Koren Y. The Global Manufacturing Revolution: Product-Process-Business Integration and Reconfigurable Systems
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4.3.2 Mass production Closed-loop Representation and Principles
The mass production model is applicable when the market satisfies two conditions:
(I) A product can be supplied by a small number of suppliers.
(II) Homogeneous products are purchased by consumers (no product variety).
Under these two conditions, and because fixed costs are high and variable costs are
relatively low, a positive feedback loop model is created (Figure 4.4).
1
The positive
feedback loop follows four principles:
1. Higher product volumes reduce the manufacturing cost s per product.
2. If costs are lower, product price may be reduced.
3. Lower prices expand the market and increase demand.
4. Higher demand generates higher product volumes—back to point 1 above
This positive feedback loop feeds itself and will stabilize only if it encounters a
constraint—product price cannot be smaller than the variable costs in order to
maintain profit.
4.3.3 Mass Production Cost Model
From now on in this section we will use the car as an example of a product. In the
mathematical model developed below we use the relationship:
Car cost ¼ Fixed cost per car þ Variable costs of each car
Figure 4.4 The mass -production process is modeled as a closed feedback loop.
THE MATHEMATICAL MODEL OF MASS PRODUCTION 111
To determine the total cost per car, the fixed cost should be divided by the total number
of cars produced. This equation is the basis for the company pricing strategy.
The block diagram of Figure 4.5 depicts the mathematical model of mass
production. The terms K and t in Figure 4.5 are explained below.
K ¼ 1 means that the factory production capacity is larger than the number of car
orders per year, u, and therefore the number of cars produced, n, is equal to u. The
condition K < 1 means that the factory is working at full capacity and demand cannot
be supplied. For the model developed here we assume K ¼ 1.
t means that it takes some time from when an order is placed to the time that the
product is supplied. For simplicity we assume t ¼ 0.
The car cost, y, is the sum of the fixed and variable costs per car.
y ¼ C
1
þ C
0
=n ð4:1Þ
where C
0
¼ fixed costs (investment cost þ maintenance cost, etc.) prorated per year,
C
1
¼ variable cost/car,
n ¼ the number of cars produced per year.
In the early mass production era, because the machinery was expensive (compared
with labor cost), C
0
was very high compared to the variable costs. Since in our model
C
0
is the invested cost prorated per year, C
0
becomes smaller as the same product is
produced over more years.
Note that Eq. (4.1) expresses the car price as a function of the quantity produced
solely from the manufacturer economic viewpoint, and it does not reflect the market.
This curve is plotted in Figure 4.6 as the manufacturer curve.
When the price of a car is lower, more people will buy cars, as depicted by the
demand curve in Figure 4.3. We assume that the number of customers purchasing cars,
m, is inversely proportional (with an exponential function a, where a 2) to the car
price (z):
m ¼ C
2
=z
a
ð4:2Þ
u is the number of people who want to buy a car (i.e., number of car orders) , and it is
equal to the number of people who buy cars, m (assuming no loss of sales).
Figure 4.5 A block diagram mathematical representation of mass production.
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MASS PRODUCTION AND LEAN MANUFACTURING
The closed-loop principle yields
n ¼ K
u ¼ K
m ð4:3Þ
Substituting Eq. (4.2) into (4.3) yields
n ¼ K
C
2
=z
a
ð4:4Þ
Eq. (4.4) expresses the demand curve, and is shown in Figure 4.6. For y ¼ z
substituting Eq. (4.1) into (4.4) gives us the closed-loop equation
n ¼ K
C
2
=ðC
1
þ C
0
=nÞ
a
ð4:5Þ
Since under the mass production conditions K ¼ 1, the final equation is
n ¼ C
2
=ðC
1
þ C
0
=nÞ
a
ð4:6Þ
For a given C
0
, C
1
, C
2
, and a, Eq. (4.6) can be solved by numerical methods for n.For
a ¼ 2 this equation becomes quadratic and can be solved analytically. Solving
Eq. (4.6) yields the two intersection points in Figure 4.6.
