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Lean Thinking and Lean Systems

Chapter outline

7.1 Evolution of lean

7.2 Lean tenets

7.3 Stabilizing the master schedule

7.4 Controlling flow with the kanban system

7.5 Reducing setup time and lot sizes

7.6 Changing layout and maintaining equipment

7.7 Cross-training, rewarding, and engaging workers

7.8 Guaranteeing quality

7.9 Changing relationships with suppliers

7.10 Implementation of lean

7.11 Key points and terms

Jefferson Pilot Financial, a full-service life insurance firm, learned what so many other firms had learned before it: using the concepts of lean thinking and lean sys- tems for processing life insurance applications improved performance. Jefferson's goals for its application processing process were twofold. First, it wanted to re- duce throughput time, from receiving an application to issuing a policy, which was averaging between one to two months. Second, it wanted to reduce its 10 per- cent error rate because each error meant that rework and reprocessing were needed. Using the basic lean tenets presented in this chapter, Jefferson was able to achieve a 70 percent reduction in throughput time and a 40 percent reduction in errors.1

Lean thinking and lean systems have been applied in a wide variety of indus- tries and settings. They are used to improve operations processes in manufactur- ing and services. Lean ideas are also used to improve processes outside of operations, including software application development and maintenance, annual budgeting, and even for collecting on delinquent accounts! What is lean and how do firms use lean ideas to improve their business?

1 Swank (2003)

Chapter 7 Lean Thinking and Lean Systems 135

In this chapter we introduce the lean concepts, principles, and techniques that a host of organizations have adopted for performance improvement. These concepts, principles, and techniques can be deployed to reform not only manufacturing sys- tems but also administrative systems, service systems, and entire supply chains. We begin by looking at the evolution of lean before presenting lean thinking as a set of five tenets. We then characterize the lean system-particularly the lean production system-that is created when companies pursue lean. We conclude by highlighting implementation issues to consider when a company is deploying lean.


"Tri-State: ~onverting to

JIT," Vol. V

After World War II the U.S. system of mass production was the envy of the world. Mass production-the production of standardized discrete products in high vol- ume by means of repetitive manufacturing technologies-was the norm. Materi- als were produced in large batches, and machines were made to run faster to reduce costs. In some cases this resulted in sacrificing quality in the name of effi- ciency and creating narrow jobs that led to worker dissatisfaction, but still the world bought products manufactured in the United States.

In the 1960s a Japanese miracle started at the Toyota manufacturing company. After visiting U.S. manufacturing companies, Toyota determined that it could not copy their system of mass production. Not only was demand for Toyota automo- biles low at that time, there was a severe lack of resources. Because of the lack of resources, Toyota developed a strong aversion to waste. Scrap and rework were deemed wasteful, and so was inventory that tied up storage space and valuable resources. Toyota realized that it needed to produce automobiles in much smaller batches, with much lower inventory, using simple but high-quality processes and involving workers as much as possible. This realization became the foundation for what is known today as the Toyota Production System (TPS) and Just-In-Time (JIT) manufacturing. This production system is now known and used around the world. See the Operations Leader Box titled "TPS at the Toyota Plant in Georgetown, Kentucky, USA."

JIT manufacturing came to the United States in 1981 at the Kawasaki motorcy- cle plant in Nebraska, which used some of the TPS ideas. However, instead of transforming the entire system, JIT manufacturing focused primarily on inventory reduction but ignored other aspects of Toyota's complete system. As a result, many U.S. companies that attempted to copy and implement the Toyota Production Sys- tem achieved only partial improvement.

