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BKAM3063 OPERATION AND PROJECT MANAGEMENT
Manufacturing Resource Planning (MRP II)
Introduction
Manufacturing resource planning (MRP II) is a method of planning each and every resource
in an organization particularly in manufacturing company. It is an incorporated method of
operational planning in units, financial planning for the organization. It serves as an extension
to MRP (Material Requirement Planning). It’s not fundamentally software, for managing it
we require people’s skills, then a commitment to database reliability and accuracy. It’s all
about total organization concept for using human resource and company resources more
efficiently and effectively. Material requirements planning (MRP) and manufacturing
resource planning (MRPII) are predecessors of enterprise resource planning (ERP), a
business information integration system.
Material requirements planning (MRP) and manufacturing resource planning (MRP II) are
both incremental information integration business process strategies that are implemented
using hardware and modular software applications linked to a central database that stores and
delivers business data and information.
MRP is concerned primarily with manufacturing materials while MRP II is concerned with
the coordination of the entire manufacturing production, including materials, finance, and
human relations. The goal of MRP II is to provide consistent data to all players in the
manufacturing process as the product moves through the production line.
Paper-based information systems and non-integrated computer systems that provide paper or
disk outputs result in many information errors, including missing data, redundant
data, numerical errors that result from being incorrectly keyed into the system, incorrect
calculations based on numerical errors, and bad decisions based on incorrect or old data. In
addition, some data is unreliable in non-integrated systems because the same data is
categorized differently in the individual databases used by different functional areas.
MRP II systems begin with MRP, material requirements planning. MRP allows for the input
of sales forecasts from sales and marketing. These forecasts determine the raw materials
demand. MRP and MRP II systems draw on a master production schedule, the breakdown of
specific plans for each product on a line. While MRP allows for the coordination of raw
materials purchasing, MRP II facilitates the development of a detailed production schedule
that accounts for machine and labor capacity, scheduling the production runs according to the
arrival of materials. An MRP II output is a final labor and machine schedule. Data about
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the cost of production, including machine time, labor time and materials used, as well as final
production numbers, is provided from the MRP II system to accounting and finance.
How MRP II works?
The technology of MRP expended in 1980 to create new approach called Manufacturing
resource planning or MRP II. In manufacturing resource planning (MRP II) the valid
production schedule proved itself to be so successful that organization knows that resources
could be better controlled and planned with valid schedules. In the book of Production
Planning and controlling writer Gordon Minty noted that: “By the improvement in cash flow
projections, personal management projections and customer delivery commitments the main
areas affected were marketing, personnel and finance”.
With master production schedule MRP II facilitates the improvement of detailed production
schedule used for machine and labor capacity, provide schedule when the production is to run
according to the arrival of materials. It provides the data for the cost of production including
labor time, material used and machine time, also MRP II provides final production numbers
to finance and accounting department.
MRP II is too beyond from MRP. When MRP stopped receiving the dock, MRP II includes
the flow of value all the way to the shipping dock through the manufacturing facility where
the product is first packaged and then dispatched to the final customer. The stream value
includes Machine capacity scheduling, planning, analysis modules, demand forecasting and
quality tracking tools. MRP II come up with some tools for tracking labor contribution
margin, employee attendance.
MRP II maintains track of functions and specific characteristics of the entire organization.
Example includes, but it is not just limited to, the following:
Product specification
Quality control
Product design
Quality assurance
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Order management
Shop floor control
Inventory
Purchasing
Cost calculation
General accounting
Cost reporting
Tax calculation
Cash flow
Tax payment
MRP II helps business to standardize their processes by providing them mechanized methods
for different areas of the business. Standardization provides easily repeated process and a
platform which helps to improve those processes. Implementing MRP II by the company for
the first time is generally having problems in controlling the increasing transactions in
manufacturing, purchasing associated with the growth. MRP II enables employees to do more
in those business areas and have better visibility of the information for their jobs. MRP II
allows being more competitive to the company by improving in the way works get done.
