Operations Management - Lean and Agile
This chapter focuses on the concepts of lean and agile within the context of operations management, considering aspects such as Just-In-Time (JIT), Kaizen, Six Sigma, and Leagile. The intent is to improve operational efficiency, but this will involve sometimes challenging trade-off decisions and each model/approach has distinct characteristics that may help support the decision-making processes required.
Lean is essentially the elimination of waste within organisational processes. The principle is to improve operations by making them quicker and more reliable, producing consistently higher quality products/services at a lower price. Lean is an operating philosophy where the focus is on improving business results over time.
JIT is a disciplined approach to improving productivity and eliminating waste. It provides for cost-effective production and delivery, of the right quantity of parts of the right quality and at the right time and place, using the minimum amount of facilities, equipment, materials and human resources. JIT is dependent on the balance between supply flexibility and the users’ flexibility. Key philosophy of JIT are simplification and continuous improvement (Slack, Brandon-Jones & Johnston, 2013).
Agile examines the speed and effectiveness of organisational responses to management information and/or business intelligence and the quality/relevance of the subsequent decisions made. It is important for businesses to react to (or ideally anticipate) changes in markets or operational circumstances. Agile principles provide a conduit between operational processes and tactical or strategic corporate information. Agile approaches can deliver the processes and procedures needed to support the implementation of JIT methodologies.
The combination of lean and agile principles has given rise to ‘leagile’ approaches i.e. the capability of an organisation to have tightly defined (lean) processes, but still retaining the ability to adapt and respond to changing circumstances. Rooted in supply chain management thinking, it seeks to minimise the risks and costs associated with the potential collapse or disruption of JIT supply processes. Extensive use is made of modern technology and communication approaches to provide the supply chain visibility needed to create and sustain the lean-agile balance required.
Generally, there are stated to be seven types of waste within manufacturing organisations - overproduction, excess inventory, waiting (lost time), unnecessary motion, unnecessary transportation (double handling, or moving excess stock), re-work (poor quality) and over-processing/over-engineering (SixSigma, 2017). It is recognised that even incremental improvements can help an organisation to increase efficiency and reduce costs. For example, improved inventory control and supply chain management can reduce the need for overproduction and the requirement to hold inventory, minimising transportation requirements and the time spent waiting for raw materials or components.
As small improvements are made at each stage of the operational processes concerned then a business will benefit from what is described as the ‘accumulation of incremental gains’. Further consideration has also been given to less tangible types of waste such as the poor use of human capital (not being creative or innovative) and the losses associated with under-utilised or missed business opportunities. An organisation may be performing well against its own corporate targets, but if they are too introspective then they will allow competitors to exploit emerging market opportunities. In essence, measuring the wrong things creates waste. In the modern service and technology industries addressing these less tangible forms of waste can create a point of critical competitive differentiation.
Waste can be hidden or disguised within organisational processes, such as a failure to update operational processes. Waste can be hidden within inventory and associated control mechanisms (e.g. quality and scheduling problems, communications issues, machine unavailability or long set-up processes, poor stock organisation, staff availability etc.) and developing a continuous improvement mind-set can help to maintain the long-term view needed to address such issues.
There are a number of basic working practices that can be followed to develop the required culture of continuous improvement, all of which require the shared/collective involvement of all employees:
- Discipline. - Well-defined work standards are followed, which accurately reflect output requirements. Poor discipline increases the risk of defects and costs associated with subsequent re-working.
- Flexibility. Whilst discipline is essential, there should still be enough institutional flexibility to ensure that emerging opportunities and efficiencies can be exploited. For example, providing production staff with increased autonomy may allow them (as subject matter experts) to develop more streamlined and cost/time effective processes.
- Equality. Without the full cooperation and collaboration of all employees, then it is unlikely that an organisation will be able to sustain high performance levels.
- Autonomy. Evidence suggests that giving employees some autonomy dramatically increases their commitment to the organisation, improving motivation, engagement, productivity and efficiency. However, this should also be supported by the flexibility (and willingness) to accept that such autonomy can also increase the scope for employees to make mistakes. The challenge is to learn from these mistakes and avoid repeating them!
- Employee development. A highly skilled and trained workforce raises standards, reduces waste and promotes continuous improvement through innovation and creativity.
- Working quality. Creating an environment that allows employees to focus on doing the best job possible by removing concerns over issues such as job security.
- Creativity. Allowing staff the opportunity to be creative can help them develop new, leaner ways of working and increase their commitment to the company concerned.
- Total involvement. Effective engagement improves internal organisational communication, building the co-operative working culture needed to sustain continuous improvement and address waste.