In 1990 Womack, Jones, and Roos studied JIT automobile manufacturing in Japan, the United States, and Europe and popularized the term lean production in their famous book The Machine That Changed the World: The Story of Lean Production.2 Lean production was defined as systematically eliminating waste in all production processes by providing exactly what the customer needs and no more. They reported that the best plants using lean production had a big edge in automobile assembly performance anywhere in the world. Labor pro- ductivity in the best plants exceeded that in the worst plants in all three regions by a factor of 2 to 1, defects were reduced by half, and inventory was reduced

2 The phrase "lean production" was coined in the late 1980s by John Krafcik, who was working w ith James P. Womack and colleagues on the International Motor Vehicle Program at the Massachusetts Institute of Technology (http://www.autofieldgu 0502.html).

136 Part Two Process Design

Operations Leader TPS at the Toyota Plant in Georgetown, Kentucky, USA


Toyota Motor Manufacturing Kentucky, Inc. (TMMK), is Toyota's flagship manufactur- ing facility in the United States, currently producing 500,000 ve- hicles annually. Established in

1986, TMMK occupies 1300 acres in Georgetown, Kentucky, is over 7.5 million square feet in size, and employs approximately 7000 employees to build the Camry, the Avalon, and the Venza.

At TMMK, employees have been trained not only in required job skills but also in problem-solving and continuous improvement methods. Job tasks have been standardized to minimize waste and assure qual- ity. Employees can stop and are strongly encouraged to stop the production line when a quality problem is detected. Employees are, moreover, actively involved in suggesting ways to improve their work and work environments, with an astounding 100,000 sugges- tions on average per year.

Toyota has done more than transfer the Toyota Pro- duction System to TMMK. Realizing that the perfor- mance of TMMK depends on its suppliers, it has worked aggressively to help its 350 U.S.-based suppliers to imple- ment the Toyota Production System. TMMK created the

Toyota Supplier Support Center in Erlanger, Kentucky, to provide consulting services to suppliers. Suppliers, in fact, deliver to TMMK frequently, allowing TMMK to hold inside its facility, on average, enough inventory to last for just four hqurs of production.

Source:; A. Harris, "Automotive Special Report-Made in the USA-Uprooting the Toyota Production System and Transplanting It to Kentucky in the United States Has Proved to be a Great Success for Toyota," Manufacturing Engineer 86, no. 1 (2007), pp. 14-19.

from two weeks, worth to only enough to maintain production for two hours. The best U.S.-owned plants, indeed, had labor productivity (vehicle assembly hours) and quality comparable to the best Japanese-owned plants in the United States, while European plants lagged behind. This showed that the best U.S. plants could adopt the TPS and compete with Japanese plants, but average U.S.

Lean thinking is applied in a wide variety of industries, including hospital emergency rooms to speed patient treatment.

plants were still far behind, particularly behind plants located in Japan.

Today, the concepts, principles, and techniques underlying lean production are often referred to as lean thinking and are being deployed across a broad spectrum of global firms. In the United States, 3M, Bendix, Black & Decker, Briggs & Stratton, Deere & Company, Delta Airlines, Eaton, Ford, General Electric, Hewlett-Packard, Honeywell, IBM, United Health Care, Wells Fargo, and Wipro are just a few examples of well-known firms pursuing lean thinking. In virtually all instances, benefits such as increased inventory turnover (50 to 100 times per year), superior quality, and sub- stantial costs savings (15 to 20 percent) have been reported.

Chapter 7 Lean Thinking and Lean Systems 137


Lean thinking, as the name signals, is a way of thinking about processes at work (and even processes at home). This way of thinking is built around five tenets that subsume specific concepts, principles, and techniques. The five tenets aim to deliver value to customers efficiently.

The first tenet in lean thinking is to specify precisely what about a product or service creates value from the customer's perspective. Recall from Chapter 1 that value is defined by the customer and provided in the product or service the customer needs at a place, time, and price the customer is willing to pay. Value is not what the firm says but what the customer says. Value is often a solution to a problem a customer is facing that the customer is willing to pay for. Value, as such, is dynamic in nature and changes over time. Firms should design and deliver product and service features that customers value and stop doing activities that are not valued by cus- tomers (unless required for other reasons, for example, legal). This may mean re- moving unvalued product features or eliminating waiting times in service systems.