The production cost curve is given by Eq. (4.1), and the market demand curve is
based on Eq. (4.4). To be profitable the manufacturer’s production cost must be below
the market price, as depicted in Figure 4.6. The number of products at which the
maximum profit per product is obtained, n
max
, is between the two intersection points
solved by Eq. (4.6). If more products are produced, although the profit/product
Figure 4.6 To be profitable, the manufacturer production curve must be below the
demand curve.
THE MATHEMATICAL MODEL OF MASS PRODUCTION 113
diminishes, the total overall profit to the company is larger. Therefore, the optimal
number of products that should be produced for maximum profit is on the right side of
n
max
, as shown in Figure 4.6.
To evaluate the company’s position in the marketplace, the supply curve should be
added to Figure 4.6. If the intersection between the supply and demand curves (which
reflects the equilibrium in the marketplace) is on the left side of the right intersection
point between the demand and production curves, then the company can take the lead
in the market.
If the supply curve intersects the demand on the right side of the right intersection
point between the demand and production curves, then the company is not compet-
itive and must take steps to cut waste, reduce non-value-added expenses, and find
ways to increase its productivity. Otherwise, it will have to take steps to improve its
position such as offer incentives to the buyers.
4.4 LEAN PRODUCTION—GOALS AND BENEFITS
In the mass production era, high-quality products were more costly to produce. Also,
in the early days of mass production, machines were expensive and labor and space
were cheap. Manufacturing systems were designed to use more people, extra space,
and large buffers between machines to ensure smooth operations. Over the years,
however, the cost of people and space has increased. The extra people, space, and the
buffers that stockpile huge numbers of in-process products have made manufacturing
expensive. In the early 1960s Japanese manufacturers, led by Toyota, began
manufacturing cars by applying more efficient production systems that focused on
eliminating waste of time and material. These practices reduced costs substant ially.
Not only were their cars less expensive, in many case s, because process errors were
eliminated quicker, but their standard products were also of higher quality.
Better Quality at Lower Price: When Japanese automotive manufacturers started
to export in the mid-1960s, their U.S. and European competitors treated them with
disrespect. (I vividly remember how in 1970 everyone in my neighborhood wondered
when my neighbor’s new Subaru would break down; it didn’t happen for 4 years! Not
a big deal today, but it was unheard of at that time.) Western manufacturers completely
ignored this competition, assuming that the Japanese products were cheap and of low
quality. Things changed 180
as consumers began to understand that, dollar for dollar,
the Japanese products were consistently of higher quality than their Western counter-
parts. Consumers realized that high quality did not have to come at a higher price. This
was a revelation for both manufacturers and consumers. In the mid-1970s consumer
goods manufacturers in both the United States and Europe began very busy travel
schedules to Japan—they wanted to study this “miracle” first hand.
How did Japanese manufacturers do it? It was not a miracle—just rigorously
implemented operations management methods that they had developed over time.
This set of methods and princi ples came to be known as “Lean Production”—a term
coined by the authors of the book “The Machine that Changed the World” in 1990.
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The book was based upon the results of a 5-year study by the Massachusetts Institute
114 MASS PRODUCTION AND LEAN MANUFACTURING
of Technology (MIT) on the future of the automobile, and documented the evolution
of manufacturing in the automobile industry from craft production, to mass produc-
tion, and to lean production.
4.4.1 Sources of Waste
Lean production systems can economically produc e high-quality products even at
relatively low volumes. This is achieved by both reducing cost and improving quality
and productivity through the absolute elimination of waste. For example, excess
inventory, manpower, and equipment are all wastes that increase manufacturing costs.
Excess inventory increases manufacturing costs because of the extra floor space
required, the people needed to handle it, the masking of potential quality problems,
and the cost of holding the parts in process. Lean manufacturing reduces production
costs by eliminating waste in the production system through the implementation of
improvement activities.
Waste is defined in lean production as
Waste ¼ anything beyond the minimum amount of equipment, materials, parts,
space, and workers time that is essential to add value to the product
The eight classic sources of waste are
1. Overproduction: Making more than is required by the market, or the next
process; making it earlier than required by the next process; or making it faster
than is required by the next process. Overproduction is viewed as the worst type
of waste because it not only increases inventory (holding cost), but also
increases labor cost and the facility cost.
