPC
Governing principles of Kanban
usage
Production Planning & Control
Implications
Subsequent process picks up as
indicated by Kanban
Provides pick up or transport
information
Preceding process produces as
indicated by Kanban
Provides production information
No production at a work centre or
movement of material between
processes without Kanban
Prevents over production & excess
transport
Always attach Kanbans to goods Serves as a Work Order
Defects not sent at all Prevents defective products by
identifying the process
Reducing the number of Kanbans is
the long term focus
Exposes problems, Reduces
inventory, Eliminates waste from the
system

20. Determination of Number of Kanbans
Demand rate = D
Number of Kanbans = K
Production lead time = P
Conveyance lead time = C
Safety factor = 
Container size = Q
Since the total lead time is the sum of
production and conveyance lead times,
Number of Kanbans
Q
C
P
D
K
)
1
(
*
)
( 



Q
C
D
Kc
)
1
(
*
)
( 


Q
P
D
K p
)
1
(
*
)
( 


Number of C-Kanbans:
Number of P-Kanbans:

21. Problem:
Consider a JIT manufacturing with a dual-card Kanban system
for production system. The daily demand for a component is
19,200. The plant works on a single shift basis. The convenance
time and the processing time for the components are
estimated to be 30 minutes and 45 minutes. Assume a safety
factor of 10 percent. If the standard container for the item can
hold 240 items,
1. determine the number of kanbans required
2. what is the effective level protection provided for the
conveyance and the production process in the system?

22. Continuous Improvement
• Continuous improvement
• Refers to constant and positive change in the working conditions in an
operating system
• Leading to better performance evident from key performance measures
• Typical examples of such improvements
• Increase in production with no addition of capacity,
• Elimination of manpower even when production levels go up
• No appreciable increase in cost of production even when the volume drops
• Increase in the velocity of various business processes without any addition
of new capacity or technology
• Significant reduction in defects
• Rework and inventory investments when the production rates go up
• An overall increase in the productivity

23. Continuous Improvement Process
A framework
Create a context for
continuous
improvement
Set up a measurement
methodology for assessing
the quantum of
improvement
Equip the employees
with tools & techniques
for continuous
improvement
Create appropriate
organisational structures
for continuous
improvement
Closely monitor and
recognise the benefits
accrued from
improvements
Continuous
Improvement
Cycle

24. Continuous Improvement
Tools & Techniques
• Process Mapping
• A tool to understand various steps involved in performing a business process
• Non-Value Added (NVA) Analysis
• A method by which the relevance of some of the existing activities are
questioned
• Business Process Engineering (BPR)
• Fundamental rethinking and radical redesign of processes
• Kaizen Initiatives
• Setup time reduction through SMED
• QC Tools

25. Kaizen or 5S
• Kaizen literally means, “change for the better”, it implies making continuous
improvement in a structured manner
• STEP 1 – SEIRI or Sort: Deals with the contents of a workplace, & removes all items that are
not needed there
• STEP 2 – SEITON or Set in Order: Refers to "a place for everything, & everything in its place"
to enable easy access
• STEP 3 - SEISO or Scrub: Refers not just to cleaning but making sure that the workplace is
organized and kept in good condition, so that employees can be proud
• STEP 4 – SEIKETSU or Standardize: Refers to having standards that everyone has to adhere
to. Visual management is an important aspect to facilitate easy understanding of these
standards.
• STEP 5 – SHITSUKI or Sustain: Refers to training all employees to ensure 5S application

26. Organisation for Continuous Improvement
• Task force for continuous improvement
• Quality Circles
• Small Group Improvement Activity (SGIA) Projects

27. Continuous Process Improvement
Using SGIA Projects
Product/
Service
Identified
Set the scope
Measure
current status
Map at overall
Level; Identify
detailed projects
Project 1 Project 2 Project 3 Project N
. . .
Explore and Implement improvements for each project

28. Lean Management
Organizational Challenges
• Implementation Difficulties
• Clarity of purpose, execution strategy
• Cultural & Human Issues
• Resistance to Change
• Incentive & Rewards Systems
• Tangibility of Improvements
• Addressing change management issues
• Critical role of top management