Waste, in lean thinking, is anything that does not contribute value to the product or service being produced and delivered to the customer; rather than adding value, waste adds costs. The Japanese term for waste is muda. In many manufacturing, administrative, and service processes only 5 to 10 percent of total throughput time adds value for the customer. Firms want to eliminate obvious waste, but many forms of waste are hidden. For example, the value-added time to produce a product may be only three hours, but it takes a week to complete it. The muda or non-value- adding time might include waiting for machines or labor to become available, deal- ing with backlogs, searching for materials, or correcting processing errors.

Table 7.1 defines the seven forms of waste originally identified by Taiichi Ohno, Toyota's former chief engineer, who is considered the father of the Toyota Produc- tion System. Womack and Jones in their book on lean thinking introduced an eighth form of waste: underutilization of workers. This stems from not recognizing, developing, and utilizing the mental, creative, and physical abilities of employees. Contributing to this waste are factors such as poor hiring and training practices, high employee turnover, and an organization culture that does not respect people.

The second teriet in lean thinking is to identify, study, and improve the value stream of the process for each product or service. The value stream identifies all the processing steps and tasks undertaken to complete a product or deliver a service from

• Overproduction: Producing more than the demand of customers, resulting in unnecessary inven- tory, handling, paperwork, and warehouse space.

• Waiting time: Operators and machines waiting for parts or work to arrive from suppliers or other operations; customers waiting in line.

• Unnecessary transportation: Double or triple movement of materials due to poor layouts, lack of coordination, and poor workplace organization.

• Excess processing: Poor design or inadequate maintenance of processes, requiring additional labor or machine time. ·

• Too much inventory: Excess inventory due to large lot sizes, obsolete items, poor forecasts, or improper production planning.

• Unnecessary motion: Wasted movements of people or extra walking to get materials.

• Defects: Use of material, labor, and capacity for production of defects, sorting out bad parts, or warranty costs with customers.

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FIGURE 7.1 Health care value stream map. Source: Adapted from Sylvia Bushell, Joyce Mobley, and Becky Shelest, "Discovering Lean Thinking at Progressive Health Care," Journal of Quality & Participation 25, no. 2 (Summer 2002), pp. 161- 191.

Xo Patient In

15 minutes


40 minutes


Doctor Visit

Information Flow ·

Xo Patient Out

20 minutes 45 minutes 120 minutes Wait Time

Visit Prep Visit Doctor

11 minutes 40 minutes Processing Time

Pharmacy, 1160 minutes u Total Blood Test Throughput

\ Time

beginning to end. A typical value stream thus can include both value-added and non-value-added processing steps and tasks. The goal in studying the value stream is to eliminate the non-value-adding processing steps and tasks.

One technique supporting this tenet is value stream mapping, which creates a visual representation of the value stream of a process, much like process flowcharting (discussed in Chapter 6). Value stream mapping requires direct observation of work and the flow of work within a process so that opportunities for improvement can be identified. The Japanese refer to such direct observation of work as gemba. There- sulting value stream map shows the beginning and ending points of the process, the steps and tasks between those points, and relevant performance information abou the process. Figure 7.1 is a simplified value stream map showing how patients flm,- through a multispecialty clinic. Improvements to the process come from studying the value stream map and then asking and answering the question, "Is this step or task necessary in creating value to the customer?" Processing steps and tasks that are not necessary or are non-value-adding, such as the numerous waiting times in the figure, should then be reduced or removed to improve performance and ultimately enhance value in the product or service provided to the customer.

