Efficiency and Competitiveness Using Lean Production
What Lean Production Is
Lean production: an approach to production that aims to cut waste of every kind, such as materials, time, stock and faulty products, while keeping quality high.
Each method on this page is a way of making the same output with fewer resources, in services as well as manufacturing.
Quality: Control, Assurance and TQM
Quality: how well a product meets customers' expectations, every time they buy it.
Firms manage quality in three ways:
Quality control: checking finished products, or samples of them, and rejecting any that are faulty.
Quality assurance: setting standards for each stage of production and checking work against them as it is done, so faults are stopped before the product is finished.
Total Quality Management (TQM): making quality the responsibility of every employee in every department, with each stage of the work treating the next as its customer.
| Method | When faults are found | Who is responsible | Drawback |
|---|---|---|---|
| Quality control | After the product is made | Inspectors | Faulty products have already used up materials and time |
| Quality assurance | At each stage of production | Workers, checking their own work | Setting and checking the standards costs time |
| TQM | Faults are prevented at source | Everyone, including staff who never see the product | Needs training and a change of culture, which are slow |
Moving from quality control towards TQM affects:
- Costs: faults prevented, not found at the end → less scrap, rework and inspection → lower average cost.
- Sales: fewer faulty products reach customers → fewer returns and a better reputation → repeat sales, and room to charge a higher price.
The benefit depends on:
- Staff commitment: TQM fails if workers see it as extra work with no reward, or are not trained for it.
- The cost of a fault: a maker of medicines or aircraft parts cannot risk one, so it uses every method. For cheap, low-risk products, checks at the end may be enough.
Quality control and quality assurance are different things. Control finds faults after the product is made; assurance stops them being made. If an extract says staff check their own work at each stage, that is assurance, and the saving comes from less waste, not from better inspection.
Continuous Improvement (Kaizen)
Kaizen: continuous improvement through many small, regular changes, most of them suggested by the workers who do the job.
The people closest to a task see where time and materials are wasted, and good ideas are tried straight away, usually at little cost. In a café, moving the cups next to the coffee machine saves a few seconds an order, and more customers are served each hour.
- Costs: small changes, made constantly → less wasted time, movement and materials → higher productivity → lower average cost.
- Staff: workers' ideas are put into practice → they feel involved → higher motivation and fewer staff leaving.
Kaizen works less well when:
- A big change is needed: small steps cannot keep up with a rival that brings in new technology. Some problems need one large investment.
- Staff do not trust managers: if workers think their ideas will be used to cut jobs, they stop offering them.
Just-in-Time (JIT) Stock Management
Just-in-time (JIT): a way of managing stock in which materials arrive just as they are needed and products are made to meet orders, so the firm holds little or no buffer stock.
The traditional alternative is just-in-case: holding buffer stocks of materials and finished goods in case a delivery is late or demand rises.
| Just-in-time | Just-in-case | |
|---|---|---|
| Cash | Little tied up in stock | Cash tied up in buffer stock |
| Storage | Little space needed | Warehouse space, insurance and security |
| Waste | Little stock to spoil or go out of date | Stock can spoil, date or go out of fashion |
| A late delivery | Production can stop | Buffer stock keeps production going |
| A sudden rise in demand | Hard to meet | Met from stock |
| Buying | Small, frequent deliveries | Large orders with bulk-buying discounts |
For a firm that switches to JIT:
- Cash flow: less money tied up in stock → more cash for other uses → less need to borrow (unit 1.6.4).
- Costs: less storage, and less stock wasted → lower average cost.
- Risk: one late delivery → no buffer stock to fall back on → production stops → lost output and sales. A car plant using JIT can halt within hours if a lorry of parts is held up.
Whether JIT suits a firm depends on:
- Its suppliers: reliable suppliers close by suit JIT. Parts shipped from the other side of the world are more likely to be delayed.
- How predictable demand is: steady orders are easy to plan for. Sudden peaks are not.
Competitive Advantage from Lean Production
Together, these methods can give a firm an edge over its rivals:
- Lower costs: less waste of stock, time and materials → lower average cost → lower prices to win sales, or wider margins at the same price.
- Better quality: fewer faults → a reputation for reliability → loyal customers who are less sensitive to price → the firm can charge more.
- Speed: making to order with little stock → the firm can change its products quickly → it responds to new trends before rivals (unit 2.3.4).
How long the advantage lasts depends on:
- The cost of getting there: training, new systems and new supplier deals cost money, and the savings take time to arrive.
- Whether rivals can copy it: lean methods are well known. The advantage lasts only if a firm uses them better, which comes down to its culture and staff.
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