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4.1.2 Lean production

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Lean production is the idea of changing a process to remove inefficiencies (making the best use of time and resources). This means reducing waste while maintaining high quality and ultimately reducing costs for the business.

High waste = high costs.

Lean production = reduced costs -> higher profit margin.

Benefits include:

  • Less waste -> Cuts costs
  • Increases efficiency 
  • Increases responsiveness of firms to external influences
  • Provides competitive advantage/ Unique Selling Point (USP)

There are three methods of lean production:

Just-in-Time (JIT)

Just in time is the production method where a business sources goods as close as possible to when they are needed by the business. This prevents old stock sitting on the shelf for a long time and reduces investment in stock ht is not selling well as it would not be reordered until it is needed to replace another.

One example of JIT production is supermarkets, where goods are ordered to replace one sole. For example, Tesco knows exactly how many cans of beans are sold next week, they can then order the same amount or more next week to replace the ones sold. The business may also adjust the quantity depending on predicted demand. For example, supermarkets can predict that they will sell more burgers and lollipops in summer.

Benefits of JIT:

  • Warehouse costs – by not having excess stock sitting around waiting to be sold, the business can reduce the costs needed to store inventory.
  • Employee costs – less stock means hiring less employees to manage, transport and unload it.
  • Meeting demand – computer systems allow for easy trakcing of deamans, with human intervention, it is easy to adjust stock levels to meet seasonal demand (e.g. order more BBQs in summer, festivities in winter).
  • Prevent Product obsolescence – products go through a product lifecycle, when sales decline, JIT allows the busienss to see the trend and reduce their inventory level (ammount of stock on hand), without having excess stock sitting in the warehouse unable to be sold. Imagine if a business ordered 1 million iPhones and then the new one comes out, it could mean heavily discounting the stock to make sales and to get Cash flow to buy new stock.
  • Cash flow – JIT allows the busienss to buy stock when it is needed, meaning large initial payments are not needed to suppliers, freeing up business cash for other operational tasks.

A business must be good at planning to be able to use JIT production. However, there are some things that the business cannot predict with JIT production, such as the Covid-19 panic buying that resulted in empty supermarket shelves and supermarkets limiting the quantity that customers can buy.

Cell Production

Cell production is a type of group work that guarantees worker commitment. This is because every ‘cell’ is responsible for a total unit of work, or one unit. Each cell will work together to ensure they make one unit. Workers may also be multi-skilled which allows them to rotate roles.

For example, in a busy Subway store there may be 3 workers produce a single unit.

Worker 1: Choose bread, meat and cheese, toast in oven.
Worker 2: Remove from oven, choose salad, wrap.
Worker 3: Ring order through point-of-sale system, charge customer.

Subway could add another cell to double the output and produce two units simultainiously.

In this example, each worker or ‘cell’ has their own role to play in producing the final product. Each worker has to show commitment and there is no opportunity to waste time, as the final product would not be made and nobody wants an un-toasted sub!

Notice all members working in a team which forms the cell, larger businesses may have much bigger cells.

Benefits of cell production:

  • Motivation – team work is shown to improve employee motivation and reduce employee fatigue as the workers can rotate job roles adding variety of work. Workers also have greater responsibility and accountability for the job they are completing as if one person in a cell fails or falls behing, the whole team does too and the unit is not made.
  • Productivity – working in a group can improve productivity as each employee can specialise in a specific area, meaning they can focus on one task and keep improving.
  • Flexibility – As workers are able to reotate roles, it means they are becomming multi skilled and more adaptable to any unforseen issues.

Can you think of any more companies that use cell production?

Kaizen

Kaizen is a Japanese idea of continually improving a business to keep making it more efficient and reduce waste. Kaizen takes the idea that even a ‘perfect’ production method has room for improvement. Each staff mameber has two jobs. 1. their main responsibilities. 2. to continually improve what they do. Kaizen is an company ethos which means that every member of the business is involved. It is in an employees interest that the business is successful as this prvides greater job security.

Benefits of Kaizen:

  • Waste – All staff are responsible for contributing towards improvement with kaizen, by implementing small changes the business is likely to see a reduciton in waste as employees are eager use resources more carefully to help reduce costs.
  • Efficiency – By all staff continually looking to improve, new processes can be implemented to allow the business to operate more efficiently, this means getting things done faster and quicker and making effective use of time and minimising errors and time spent correcting them.
  • Continuous improvement – all employees work together to make small incremental improvements that add up to big benefits over time with each emplpyee making lots of little changes to improve the business multipled by the number of staff can result in huge efficiencies for the business.

Below is a youtube video that shows how Toyota uses lean production.

ℹ️ See also: Benchmarking.

4.1.1 Outsourcing

4.1.3 Maintaining and improving quality