The third tenet in lean thinking is to ensure that flow within a process is simple, smooth, and error-free, thereby avoiding waste. To appreciate this tenet, look at Fig- ure 7.2, where production is viewed as a stream and the water level as the inventory of raw materials, work-in-progress, and finished goods. At the bottom of the stream are rocks, which represent problems related to quality, suppliers, delivery, machine breakdowns, and so forth. The traditional approach is to hold inventory high enough to cover up the rocks (problems) and thus keep the stream flowing. Lean

- RE 7.2 Simple, smooth, and nonwasteful flow: A stream analogy.

Original situation ¥en tory covers problems)

Water level lowered (problems are exposed)

Chapter 7 Lean Thinking and Lean Systems 139

Water flows smoothly (once problems are solved)

thinking calls for the opposite: lowering the water (inventory) level to expose the rocks (problems) . When the rocks have been pulverized (i.e., the problems have been solved), the water is lowered again to expose more rocks. This sequence is iter- ated until all rocks are turned into pebbles and the stream (production system) flows smoothly and simply at the desired output rate while only needing a low level of inventory at any given time. Inventory in this analogy is a form of waste that hides problems that contribute to other forms of waste besides inventory.

The idea of simple, smooth, and error-free flow means that production flows are simple and direct, and do not change from one production run or one customer to another. Such predictable flows ensure that the exact appropriate resources, includ- ing labor and equipment, can be devoted to each production step. It also means that workers should.understand the connection of their own work to work performed upstream (before them in the production process) as well as work that follows their own. These direct and unambiguous links in the process provide complete certainty about exactly who has performed what work within the process. The goal is to avoid repeating the same activities more than once, for example, retightening a bolt, rein- specting paperwork, or reasking the customer for the same information.

There are many techniques that are used to help smooth the production flow. These techniques are covered later in the chapter.

The goal of ensuring simple, smooth, error-free flow can be extended up the sup- ply chain to include suppliers. In lean manufacturing, both workers and suppliers are charged with the responsibility of producing quality parts just in time to support the next production process. In a production plant, workers are required to stop the production process by pulling a cord that triggers a call for help.3 In addition to hav- ing greater responsibility for production in a lean system, workers and suppliers are also charged with developing ideas for improving the production process. Through quality teams, suggestion systems, and other forms of participation by workers and suppliers, the process of production is improved. The idea is that the workers who are performing the work know the most about the work and, therefore, are in the best position to improve the way the work is completed. Thus, lean thinking encour- ages the use of the capabilities of workers and suppliers to a great extent.

The fourth tenet in lean thinking is to produce only what is pulled by the customer. Complying with this tenet requires replacing the push system typical in traditional 3 This specific responsibility is known as Jidoka in Japanese (or Autonomation). The cord that triggers a visual ca ll for help is ca lled an andon cord .

140 Part Two Process Design

mass production with the pull system of lean production. A push system aims to produce goods or ensure delivery of services well in advance of demand, often ac- cording to a schedule or plan created from potentially inaccurate forecasts. Large batches of materials are pushed from one process or machine to the next regardless of whether the inventory is needed. This allows machines and processes to be uti- lized at full capacity, and inventory is considered a valuable asset. A pull system, on the contrary, waits for the process customer to signal a need for a good or service before producing it to fulfill that need. The signal from the customer is then sent vi- sually up the various stages of production-and even the supply chain-to signal what and when production and delivery are needed. No upstream process is autho- rized to produce a good or service until a downstream customer asks for it, thu minimizing inventory throughout the production system. An example of a push system is the "hub and spoke" system used by many of the major airlines. Flying point to point by some airlines is a pull system based on what the customer wants. No customer wants to connect through a hub to get to their destination.

The fifth tenet in lean thinking is to strive for pe1jection. Striving for perfection requires continuous improvement of all processes as well as radical redesign when necessary. When continuous improvement is undertaken, more value is provided by the firm in its search for ultimate perfection for the customer. The definition of perfection used here is an affordable good or service, delivered rapidly and on time, that meets the needs of the customer. When customer needs change, the def- inition of value changes and so does the definition of what constitutes perfection. There is therefore no end to the improvements that can be sought and made.