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Advantages of MRP II
Better control of Inventories
Productive relationship with
Better quality and also control quality
Improve design control
Improve cash flow through fast delivery
Accurate inventory records
Reduced working capital for inventories
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Disadvantages of MRP II
Once implemented MRP II it will require accurate information. Errors will result in
automated planning process if the information is used in poor quality in either the bill of
material module or the inventory area. To manufacture or purchase the planning part use
averages for length of time (lead time), and on purchase order or manufactured quantities that
is generally purchase on work order (lot sizes). If the actual lot sizes produced or purchased
and lead times fluctuates consistently then the software will not be able to produce plans that
match with current scenario. Lack of understanding and poor information of then impact on
average lead times and lot sizes can cause execution failure and costly reimplementation.
Enterprise Resources Planning (ERP)
Introduction
Enterprise resource planning is business management software integrates all the internal and
external information, in to single complete solution, which is used by the organization. An
ERP solution includes for the organization the practical system which they use for their
business to manage the basic commercial functions, such as, inventory, management,
planning, manufacturing, purchasing, accounting, human resources, finance, sales, services
and marketing etc. the purpose of ERP is to drive the information flow between all internal
business and manage connection with outside stakeholders. ERP is the solution that addresses
the enterprise needs taking the process view of an organization to meet the organizational
goals tightly integrating all functions of an enterprise.
How ERP works?
1. To Enhance Profitability:
a) Increase in sales
b) Reduce Procurement Cost
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2. For Healthy Operations:
a) Integration of Systems across the Functional Departments in a Company as
well as across the Enterprise as a Whole.
b) Better Customer Service.
c) Introduction of Latest Technologies as and when the are ready for the
Industry acceptance
d) Expertise database
e) Avoids data redundancy
3. Competition in the Market:
a) Manufacturing Challenges.
b) Manufacturing Globally.
c) Distribution network spread.
d) New Product introduction.
e) Lower manufacturing lead time.
f) Focus on industry markets.
g) Satisfying the needs of customers.
h) Develop specific business methods and processes.
i) Integration with third party products.
4. Demands on the Industry:
a) Better products at lower costs
b) Tough competition
c) Need to analyze costs / revenues on a product or customer basis
d) Flexibility to respond to changing business requirements
e) More informed management decision making
5. Solving the Problems:
a) Unable to get accurate, timely information
b) Applications not complete for existing business practices
c) Modifications are time consuming or not feasible
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Advantages of ERP
1. Business Integration: The first and most important advantage lies in the promotion of
integration. The reason why ERP packages are considered to the integrated, is the automatic
data updating (automatic data exchange among applications) that is possible among the
related business components.
Since conventional company information systems were aimed at the optimization of
independent business functions in business units, almost all were weak in terms of the
communication and integration of information that transcended the different business
functions.
In the case of large companies in particular, the timing of system construction and directives
differs for each product and department/ function and sometimes, they are disconnected. For
this reason, it has become an obstacle in the shift to new product and business classification.
In the case of ERP packages, the data of related business functions is also automatically
updated at the time a transaction occurs. For this reason, one is able to grasp business details
in real time, and carry out various types of management decisions in a timely manner, based
on that information.
2. Flexibility: The second advantage of the ERP packages is their flexibility. Different
languages, currencies, accounting standards and so on can be covered in one system, and
functions that comprehensively manage multiple locations of a company can be packaged and
implemented automatically. To cope with company globalization and system unification, this
flexibility is essential and one can say that it has major advantages, not simply for
development and maintenance, but also in terms of management.
3. Better Analysis and planning Capabilities: Yet another advantage is the boost to the
planning functions. By enabling the comprehensive and unified management of related
business and its data, it becomes possible to fully utilize many types of decision support
systems and simulation functions. Furthermore, since it becomes possible to carry out,
flexible and in real time, the filing and analysis of data from a variety of dimensions, one is
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able to give the decision-makers the information they want; thus enabling them to make
better and informed decisions.
4. Use of Latest Technology: the fourth advantage is the utilization of the latest development
in information Technology (IT). The ERP vendors were quick to realize that in order to grow
and to sustain that growth; they had to embrace the latest developments in the field of
information technology. Therefore, they quickly adapted their systems to take advantage of
the latest technologies like open systems, client/ server technology, Internet/Intranet, CALS
(Computer- Aided Acquisition and Logistics Support), electronic-commerce, etc.