TPS is an integrated approach to manufacturing, bringing together ‘jidoka’ (automation with a human touch) and continuous flow (JIT). TPS places people at the heart of business operations and the basic concept is shown in Diagram 1. TPS argues that repetition and experience increase organisational competence and if this can be simplified then processes become more robust. The manufacturing process is broken down into distinct component parts, which are then critically reviewed. For example, using two machines rather than one may help reduce manufacturing risks and increase flexibility. Such an approach may also improve process flows. The key is to have effective communication and process transparency to avoid subsequent waste.
(Lean Enterprise Institute, 2014)
TPS considers the integration of machines (automation) and people, providing visible metrics such as performance data on noticeboards, shred control charts, clear and open working spaces, displays of good and defective products as learning tools (including competitor products) and colour-coding approaches to problem identification. Control systems are highly visible and recognised by all staff, built upon ‘Kanban’ and ‘Kaizen’ (see 4.0 below). Staff are even empowered to stop a production line if they note a problem and whilst this could be seen as inefficient, preventing a defect travelling further down the production line avoids subsequent waste and provides the opportunity to improve processes.
Challenges and criticisms of lean approaches exist. Creating both the physical environment and working culture required is costly, particularly when additional technology investment is necessary. For example, TPS considers the importance of the planned preventative maintenance of equipment which increase direct and indirect costs. There are also inherent tensions between different aspects of lean and JIT, especially in terms of people and processes. Striking the right balance between process control and allowing employees the autonomy and freedom needed to be creative and innovative is challenging.
Implementing lean principles often requires a considerable shift in corporate working culture(s), which is likely to lead to significant change resistance if poorly handled. This is likely to be exacerbated if the organisation concerned has operated well-embedded more traditional operational practices for a considerable period of time.
Kaizen is broadly the Japanese term for continuous improvement, although it can be more accurately translated as a form of control. It applies to all aspects of organisational output, and can thus be linked to both TPS and types of waste, as well as the means of introducing and managing basic employee working conditions. The overarching principle is to create a ‘pull’ rather than a ‘push’ through organisational processes. Historically, the idea has been to place the manufacturing process itself at the heart of operations, making it as efficient as possible using metrics such as equipment utilisation. However, this typically translated into producing as much as possible as quickly as possible to reduce individual unit cost. In doing so, employees work towards achieving efficiency targets, giving no thought to wider impact and the production of waste in the process.
For continuous improvement some degree of apparent inefficiency in different parts of the organisational process needs to be allowed for in order to facilitate greater production and supply chain efficiency overall. In essence, a small degree of inefficiency in one part of the production line is better than waste throughout the entirety of the production line, so balancing efficiencies with sensible organisational control metrics is better in the longer term. For example, production targets built around machine utilisation would discourage workers from stopping a production line, therefore allowing known defects to pass through the system increasing subsequent costs and waste.
A Kanban is a way of controlling the flow of inventory through an organisational process. Each element of the organisation only works with the materials it needs at that time (i.e. enough stock, but no more) reducing clutter, waste and unnecessary inventory whilst also increasing transparency. A physical signal or tag is used to show when (and where) more inventory is required.
Software tools such as Vendor Managed Inventory (VMI) support the transparency required by providing access to accurate, real-time stock levels which can be used to trigger automatic re-ordering and delivery. Electronic Point of Sale (EPOS) systems also provide the trigger mechanisms needed to ‘pull’ inventory through the supply chain.
Six sigma is a more sophisticated and complex approach to reducing waste in operational processes, often found in high-level volume-driven manufacturing. It uses statistical techniques to identify quality defects, making appropriate corrections in order to eliminate them and the waste and costs that they cause. It is, however, a complex and costly way of measuring organisational production quality involving large-scale analysis and sophisticated data interpretation. The cost of engaging in this process and the sustained effort involved is notable, but in production examples such as pharmaceuticals where output quality is critical (and the consequences of failure extensive) it is considered to be a worthwhile investment.
This chapter has focused concept of lean production explaining the fundamental principles of lean, and the related concepts of just-in-time and agile, as well as the TPS, Kaizen and Kanban. It has addressed the basic elements of organisational waste, explained what they are and how they can be reduced and eliminated, and also illustrated the interrelationship of operations management principles, highlighting the ongoing potential tension between different aspects of lean principles and the practicality and reality of operations management. Reference has also been made to more sophisticated aspects of lean such as six Sigma which work more effectively in some types of organisational operations than others. Ultimately, it is important to recognise that lean and associated methodologies are as much about organisational culture, philosophy and attitudes as they are about tangible principles and processes.
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