In lean thinking, the process changes necessary in seeking perfection must be made using scientific methods, including designing experiments and testing hy- potheses. Employees are discouraged from changing a process based on intuition alone. Rather, lean thinking promotes decision making based on scientifically de- rived evidence.

One simple and relatively powerful technique for improving a production pro- cess is the 5 Whys technique. This problem-solving technique systematically ex- plores the cause-and-effect relationships that underlie an observed problem (e.g., a defect in a product or lateness in delivery). By asking why at least five times, this technique is used to deliver insights into the root cause of an observed problem so that proper corrective action can be taken to prevent the root cause from re-creating the observed problem. Here is an example: The truck will not start. Why? The bat- tery is dead. Why? The alternator is not functioning. Why? The alternator belt is broken. Why? The alternator belt was well beyond its useful life and not replaced. Why? The truck was not maintained according to the recommended service sched- ule. Why? Replacement parts are not available because the truck is old. Asking why helps move toward potential solutions: Find a source for replacement parts or pur- chase a different truck that is maintainable.4

Another well-known technique supporting lean thinking is SS. This is a tech- nique for organizing a workspace (e.g., production shop floor, office space, hospital station, tool shop) to improve employee morale, environmental safety, and process efficiency. The name of this technique comes from five Japanese terms, all of which when transliterated and translated begin with the letters. These terms are defined in Table 7.2. Underlying the SS technique is the belief that when a workspace is well organized, time will not be wasted looking for "things" (e.g., a tool or paperwork); misplaced items also will be readily noticed. By having employees decide which

4 Adapted from w (201 2).

Chapter? LeanThinkingandLeanSys tems 141

Operations Leader ss +Safety= 6S! , ·

The U.S. Environmenta l Protection Agency provides training materials to businesses for safe storage of hazardous chemicals in work environments, calling t he program 65, which stands for 55 + Safety. The training uses standard 55 methods on removing un- used chemicals that are lingering in storage areas, decentralizing chemicals by moving them to where they are used in work processes, and organ izing and labeling storage areas so that the chemicals are easy t o find and their absence is easily noticed.

The photos show an examp le from one manufac- t uring p lant where, before 55 activities w ere con - ducted, chemica ls were disorganized and difficult to locate. Following 55, the storage cabinet contains on ly chemica ls that are needed nearby, in quantities that last only a few days, and labeled shelves can be

easily restocked as needed . "A helpful ru le of thumb is that anyone should be ab le to find any item in 30 seconds or less."

The sixth 5 for safety is integrated with standard 55 methods. To promote safe use and storage of chemicals, 65 training helps businesses develop ap- propriate visual warnings in areas near chemica ls, locate spill kits nearby for cleanup, and clear and clean the space around storage cabinets to avoid t ripping hazards.

Lean concepts like 55, as seen in this example, can be customized to the particular needs of an organi- zation or situation. Safety is integrated here w ith 55, a logical connection when hazardous chemica ls are being used. Source: Adapted from, 2012.

items should be kept where as well as how they should be stored, SS can instill in employees a sense of ownership, help standardize work, assure a safe work envi- ronment, and keep processes from becoming overly complex. See the Operations Leader box titled "SS + Safety = 6S!"

As you can see, the five tenets of lean thinking have many techniques and con- cepts associated with them. In the following sections, we dive into more detail on several of the most commonly used techniques.

Term Translation

Seiri To sort

Seiton To straighten or set in order

Seiso To shine, sweep, or clean

Seiketsu To standardize

Shitsuke To sustain


Decide what things should be kept and what things should be discarded so that on ly the essential things remain.

Arrange essential things in a manner that supports an efficient flow of work.

Assure cleanl iness by returning things to thei r storage locations and removing things that do not belong.

Standardize work and adopt seiri-seiton-seiso t hroughout so that all employees know w hat their responsibilities are.

Maintain seiri-seiton-seiso-seikutsu as a habit of work and a way to operate.