It is this quick adaptation to the latest changes in the Information Technology that makes the
flexible adaptation to changes in future business environments possible. It is this flexibility
that makes the incorporation of the latest technology possible during system customization,
maintenance and expansion phases.
Disadvantages of ERP
The scope of customization is limited in several circumstances
The present business processes have to be rethought to make them synchronize with
the ERP
ERP systems can be extremely expensive to implement
There could be lack of continuous technical support
ERP systems may be too rigid for specific organizations that are either new or want to
move in a new direction in the near future
Takes time to implement
Security issues
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Optimized Production Technology (OPT)
Introduction
By identifying the location of constraints, working to remove them, then looking for the next
constraint, an operation is always focusing on the part that critically determines the pace of
output. The approach which uses this idea is called optimized production technology
(OPT). Its development and the marketing of it as a proprietary software product were
originated by Eliyahu Goldratt. OPT is a computer-based technique and tool which helps to
schedule production systems to the pace dictated by the most heavily loaded resources, that
is, bottlenecks. If the rate of activity in any part of the system exceeds that of the bottleneck,
then items are being produced that cannot be used. If the rate of working falls below the pace
at the bottleneck, then the entire system is under-utilized.
Principles underlying OPT
There are principles underlying OPT which demonstrate this focus on bottlenecks:
1. Balance flow, not capacity. It is more important to reduce throughput time rather than
achieving a notional capacity balance between stages or processes.
2. The level of utilization of a non-bottleneck is determined by some other constraint in the
system, not by its own capacity. This applies to stages in a process, processes in an operation,
and operations in a supply network.
3. Utilization and activation of a resource are not the same. According to the TOC a resource
is being utilized only if it contributes to the entire process or operation creating more output.
A process or stage can be activated in the sense that it is working, but it may only be creating
stock or performing other non-value-added activity.
4. An hour lost (not used) at a bottleneck is an hour lost for ever out of the entire system. The
bottleneck limits the output from the entire process or operation, therefore the under-
utilization of a bottleneck affects the entire process or operation.
5. An hour saved at a non-bottleneck is a mirage. Non-bottlenecks have spare capacity
anyway. Why bother making them even less utilized?
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6. Bottlenecks govern both throughput and inventory in the system. If bottlenecks govern
flow, then they govern throughput time, which in turn governs inventory.
7. You do not have to transfer batches in the same quantities as you produce them. Flow will
probably be improved by dividing large production batches into smaller ones for moving
through a process.
8. The size of the process batch should be variable, not fixed. Again, from the EBQ model,
the circumstances that control batch size may vary between different products.
9. Fluctuations in connected and sequence-dependent processes add to each other rather than
averaging out. So, if two parallel processes or stages are capable of a particular average
output rate, in parallel, they will never be able to achieve the same average output rate.
10. Schedules should be established by looking at all constraints simultaneously. Because of
bottlenecks and constraints within complex systems, it is difficult to work out schedules
according to a simple system of rules. Rather, all constraints need to be considered together.
OPT uses the terminology of ‘drum, buffer, rope’ to explain its planning and control
approach. The bottleneck work centre becomes a ‘drum’, beating the pace for the rest of the
factory. This ‘drum beat’ determines the schedules in non-bottleneck areas, pulling through
work (the rope) in line with the bottleneck capacity, not the capacity of the work centre. A
bottleneck should never be allowed to be working at less than full capacity; therefore,
inventory buffers should be placed before it to ensure that it never runs out of work.
Advantages of OPT
Quickly targets areas of concern (bottlenecks, quality set up times, high inventories).
Incorporates some production and MRP.
Quick results.
Gives financial feedback.
Suitable for discrete, batch and process industries.
Possible to grow into via partial implementation at a practical level.
Easily understood by the shop floor.
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Disadvantages of OPT
Challenges traditional cost accounting.
Requires simulation modelling of the process.
Needs good database.
Lean Production
Introduction
Lean production is an assembly-line methodology developed originally for Toyota and the
manufacturing of automobiles. It is also known as the Toyota Production System or just-in-
time production. Lean production pioneer Engineer Taiichi Ohno is credited with developing
the principles of lean production after World War II. His philosophy, which focused on
eliminating waste and empowering workers, reduced inventory and improved productivity.