2. Product defects: Producing defective products not only forces product scrap-
ing (that wastes material and all the effort expended prior to the defect) but
also inserts many non-value-added activities into the system including in-
creased delay for good products downstream, to say nothing of inspection
activities.
3. Inventory: Excessinventoriesthataremaintained“just-in-case”somethinggoes
wrong, or as a result of overproduction, tie up space and work effort. In a lean
system, inventories are kept at a minimum by applying the principles of a pull
system(i.e.,producing“just-in-time(JIT)”for a downstreamcustomer’s request).
4. Transportation (Conveyance): Long or complicated transportation routes
betweenoperations, due to poorfactorylayout,candoubleor triple handlingcosts.
5. Unnecessary motion: Moving parts on the production floor, when not really
needed, do not add value. Motions shoul d be limited to actions that add value.
6. Waiting: Parts to be processed held in buffers; machines waiting for parts
(machines starving); and operators idly watching machines run or being idle
when the required work is finished.
7. Under-utilized personnel: People who are either idling or not utilized effec-
tively comparable to their skills and knowledge.
LEAN PRODUCTION—GOALS AND BENEFITS 115
8. Inefficient processing: Operations that require excess labor due to poor
maintenance, unnecessary process steps for meeting product requirements, or
excess operational capacity or capability for the production requirements.
In summary, waste is any production resource (e.g., machines, buffers, people) or
operation (e.g., long transportati on) that is expended but does not add value to
the product. The elimination of waste is vital to increasing profitability, especially in a
market-driven pricing model. A system atic approach to examining the production
flow, and application of lean production principles can minimize waste. Products can
be produced in greater variety, at higher quality using less resources, in less time.
4.4.2 The Benefit and Objectives of a Lean Production System
The goal of lean man ufacturing is the absolute elimination of waste in the production
system through a discipline of continuous improvement. The relentless pursuit o f
waste in all facets of the manufacturing proce ss results in two major outcomes:
reduced overall cost and improved quality in the baseline product. There fore, we may
say that lean production‘s main benefits are reduced production cost and enhanced
product quality. Reducing product cost has always been at the heart of mass
production but mass production as expressed in the earlier model traded higher
quality for greater cost. Lean production has proven that it is possible to have both.
As we have described, an important way to eliminate waste in the system is to
reduce the number of defective products, preferably to zero. With lean production,
quality probl ems are either prevented through mistake proofing as the system is
installed, or being detected early within the process, instead of at the end of the
production line. Detecting and diagnosing errors in real time and immediately fixing
them is a valuable asset. It minimizes the number of defective finished goods that must
be scrapped, and reduces the need for re-work and repair of the production line. Both
of these significantly reduce production costs. Thus, lean manufacturing improves
product quality and reduces product cost simultaneously.
In-process quality means that each piece of machinery in the process supplies
only good parts to the next stage of manufacturing, thus eliminating work that is
expended on defective parts in future stages—a non-value-added operation that
increases cost. Since producing defective products increases the average time needed
to produce good products, it reduces system productivity as well. Avoiding this
problem, standardizing the way the work is performed and the monitoring of product
quality at every stage, enhances overall product quality and ultimately improves
customer satisfaction.
In summary, implementation of a lean production system results in two benefits:
1. Reduced cost by focusing on the elimination of waste and all non-value-added
activities.
2. Improved quality by concentrating on defect prevention and the in-process
identification and repair of defe ctive parts/products, not allowing them to
continue through the process.
116 MASS PRODUCTION AND LEAN MANUFACTURING
4.5 THE PRINCIPLES OF LEAN PRODUCTION
Lean production evolved to facilitate the lean manufacturing ideal: the elimination of
waste in all aspects of the operation. Toyota was the first to apply the principles, to
their low-volume/high-variety production, by the early 1960s, and developed the
Toyota Production System (TPS). During the next decade (to the mid-1970s) the
other Japanese auto companies adopted the lean production principles.
3
The rest of
the world has been working to implement them since the 1980s. Before we can
appreciate the principles of lean production we must understand the process of
“implementing Lean.”
