Unit 5.3 Lean Production and Quality Management

1. Unit 5.3 Lean Production and Quality Management

2. Lean Production • Process of streamlining operations and processes to reduce all forms of waste and to achieve greater efficiency. This should lead to improved quality and reduced costs. • This was first used in Japan during the 1950s; businesses were trying to reduce wastage or ‘muda’ (Japanese term for ‘waste) in the production process.

3. Examples of ‘muda’ (waste) • Materials and resources – wastage of materials and resources that have not been used efficiently, such as floor space. • Time – delays in the production process have a large negative impact on productivity and perceptions of quality. • Energy – leaving on lights, heating or AC when not needed is a huge & unnecessary drain on financial resources. • Human effort – tasks may need to be reworked due to waste from substandard and defective output.

4. Adopting lean production • Waste minimization – business to remove any operation or process that does not add value to the product. It involves making more efficient use of a firm’s scarce resources (land, labor, capital). • ‘Right first time’ approach – businesses aim for zero defects by identifying and resolving all problems at source. • Flexibility – resources must be adaptable to the changing needs of the business (ex. Firms might use multiskilled workers who can work on several projects simultaneously.

5. Methods of Lean Production • Kaizen (continuous improvement) • Just-in-time (JIT) • Kanban • Andon Activity: Assign each of the methods

6. Kaizen Method • Japanese word for a philosophy of ‘continuous improvement’ • Kai – meaning change; Zen – meaning better (changing for the better) • Process of productivity and efficiency gains come from small and continuous improvements rather than a large one-off improvement because: • People tend to be resistant to change, esp. change that is large scale and disruptive to the organization • Smaller changes are easier to manage • See Page 492 Box 5.3.a

7. Just-in-time (JIT) Method • Inventory management system based on stocks being delivered as and when they are needed in the production process. • Stocks are delivered just before they are used; finished goods are dispatched as soon as they have been produced – this eliminates the need for storage; inventory is costly and wasteful. • JIT system relies on automation, bar codes and the use of highly skilled and motivated workers.

8. Kanban Method • Ensures that inventory is based on actual customer orders rather than sales forecasts. • Uses a card system with an inventory number attached to each component in the production process. • Kanban – Japanese for ‘visual’ card • Example: sushi restaurant (customers placing their orders using a card system) • See Figure 5.3.b

9. Common mistake • Kanban is not a stock control system. Instead, it is a lean production method used to control the logistical (supply) chain. It is one way to achieve JIT production.

10. Andon Method • Visual control system used to indicate the status on an aspect of the production process • Typically color coded: • Green = normal operations in progress • Yellow = attention will be needed soon • Red = immediate attention is required • In a factory setting with mass production, an andon system provides visual feedback to workers and supervisors on the production floor.

11. Benefits of Andon Method • Bringing instant attention to production problems as they arise in the manufacturing process • Providing a consistent and simple communication tool for all factory floor workers and supervisors • Encouraging workers and supervisors to take immediate action to deal with production, quality and safety problems • Improving the ability of supervisors to identify and resolve production issues in an efficient and cost effective way

12. Common mistake • Students often comment that lean production gives a business significant competitive advantage over its rivals. While this can be true, make sure you substantiate your comment. This competitive advantage will not exist if, for example, rivals have access to the same lean production technologies or if the firm has to use lean production technologies just to keep pace with market leaders.

13. Cradle to cradle (C2C) design and manufacturing • Refers to a sustainable model of production based on natural processes, thus benefitting the environment. • There is no waste in nature making it sustainable • By contrast, ‘cradle to grave’ refers to one time use, which is the most common form of manufacturing • The use of ‘recycling’ and/or ‘reuse’ allows for sustainability • Eco friendly businesses use C2C practices

14. The meaning of Quality? • ..the extent to which a product or service meets the expectations of the final user • Factors reflecting quality: • Physical appearance • Reputation of the manufacturer or seller • Reliability • Durability • Fit for purpose • Safety features • Customer service • After-sales service

15. Samples of poor quality • Poor customer service at the cinema • Customer dissatisfaction is a sign of poor quality (service) • A laptop that keeps breaking down • The laptop is clearly not fit for its purpose and therefore represents substandard quality • Food that is overcooked in a restaurant • This represents second-rate (poor quality) food preparation in a restaurant

16. Why is Quality a Concern? • Gives competitive advantage • Encourages return purchases • Provides customer with information and builds consumer confidence in the brand • Reduces costs incurred in solving post sales problems • Helps improve efficiency and so reduce costs If quality control breaks down,the cost can be severe. Source: Photolibrary Group

17. EXAM TIP! Quality does not mean that a product has to be expensive, prestigious or exclusive. Many students incorrectly define quality as products that are the ‘best’ in their industry, such as a Rolex watches. There are plenty of quality watches that are relatively inexpensive.

18. Quality Management (QM) • The quality of an organization’s products is important for 2 main reasons: • Its reputation • Its ability to control costs • QM is the function concerned with controlling business activities to ensure that products are fit for their purpose.

19. 4 driving forces that led to quality being a priority for many businesses • Increasing consumer awareness – any mistake made by large multinationals is likely to be reported in various sources very quickly all over the world • Increasing competition – quality as a form of product differentiation can give a firm a competitive advantage • Government legislation – changes and developments to competition laws have forced businesses to improve their quality standards • Increasing consumer incomes – with greater disposable income, consumers are more able to buy higher quality products

20. 2 main categories of QM • Quality control (QC) – is the traditional way of quality management that involves inspecting, testing and sampling the quality of work. It helps identify problems before products are sold to consumers. • Quality assurance (QA) – is the management process of guaranteeing (assuring) the consumer of the product’s quality by ensuring that everything is done ‘right the first time’, ie. no defects. It informs customers that products have been made to the required specification and that certain quality standards have been met.