Instead of maintaining resources in anticipation of what might be required for future
manufacturing, as Henry Ford did with his production line, the management team at Toyota
built partnerships with suppliers. In effect, under the direction of Engineer Ohno, Toyota
automobiles became made-to-order. By maximizing the use of multi-skilled employees, the
company was able to flatten their management structure and focus resources in a flexible
manner. Because the company was able make changes quickly, they were often able to
respond faster to market demands than their competitors could. They are also referred to as
lean management or lean thinking. Many industries, including software development, have
adopted the principles of lean production. The ten rules of lean production can be
summarized:
1. Eliminate waste
2. Minimize inventory
3. Maximize flow
4. Pull production from customer demand
5. Meet customer requirements
6. Do it right the first time
7. Empower workers
8. Design for rapid changeover
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9. Partner with suppliers
10. Create a culture of continuous improvement
Lean manufacturing or lean production, often simply "lean", is a systematic method for the
elimination of waste ("Muda") within a manufacturing system. Lean also takes into account
waste created through overburden ("Muri") and waste created through unevenness in work
loads ("Mura"). Working from the perspective of the client who consumes a product or
service, "value" is any action or process that a customer would be willing to pay for.
Lean implementation is therefore focused on getting the right things to the right place at the
right time in the right quantity to achieve perfect work flow, while minimizing waste and
being flexible and able to change. These concepts of flexibility and change are principally
required to allow production leveling (Heijunka), using tools like SMED, but have their
analogues in other processes such as research and development (R&D). The flexibility and
ability to change are within bounds and not open-ended, and therefore often not expensive
capability requirements. More importantly, all of these concepts have to be understood,
appreciated, and embraced by the actual employees who build the products and therefore own
the processes that deliver the value. The cultural and managerial aspects of lean are possibly
more important than the actual tools or methodologies of production itself. There are many
examples of lean tool implementation without sustained benefit, and these are often blamed
on weak understanding of lean throughout the whole organization.
Lean aims to make the work simple enough to understand, do and manage. To achieve these
three goals at once there is a belief held by some that Toyota's mentoring process,(loosely
called Senpai and Kohai, which is Japanese for senior and junior), is one of the best ways to
foster lean thinking up and down the organizational structure. This is the process undertaken
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by Toyota as it helps its suppliers improve their own production. The closest equivalent to
Toyota's mentoring process is the concept of "Lean Sensei," which encourages companies,
organizations, and teams to seek outside, third-party experts, who can provide unbiased
advice and coaching, (see Womack et al., Lean Thinking
Lean services
Lean, as a concept or brand, has captured the imagination of many in different spheres of
activity.
Lean principles have been successfully applied to call center services to improve live agent
call handling. By combining Agent-assisted Automation and lean's waste reduction practices,
a company reduced handle time, reduced between agent variability, reduced accent barriers,
and attained near perfect process adherence.
Lean principles have also found application in software application development and
maintenance and other areas of information technology (IT). More generally, the use of lean
in information technology has become known as Lean IT.
A study conducted on behalf of the Scottish Executive, by Warwick University, in 2005/06
found that lean methods were applicable to the public sector, but that most results had been
achieved using a much more restricted range of techniques than lean provides.
A study completed in 2010 identified that lean was beginning to embed in Higher Education
in the UK (see Lean Higher Education). In addition, Bolton Hospitals NHS Trust published
an article reporting lower mortality rates after implementing Lean.
The challenge in moving lean to services is the lack of widely available reference
implementations to allow people to see how directly applying lean manufacturing tools and
practices can work and the impact it does have. This makes it more difficult to build the level
of belief seen as necessary for strong implementation. However, some research does relate
widely recognized examples of success in retail and even airlines to the underlying principles
of lean. Despite this, it remains the case that the direct manufacturing examples of
'techniques' or 'tools' need to be better 'translated' into a service context to support the more
prominent approaches of implementation, which has not yet received the level of work or
publicity that would give starting points for implementers. The upshot of this is that each
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implementation often 'feels its way' along as must the early industrial engineering practices of
Toyota. This places huge importance upon sponsorship to encourage and protect these
experimental developments.