The first step is developing an understanding of the current state of the process by
creating a map of the value stream of the entire production flow. In analyzing the
current state of production flow, operational availability (which is defined below) is a
key factor in value stream mapping.
Operational Availability ¼
Actual Run-time
Scheduled Run-time
where
Scheduled run-time ¼ Minutes per shift Planned (scheduled) downtime.
Actual run-time ¼ Scheduled run-time Equipment breakdowns Changeover
time Lost time (people, material).
Operational availability (OA) is usually expressed as a percentage (higher is better)
with a maximum of 1.0 or 100%. The definition recognizes that the actual run-time
is a function of scheduled run-time, which includes planned downtime, and an
unscheduled downtime. Basically OA is the percentage of time the system is
actually available to run compared with the maximum time the manufacturer might
plan to run it.
Of course, the actual run-time of the system is smaller than the scheduled run-time.
Reasons include:
.
Unscheduled equipment downtime because of breakdowns or extensive repairs
.
Changeover time needed to switch production between product models
.
Unavailabilityof parts when needed, machinery starving, and personnel idle time
.
Unavailability of people when needed to service machines, machinery starving
4.5.1 Takt Time and Cycle Time
Takt time is the total time available during a production period divided by the demand
for that period. The takt time is the desired time between units (of production output)
synchronized to the rate of customer demand. Improving operational availability is
important in meeting the takt time.
THE PRINCIPLES OF LEAN PRODUCTION 117
Cycle time is the inverse of the line production rate; namely, it is the actual time
interval for products coming off the production line. Due to process reliability
problems, the cycle time is usually set at 0.85 to 0.9 of the takt time.
Defective products impinge on the frequency of good products being produced and
increase the average cycle time, essentially, the average time required to produce a
good product. This impacts the ability to meet takt time. If the system is producing
products that require re-work, the time between good output products is increased,
and the manufacturer will not be able to meet the customer demand.
Based on this information, production flow is analyzed in a systematic way to
compare the value-added and non-value-added operations or activities. The principles
of lean production (on which we elaborate below) are based on management
operations methods, and aim at minimizing the non-value-added activities and
minimizing sources of waste.
4.5.1.1 Principle 1: Waste-less Continuous Process Flow by Value-Stream
Mapping, Elimi nating Non-value-added Process Steps, Stable Flow Manu-
facturing and a Leveled Production Schedule We have to analyze which steps
and operations in the process are adding value to the product, and cut off or reduce the
non-value-added steps. For example, drilling a part on a machine tool is a value-added
step. Putting parts into a buffer, waiting to be drilled is not adding value to the product.
A process step is adding value if:
1. The process step makes a physical improvement to the product being
manufactured.
2. The customer is benefiting from the step and is willing to pay for it.
Ideally, we should eliminate or reduce buffers, since parts waiting are not adding
value. However, if a buffer is eliminated, a machine in the system may wait for parts
(is starving), and adding a buffer in this case extends the system’s average cycle time.
Thus, an analysis is needed to decide the appropriate buffer size that guarantees a
smooth and continuous operational flow of the line while minimizing non-value-
added operations.
As a rule, all non-value-added steps are either “waiting” or “moving” steps.
Examples include parts waiting in a buffer, products waiting to be taken to customers,
new cutting tools waiting to replace worn tools, etc. Moving parts from one machine to
another for subsequent processing, or moving parts to inventory, are non-value-added
steps. In this case, the physical distance between machines doing successive opera-
tions must be kept as small as possible. Similarly, the distance between a supplier and
a customer shoul d be as short as possible. For example, a car seat manufacturer must
be in close geographic proximity to the car final assembly plant because the travel time
between the two plants does not add value to the product and travel interruptions in
supply of one will directly impact the production schedule of the other plant.
Stable continuous process flow is established and maintained by leveling the
production schedule (i.e., the workload) so that it has as little fluctuation as possible.
118 MASS PRODUCTION AND LEAN MANUFACTURING
This is accomplished by eliminating bottlenecks in the line, and with as little
inventory as possible. Line balancing operations are conducted throughout all the
stages of the line so that the flow of manufactured products continues with minimum
delays.
On a system that produces two products, or more, that have small lot-size
production runs, balanced operations are important also between products. Other-
wise, the system must be purged when the product type is switched over, which will
cause production delays.