.. - - - 142 Part Two Process Design


One of the ways that firms can move toward achieving the lean tenet of simp-=- smooth, and error-free flow is to level the amount of work that is performed ea.- day. For a service, this might mean scheduling a certain number of customers ea- day or using methods such as advertising or pricing to even out the number customers who want the service each day. This practice is referred to as stabiliz- ing the master schedule. Although this terminology is generally not used in vices, the concept still applies, as we will see. The process of production plannic; for manufacturing starts with a long-range production plan, which then is bro~ down into annual, monthly, and daily plans. As part of this production planninc sales are considered, profit planning is done, and capacity is planned. This p lan- ning process starts with an aggregate production plan and then breaks it dm\~ into the daily production volume needed to meet the planned demand.

Master scheduling for products is done to achieve a uniform load, the assign- ment of approximately equal amounts of work to each machine or worker. Th production horizon must be set at least one week in advance and possibly one o: two months in advance, depending on lead times for production, purchasing and capacity changes. Assume for the purpose of discussion that a one-montl; rolling schedule is used in which one month of production is scheduled ir.. advance . Also assume that the schedule, calls for 10,000 units of product A 5000 units of product B, and 5000 units of product C. If there are 20 days of pro- duction in the month, the daily schedule will call for V20 of each model produceci in each day: 500A, 250B, and 250C. Furthermore, the individual units will be mixed as they go down the production line. The sequence will be I AABCt AABC/AABC /. Note how two units of A are produced for every unit of Band C. Then the sequence is repeated continually. Automobile assembly processes are often sequenced in this manner when multiple models are produced on the same line, ensuring that production of each model is completed at approximately the same rate that it is purchased.

Matching supply to demand is illustrated by the concept of takt time. Takt is the German word for the baton that an orchestra director uses to regulate the speed of the music. In lean production systems takt time is the time between successive units of production; this represents the speed of output. For example, a takt time of 2 minutes means that one unit is produced every 2 minutes, or 30 units are pro- duced in an hour (60/ 2) . In lean production systems the takt time of production should be set equal to the average demand rate of the market to match production with demand and thus minimize inventories.

To establish the beat of the market, takt time can be computed by dividing the time available for production (being sure to subtract for nonproductive time such as holi- days and lunch breaks) by the demand over the same period. For example, if market demand is 1000 units of a product per day and there are 7 hours of production time available in the day (or 420 minutes), the takt time is then (420 + 1000) = 0.42 minute per unit. So, given the available production time, production of one unit will have to be completed every 0.42 minute (about 25 seconds) to meet market demand. Produc- ing at rates less than the takt time will result in shortages in meeting the demand, and producing at rates greater than takt time will result in building up inventory. The idea of takt time is to produce at a constant rate that equals average demand.

Once the monthly master schedule has been set, this information must be trans- mitted to all work centers and suppliers. They will then plan their capacity in

Chapter 7 Lean Thinking and Lean Systems 143

terms of numbers of workers needed, overtime, subcontracting, and possibly new equipment. Enough lead time must be given so they can obtain the resources they need to complete the scheduled work on time.

The lean production system does not allow overproduction once the daily quota has been set, since production is scheduled just in time to meet demand. For example, if the daily quota is met in six hours, production is stopped and workers do maintenance or have quality-team meetings. Similarly, if production falls behind, it is usually made up by overtime the same day. This is facilitated by shift scheduling, which allows some time between shifts. For example, a two- shift operation might be scheduled from 7 a.m. to 3 p.m. and from 5 p.m. to 1 a.m. Maintenance and overtime occur between shifts. The objective of the lean pro- duction system is to produce the right quantity each day-no more and no less. Master scheduling thus closely resembles average customer demand on a daily basis. This minimizes finished-goods inventory since the production output is closely matched to demand. This type of master schedule also helps reduce work- in-process and raw-materials …