Lean management is nowadays implemented also in non-manufacturing processes and
administrative processes. In non-manufacturing processes is still huge potential for
optimization and efficiency increase
The production‐line approach to service
It is important to appreciate the point in time in which Levitt first argued that service
businesses could benefit from adopting lean thinking. It was early in the 1970s. The service
sector had largely been ignored by management scholars, who were long accustomed to
basing their research and models of management on studies of manufacturing firms. This
made sense, because the economy had, to that point, been dominated by manufacturing
Besides focusing on people that make part of the transformation process, lean service also
focuses on the customer. Unlike manufacturing, the first contact for selling service is the
customer. The service company deals with the customer directly on the front line, differently
from most industries. According to Silvestro, there are three different categories in service
sector. First, professional service with high focus on people, contact time and process, as an
example of this category is a corporate bank. Second, service shops as hotel or rental service
with medium focus on customization and front office and back office; this category which
falls between professional and mass services with the levels of the classification dimensions
falling between the other two extremes. The last one is mass service with low attention to
equipment and customization, a great example is the transportation service.
There are two “service laws”: the first compares customers expectations with their
perceptions of service delivery - if the perceived service is better than the expectations, they
turnout to become happy customers. The second law states that the first impression can
influence the rest of the service consumption experience. Based on this statement, there are
two fundamental variables in the relationship of service delivery:
customers being the first, and
the employees who deliver the service.
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PRINCIPLES OF LEAN SERVICE
1. Solve the customer’s problem completely by insuring that all the goods and services work,
and work together.
2. Don’t waste the customer’s time.
3. Provide exactly what the customer wants.
4. Provide what’s wanted exactly where it’s wanted.
5. Provide what’s wanted where it’s wanted exactly when it’s wanted.
6. Continually aggregate solutions to reduce the customer’s time and hassle.
Criticism and Limitation of Lean Production
Introduction
Lean production is an assembly-line methodology developed originally for Toyota and the
manufacturing of automobiles. It is also known as the Toyota Production System or just-in-
time production.
Many industries, including software development, have adopted the principles of lean
production. The ten rules of lean production can be summarized:
1. Eliminate waste
2. Minimize inventory
3. Maximize flow
4. Pull production from customer demand
5. Meet customer requirements
6. Do it right the first time
7. Empower workers
8. Design for rapid changeover
9. Partner with suppliers
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10. Create a culture of continuous improvement
Limitation of Lean Production
1. Urban Congestion and Geographical Distance
During the 1970s, Nissan discovered that the Toyota practice of having suppliers make or
deliver components “just in time” to assembly lines several times a day, with deliveries
controlled by the physical exchange of production or parts delivery tickets (kanban cards),
did not work well in congested urban areas. As more and more Japanese factories in different
industries have adopted the Toyota practice, traffic worsened to the point where, in the 1990s,
the Japanese government mounted a media campaign encouraging companies to reduce the
frequency of their parts deliveries. Traffic congestion pollutes the environment and wastes
time while people are stranded in traffic and in manufacturing plants, waiting for components
to arrive.
Nissan’s plants have always been more dispersed than Toyota’s, so Nissan management was
convinced that it was indeed more practical and economical to keep a greater amount of
inventory on hand than Toyota did. Nissan did this even though it had adopted the practice in
the early 1950s, along with Toyota, of reducing unnecessary inventories to save on operating
expenses and catch mistakes that might be hidden or take too much time to identify if parts
were stored for weeks or months. Ultimately, Nissan reduced average inventories from a
month to a day or so, but not to the extreme of a couple of hours as Toyota did. Other
Japanese automakers in other parts of Japan encountered similar problems; traffic congestion
even in formerly rural areas like Toyoda City and Aichi Prefecture (where most of Toyota’s
suppliers are located) has forced companies to make JIT a bit less timely.