21. Quality Control • QC is used to prevent faulty products reaching the customers • Cheaper to have trained QC inspectors than to have every individual being trained to be responsible for QA • QC inspectors can find widespread issues and problems across the organization • QC does not prevent mistakes being made yet can be expensive • The root cause of the problem is not dealth with as there is a lack of a quality culture (ie. substandard output is rejected or reworked) • Individuals are not accountable for the quality of their work Advantages Disadvantages

22. Quality Assurance • QA programmes involve employee participation as workers have more ownership & recognition for their work • Employee participation can help to generate new ideas • QA can help break down a ‘them and us’ culture • Less wastage and reworking as products & processes are checked at every stage of output • Time, energy and training needed to nurture a total quality culture within the organization Advantages Disadvantages

23. See page 497 Box 5.3.b ‘The costs of poor quality’

24. Common methods to measure quality • Reject rates – the higher the reject rate, the lower QA tends to be • Level of product returns – faulty & substandard products are far more likely to be returned by disgruntled customers • Product recalls – faulty products may need to be recalled by the firm to prevent a major public relations disaster • Level of customer satisfaction – dissatisfied customers are more likely to complain • Degree of customer loyalty – good quality = repeat purchases • Market share – good quality = increase sales

25. EXAM TIP! The concept of quality can be somewhat subjective, i.e. what constitutes as ‘quality’ will depend on the product in question and personal opinions will vary from one individual to another. Furthermore, not all aspects of quality are easily measurable, e.g. the value of a brand or a firm’s reputation. Finally, it is important to note that quality is always evolving and is expensive to implement. Hence, while quality is important to all businesses, it is necessary to ensure the benefits of quality assurance outweigh the costs in the long run.

26. Methods of managing quality • Quality Circles– meetings of relevant workers to discuss issues relating to maintenance and improvement of quality in the business – may also be a form of empowerment and motivation. • Benchmarking or Best Practice Benchmarking (BPB) – refers to a business comparing its products, operations and processes with others in the same industry, esp. market leaders. (see pg. 500-501 types, stages and adv/disadv. of benchmarking)

27. Methods of managing quality • Total Quality Management (TQM) – is a process that requires the dedication of everyone in the organization to commit to achieving quality standards. TQM removes wastage and inefficiencies in all forms of business activity (production, marketing, finance and personnel).

28. Advantages of TQM • Improved motivation as all workers are involved in the process • Lower costs of production due to less wastage • Improves the reputation of the business • Gives a competitive edge over rival firms

29. Disadvantages of TQM • High costs to set up the quality control system • Only works if everybody in the organization is committed to quality assurance • TQM can become quite bureaucratic as procedures and processes must be properly audited and administered • There is a time lag before the benefits of TQM actually surface.

30. National and International Quality Standards • Awards are used to show that certain quality standards have been met. • Businesses that meet or exceed these standards can include the quality award symbols or logos on their products and in their promotional campaigns. This helps assure customers that the products are of high quality. • International Organization for Standardization (ISO) is the most prominent global organization for QA. Its goal is to facilitate international trade. It’s one of the most powerful NGO in the world as it is influential in affecting government legislation.

31. Benefits of these standards: • Promote quality awareness within the organization • Improve organizational performance • Recognize quality achievements • Motivate the workforce • Help attract high caliber employees • Strengthen the firm’s competitiveness

32. Review

33. Computer-aided design (CAD) • Is the process of using dedicated computer hardware and software in the design process, such as three-dimensional designs of a product.

34. Computer-aided manufacturing (CAM) • Is the process of using sophisticated machinery and equipment in the production process.

35. Lean production • Refers to the approach used to eliminate waste (muda) in an organization.

36. Quality • Means that a good or service must be fit for its purpose by meeting or exceeding the expectations of the consumer.

37. Quality Assurance • Refers to the methods used by a business to reassure customers about the quality of its products by meeting certain quality standards.

38. False • True or False • Quality means that a product is high-class and one of the best in its industry, such as Rolls Royce cars or Rolex watches.

39. False • True or False • Poor quality means that a firm’s prices are higher than the industry average.

40. False • True or False • An objective of quality assurance is to reduce the need for huge Research and Expenditure spending.

41. False • True or False • The implementation of TQC tends to reduce the level of employee motivation.

42. C) Value for money • The customer’s perception of product quality is ultimately measured by: • A) Price • B) Image • C) Value for money • D) Excellence

43. B) Zero defects • A feature of total quality management is • A) High production levels • B) Zero defects • C) Social responsibility

44. C) Higher wastage levels • The effects of substandard quality includes • A) Higher levels of customer services • B) Improved customer relations • C) Higher wastage levels • D) Lower costs of production

45. A) Fit for purpose • A product that serves its purpose in fulfilling a customer need or desire is known as • A) Fit for purpose • B) Quality assurance • C) Class excellence • D) Commercial honesty

46. D) Quality means less stress to employees due to the reduced workload • Which of the reasons below does not explain why quality is important to a business? • A) Quality is essential in order to satisfy customers • B) Quality can provide a competitive advantage to the business • C) Quality raises the goodwill of the business • D) Quality means less stress to employees due to the reduced workload