4.5.1.2 Principle 2: Built-in Quality—Team Responsibility A traditional as-
sembly line moves products continuously from one assembly station to the next and
the product is partially assembled one operation at a time. In each station, a team of
people does the assembly while the product is moving. During a typical stage, perhaps
30–60 seconds long, several parts are installed into the same product by the team.
There is not a lot of time for spotting errors or fixing mistakes, and so defective
products are usually just passed to the end of the line where they are either repaired
or scrapped.
In lean production each person on the line has quality checking responsibilities.
Team responsibility and ownership of the team’s assembly operation is a key principle
of lean man ufacturing. If a defect is encountered, either it is fixed in the station during
the normal station interval, or the team leader stops the line by pulling a cord. Th is
practice of stopping the line to fix quality problems reduces defects, enhances product
quality, and eliminates the rework area, since quality products are achieved every
time. Consistently producing quality products the first time reduces costs. The end
result is better baseline quality at lower price.
The team also has the responsibility of improving their tasks of the assembly
operation. This may include doing the assembly in a more efficient way, changing the
order of steps, reducing inventories, etc. In the end, the team takes ownership and
responsibility on incremental, continuous improvement (referred to by Toyota as
kaizen) that is constantly seeking to optimize the system (see also Principle 4).
4.5.1.3 Principle 3: Just-in-time—“The Right Parts at the Right Time in the
Right Amount ” Just-in-time (JIT) is a methodology of lean production that
coordinates the flow of parts within the supply chain, and within the factory between
processes (e.g., between a machining system and an assembly line). JIT means
supplying each process with the parts and material needed, exactly when they are
needed, and in the exact quantity that is needed. Production quantities are adjusted
constantly to produce only what is required by the customer (or the next supplier in a
supply chain) so as to avoid overproduction. JIT is the archetype of a pull system.
To manage their JIT organization Toyota implemented a kanban system. Kanban
means, “a card used as a sign” in Japanese. At every station, the product quantities
that the next station requires are written on placards and the current process is
expected to supply exactly those quantities, exactly when needed. There are also cards
that show the exact quantities that the previous process was to supply to the current
process, in order to coordinate the process, station-to-station, and keep the line
THE PRINCIPLES OF LEAN PRODUCTION 119
running at its takt time. The kanban information system coordinates the quantities
supplied to every process in the entire production system. Its goal is to always
manufacture products with an absolute minimum of excess inventory.
JIT is a pull system—The quantity of parts to be supplied is determined solely by
the demand at the next production stage. This is in contrast to the push system in which
parts are supplied to stations based on generalized production schedules, with no
consideration of the actual processing rate.
There are at least two segments of a manufacturing enterprise where JIT should be
implemented: inside the company—between successive processes; and in managing a
supply chain. These aspects are illustrated in Figure 4.7, which depicts a supply chain
within and outside the enterprise. Inside the enterprise, engine block castings are
machined and transferred to the engine assembly line, and then the assembled engines
are supplied to the final automobile assembly line. Outside suppliers provide engine
block castings to the manufacturer’s machining line. Other suppliers provide a variety
of parts to the automobile final assembly line: car seats, door mechanisms, instru-
mentation panels, etc. (See details in Chapter 6.)
JIT Management of the Supply Chain—The key to JIT is that suppliers
synchronize their delivery directly in coordination with their customer’s production
schedule, dramatically impacting the customer’s inventory needs. In the past, for
example, a 1980s automobile assembly plant maintained inventories to guarantee
2 weeks (10 days) supply of production covering two shifts. Today, the inventories are
geared for only 2 hours! If automobiles are assembled at a rate of 50 per hour, the
inventory for each part has been reduced from 8000 to 100, namely by a factor of 80.
Since a car has over 10,000 parts, this is an enormous saving in inventory cost
(including parts and the space and personnel to store them).
Time is a critical issue in JIT management. The supplier must be able to deliver
their parts on time regardless of disruptions such as changes in orders, production
Figure 4.7 JIT is applied both inside the company and in its supply chain.
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MASS PRODUCTION AND LEAN MANUFACTURING