Similarly, with companies establishing plants in different areas of Japan to escape the
congestion and labor shortages in the major urban areas, the once-elegant kanban system,
requiring the physical exchange of production or delivery tickets (originally by workers
carrying kanban cards on their bicycles from station to station or carrying boxes of
components with the kanban cards attached), is no longer practical. Suppliers now need to
deliver larger loads, sometimes by ship to different islands in Japan or to North America,
Europe, or other parts of Asia. It is not practical to track or control the ordering of
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components simply by physically exchanging kanban cards or cards attached to boxes, just as
it is not practical to make and deliver very small batches of components.
Of course, the Japanese have not reverted completely to the former style of mass production.
In the old system, companies made and stored a month or more of components and controlled
production by inflexible schedules that “pushed” components into the system, regardless of
what was happening at individual production stations, and then tracked the production
process through real-time computer systems with inaccurate information. But the days when
even Toyota could operate in a highly predictable and geographically small area within Japan
are now over. Other companies, especially U.S. firms that made components in one state or
country and shipped them thousands of miles, also noticed this limitation of the Toyota
practice years ago, even though they benefited considerably, in productivity and quality, by
reducing unnecessary levels of inventory and reducing delivery times from suppliers.
2. The Shortage of Blue-Collar Workers
One of the brilliant contributions of Toyota managers such as Ohno Taiichi, inventor of the
kanban system and director of manufacturing operations at Toyota during its system’s
formative years from the 1950s through the 1970s, was to view automation with skepticism.
Automation, unless it was flexible (easily changed or reprogrammed to handle different
product models or variations, or volume fluctuations), introduced rigidity into production
processes and was not suitable for labor-intensive assembly operations. As a result, Toyota
introduced automated transfer machinery cautiously and used robots in modest numbers only
in the 1980s, after they had become programmable, reliable, and inexpensive compared to
human workers. Instead, Toyota relied mainly on well-trained workers and gave them broad
responsibilities, such as doing much of their own inspection, preventive maintenance, and
janitorial work. Line “rationalization” efforts started by Ohno after World War II also
ruthlessly eliminated “waste” from all assembly and production activities, until Toyota
became by far the most efficient automaker in the world, in terms of labor productivity.7
The incremental introduction of automated manufacturing systems meant that Toyota and
other Japanese automakers that followed its lead had to rely heavily, at least in part, on large
numbers of cooperative and skilled human workers. In turn, managers have asked the
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Japanese workers to work long hours in physically demanding production systems. The
Japanese plants have also been relatively flexible, primarily in terms of their ability to
produce a large variety of models in relatively small volumes, averaging around 100,000
units or less per year in the early 1990s, compared to around 200,000 units or more per year
per model for U.S. and European auto producers.
Today there are usually more factory jobs than there are young Japanese people willing to
take these jobs. The result has been intense competition for blue-collar workers, not only by
small suppliers but also by the assembly facilities of major companies. In addition, young
Japanese workers leave blue-collar jobs and, increasingly, even white-collar jobs, if they feel
overworked or unhappy for other reasons. For example, in the early 1990s, Toyota
encountered serious difficulties staffing its factories near Toyoda City because of the severe
shortage of blue-collar workers (women are still not permitted to work in most Japanese auto
assembly factories) and had employee turnover rates in its factories of approximately 30
percent annually, including the seasonal hiring of temporary workers. Although this is not
actually a new problem for Toyota, the labor shortage and turnover problem is likely to
worsen rather than improve if the Japanese economy recovers. As a result, a necessary
change in strategy and tactics will likely reduce the productivity advantage Toyota has
enjoyed at home.
3. Product Variety
The virtual explosion in Japanese product variety during the 1980s and early 1990s,
particularly for Japan’s domestic market, enabled the most successful companies to expand
their market shares and regularly convince customers to buy new versions of automobiles,
video recorders, stereos, lap-top computers and word processors, microwave ovens, and
dozens, if not hundreds, of other consumer products. Toyota and other companies designed
JIT/kanban-like systems to facilitate small-lot production when combined with fast
equipment setup or changeover times, synchronized parts production and rapid delivery, and
versatile workers who can quickly move to solve problems or shift to parts lines and
assembly lines for rapidly selling products.
But large engineering organizations and independent heavyweight project managers,
encouraged by marketing organizations, have created too much product variety and offered
too many options to customers. The result is that parts makers and assembly plants have to
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accommodate very small and very rare orders too frequently. This variety requires constant
equipment setups and kanban exchanges, as well as many deliveries of small lots of
components — just when total sales are stagnant, and workers, suppliers, and traffic systems
have reached a sort of practical limit. Not surprisingly, many Japanese firms have concluded
that, in the short term, they need better scheduling and control systems to handle so much
variety, and, more importantly, they need to treat the root cause of the problem and reduce
variety to the 20 percent or so of models and product variations that generate 80 percent of
their profits and sales.
It has also become impractical to let the manual exchange of kanban cards “pull” new orders
of components into the production system and relay all production information. There are
now better methods available (such as the use of bar-code readers and other electronic forms
of moving information) for plants with very high levels of variety — which covers most
Japanese automakers and producers in many other industries.
Too much product variety has also created environmental concerns. Japanese automakers
have been introducing replacements of existing models every four years, in addition to
continually expanding their product lines, for example, into new luxury segments. Japanese
government regulations and mandatory fees or maintenance charges for automobile
inspection also encourage consumers to replace their vehicles every four or five years. One
outcome is consistently high domestic demand for new Japanese cars and trucks. But another
outcome is the need to dispose of all the replaced vehicles. Some become used-car exports to
other parts of the world, but Japanese companies now realize they need to think about how to
recycle automobile materials more effectively.
But perhaps the most pressing concern for Japanese managers is the cost of new model
development and model replacement now that money is expensive in Japan. Bank interest
rates have reached international levels, and banks can no longer make large cheap loans
because their portfolios of stocks and real estate (needed as a basis for loan limits as a
percentage of bank assets) and the portfolios of their customers (normally used as collateral)
have declined in value. And companies can no longer raise much capital on the stock market
because of the Japanese investors’ reluctance to buy securities in a market that has dropped
50 percent in value during the past several years. The only source of truly “free” money —
used in the past for product development as well as capital investment — is operating profits.
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In the current recession, however, operating profits have also declined dramatically for
Japanese firms.
Thus, for the intermediate term, Japanese managers have realized that they need to reduce
their overall investments in new product development (which also requires major investments
in manufacturing preparations) as well as cut the amount of variety they have in components
and final products. Companies in the automobile industry, for example, are now reducing
unique parts and product varieties by 30 percent to 50 percent or more for new models.
Japanese companies have also been reining in the heavyweight project managers, placing
some limits on their budgets and discretion by establishing platform managers and chief
engineers. These higher-level managers, who are above the project managers, coordinate the
development of a group of technically related models, making sure that they share more key
components and manufacturing facilities. These reductions in unique parts and greater
sharing of components across models should ease problems in assembly plants and at
suppliers, as well as save money in engineering and manufacturing-preparation costs. The
risk, of course, is that sales will no longer grow as fast as they did when Japanese companies
continually introduced streams of new models with lots of new technology and replaced old
models quickly. Sales may even decline, although profits may rise as a percentage of sales if
the Japanese learn how to generate more profits from each product development effort, rather
than simply look for expansion of sales and market share.
4. Problems With JIT
JIT principles work best with stable system components. Delivery times for raw and finished
goods are known, and the elements of production can be scheduled accordingly. Being overly
aggressive with JIT scheduling leaves you vulnerable to systemic bottlenecks. Supplier
delivery issues may cut off your raw materials, interrupting your production flow.
Maintenance emergencies can reduce your production throughput. Any constraint not
accounted for in your JIT planning potentially jeopardizes the entire system. Margin for error
and system waste may be difficult to balance.
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5. Supplier Management
Another obvious limitation of lean manufacturing is the need for cooperative and reliable
suppliers, which account for approximately 75 percent of manufacturing work in the
automobile industry and approximately half of product development, measured by costs.5 For
the system to work, suppliers must agree to manufacture components in small lots and then
deliver frequently to assembly plants — otherwise they will simply hold inventory, raising
their own carrying costs and eliminating their ability to improve quality and productivity
through short production runs and correction of errors or process improvements made with
each new setup. As Japanese companies disperse their plants throughout Japan and other
parts of the world, however, they have been able to move only some of their suppliers. Non-
Japanese suppliers have not complied exactly with Japanese pricing and quality requirements,
nor have the Japanese trusted foreign suppliers fully in product development.6
Until the recent recession (which is lasting longer than anybody in Japan predicted), Japan
had experienced a severe shortage of factory labor domestically. The Japanese government
allowed foreign workers from Southeast Asia, the Middle East, and South America to come
to Japan and work in Japanese factories, mostly at the smaller suppliers. This practice helped
the labor shortage, but it also introduced new problems: the need to train the foreign workers
and manage people with little or no literacy in Japanese. Many companies report quality
problems and reductions in worker flexibility as a result of using less-skilled foreigners; this
has lowered supplier productivity by forcing managers to reduce work schedules and use
more inspection and rework to ensure that they still deliver high-quality components to
Japanese assembly plants.
Criticism of Lean Production
1. Stress
The single biggest criticism of lean manufacturing is that the constant focus on improvement
and elimination of waste becomes an obsession and causes stress in the workforce.
Lean makes the workplace too clinical and impersonal, with workers under relentless
pressure to do better than before. While such pressures lead to workers stepping out of their
comfort zone and assuming a sense of urgency, it also increases stress levels considerably,
and high stress levels can have determinable effects on productivity and efficiency.
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2. No Margins for Error
Lean tools such as Just in Time Inventory and Six Sigma allows for no safety stock or margin
of error, and vilifies any deviance from the codified optimal process. While striving for such
perfection leads to better performance, attaining such precision standards may not always be
possible, and at times, unrealistic owing to vagaries of the external environment and human
nature. For instance, traffic jams can delay arrival of an inventory and thereby, hold up
production in a JIT system. Similarly, excellent employees might have certain off days where
they do not work at their productive best.
Incorporating lean requires a favorable external climate. Incorporating lean principles, for
instance is not possible in places with unreliable energy supply, inadequate transportation
infrastructure, and or poor work culture in the society.
3. Over-Focus on Waste
Another major criticism of lean manufacturing is the over-focus on elimination of waste
overriding other concerns. Lean strives to ensure productivity and efficiency primarily
through cutting flab, but in the process, ignores other crucial parameters such as employee
wellness, and corporate social responsibility. A company, for instance might recruit
additional workers than necessary as part of its corporate social responsibility necessary to
establish good relationships with local communities. Similarly, top management might need
to spend an extensible amount of time to lobby and socialize with external agencies to secure
orders, and negotiate extensively. Lean does not cater to such unconventional requirements.
4. Over-Focus on Present
Lean’s constant pressure to eliminate waste and ensure optimal output places all energy on
the present. Lean does not allow reflection or experimentation for the sake of development in
the future. Such a focus on only the present may lead to missing out on the bigger picture,
failing to comprehend the relevance of the task in the first place, or taking time to anticipate
future challenges and make necessary changes to respond to such challenges.
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Lean also stifles creativity, innovation, or experimentation, which not only hampers the
organization from responding to changes better, but also makes it difficult to realize sudden
opportunities that have become the norm in a fast changing external environment.
5. Lack of Standard Methodology
Lean is more a culture than a method, and there is no standard lean production model.
The implementation of Lean takes place trough various tools such as Kaizen, 5S, Six Sigma,
Total Quality Management, and others. The absence of a standard methodology, with any or
all such tools achieving the elimination of waste in a process, while allowing for flexibility of
approach, can also work against Lean with people remaining confused on which tool serves
the desired purpose.
The success of any adopted Lean production model depends largely on the extent to which
each individual member of the workforce masters the relevant tools and understands the
methodology. Even if one individual among the workforce refuses ownership of Lean and
fails to adopt lean practices, the entire Lean system collapses.
A review of the criticisms levied against lean manufacturing suggests that much of the
drawbacks stem from the method of implementation rather than any inherent flaw in the lean
culture. Proper planning, good implementation by incorporating effective change
management practices and leadership, stress management interventions, and effecting a
change of culture so that each member of the workforce inculcates the philosophy of Lean,
helps resolve much of the limitations of using Lean manufacturing and overcoming the
criticism of Lean manufacturing.
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