Key Definitions

1.    Cycle stock – Refers to inventory required to cover ordinary demand. Cycle stock is given by average daily demand multiplied by lead-time.

2.    Buffer stock – Refers to inventory held to cover unexpected rise in customer demand.

3.    Safety stock – Refers to inventory held to cover demand in case of breakage, spoilage, loss or other calamities that interrupt normal production.  

Defining Lean Thinking

In the traditional business set up, manufacturers tend to continue manufacturing what they are already manufacturing, and clients tend to ask for goods they are already receiving, or with minor alteration thereon. For instance: manufacturers make vehicles, dealers sell vehicles, and clients ask for vehicles; but the real product people require is personal mobility.

Lean management challenges this mind-set. It requires managers to continuously look for means to improve productivity and eliminate waste. For example, by adopting lean thinking, a car manufacturer can come up with better methods of delivering mobility to people.

But exactly what is lean thinking?

Lean thinking can be defined as business plan that aims to offer a new and more effective way of thinking about how to plan business resources (human activities and capital) with the primary goal of delivering maximum value to clients and benefits to society. It involves determining the target or desired cost of the product or service based on the input required if all the waste is eradicated from the process.

Mass Production Mind-set Vs Lean Thinking Mind-set

As depicted in the table below, "Lean thinking involves changing the organization's mind-set from the wasteful "Mass Production Mind-set" to the efficient "Lean Thinking Mind-set."

Mass Production Mind-set Vs Lean Thinking Mind-set
Mass Production Mind-set	Lean Thinking Mind-set
High volume	Flexible response
Movement of material	Flow of value
Producer push	Customer pull
Inspection	Prevention
Decomposition	Integration
Expert-drive	Knowledge-driven
Periodic adjustment	Continuous improvement

The easiest way for businesses to start adopting lean manufacturing is to begin ‘thinking lean, i.e., getting in the right mind-set to start identifying opportunities to improve productivity and reduce waste. To this end, this chapter covers two important techniques that managers can use as the starting point towards ‘thinking lean. These are;

1. Choosing and implementing the appropriate metrics for monitoring lean and productivity.

The first technique involves choosing the key Metrics that define productivity and efficiency in a business. Many organizations that have started the journey of implementing lean production have gone straight into the implementation of its concepts and techniques without understanding what propels performance in each aspect of its operations, and/or how this performance is evaluated. Without this knowledge, management will not know where to apply the lean concept and tools, or whether the application will yield positive impact.

1. Identifying the 7 types of waste.

The second technique, Seven Waste Identification, is vital to lean production since it aids managers to identify, address, and characterize seven kinds of waste that describe Non-Value Adding processes and activities in any business operation. These wastes are:

1.    Waste of Conveyance or Transport

2.    Waste of Inventory

3.    Waste of Motion 

4.    Waste of Waiting

5.    Waste of Overproduction

6.    Waste of Over processing

7.    Waste of Correction or Defects

Choosing the Appropriate Metrics for Measuring Productivity and Level of Lean Implementation Success

The first step when adopting lean thinking or mind-set is to know which metrics are significant in tracking and enhancing productivity in the specific organization, and to ensure they are prioritized when adopting lean production concepts and techniques. Some of the common metrics used to gauge effective and efficiency of production include;

• Operational costs per product

• Operational costs per revenue

• Net operating profit

• Production per work order

• Tons of raw material per week

NB: Choose and use the appropriate metrics, given your particular business model and/or setup. 

Lean thinkers use different metrics to gauge performance of the value stream. However, the 2 most important metrics are:

1. Takt Time

Takt time is a measure of how frequent a product or one part of a product should be manufactured, given the level of sales, to satisfy customer demand. Normally, it is used as a base to match the rate of work to the average rate of consumer demand. It's regularly used in standard work, value stream mapping, pull system and total productive maintenance.

In a winery business, Takt time can be used to compute packaging or bottling rates. It can also be used to evaluate performance of internal processes such as receipt, de-stemming, crushing as well as pressing of grapes. Using the takt formula given above, "the quantity that must be pressed in a day" goes under CDRPD.

Illustration 1:

Assume the manufacturing team needs to press 16 tonnes of grapes, and they have 8 working hours per day (with a 30 minute lunch break). The takt time would be computed as follows:

Takt time = 450 min / 16 tons per day

Takt time = 28.13 minutes

The figure simply means that the production team must press 1 ton of grapes in every 28.13 minutes. To meet this pressing rate, receiving, de-stemming, and crushing processes must be maintained within a cycle time of 28.13 min or lower.

2. Overall Equipment Effectiveness

Overall equipment effectiveness (OEE) is used to evaluate the overall effectiveness of a production line or a part of production equipment. It consists of three elements:

• Performance percentage – used to grades the actual output of an entire production or a single machine with the amount it should produce (less than 100 percent means there are losses).

• Availability percentage – used to grade the amount of time available to run a machine against the actual time the machine is run (less than 100 percent mean there are losses due to downtime).

• Quality percentage – used to compare the performance of a production line or a single machine when creating an output against the quality specifications (less than 100 percent means that the production line did not meet the specifications).

OEE% = Performance% × Availability% × Quality%

In addition to these metrics, there are other production metrics that lean thinkers should consider when tracking and implementing lean production tools and practices. The table below gives a summary of these metrics.

Production Metrics
Metric Type	Metric	Description
Improving Productivity	Throughput	Measures the level of output over a certain period of time (at process, equipment or plant level).
	Capacity Utilization	Shows the percentage of output that is being used within a given time.
	Productivity Cost/Unit of Product	Measure of the amount of revenue being generated by a company, business unit or plant, divided by total number of employees.
	Energy Cost/Unit of Product	Measure of the cost of energy (gas, oil, steam, electricity, etc) needed to produce a given volume or unit of product.
Improving Quality	Yield	Shows the percentage of product made correctly and to specifications the first time. I.e., doesn't need rework.
	Supplier's Quality Incoming	Measure of the percentage of quality material being supplied by a certain supplier.
Reducing Maintenance	% Planned vs. Emergency Maintenance	A ratio metric that shows how frequently planned maintenance (scheduled) takes place compared to emergency maintenance (disruptive).
	Down time to running time ratio	The ratio of downtime to running time shows the asset availability for production.

Production Metrics

Identifying the Seven Waste and Their Primary Causes

Lean thinking practices and techniques focus on eradicating Non Value Adding activities as well as optimizing Business Value Adding activities, such that the maximum or greatest amount of resources, attention and time is focused on the Value Adding activities. Lean thinking achieves this through facilitating identification and elimination of the seven main types of waste in an organization operation. 

1. Waste of Overproduction

Causes of Overproduction

• Inaccurate projection based on different customer demands.

• Agreements with suppliers to buy a certain amount of raw material even when the demand for the product is low.

• Producing with low quality material thus making it harder to sell the product.

• Producing more goods than demand in order to be active.

• Optimizing on a certain step of production while others are inefficient.

2. Waste of Waiting

Waste of waiting occurs when operator or staff experience idle duration due to certain equipment, information, tools, or instructions from the management not being ready or easy to access and/or use. It is often difficult to identify waste of waiting, because workers often find other things to do to; "be busy". However, being busy on the wrong tasks can be wasteful than just being idle.

Cause of Waiting Waste

• Delay from suppliers

• Mismanagement of production timetable

• Equipment at capacity

• Equipment breakdown

• Delays in arrival of machines

• Waiting for key information to arrive

• Waiting for client to arrive

3. Waste of Transportation

This is the movement of material and product within the organization that add no value. It is often in the form of conveying belts, carts, forklifts, manual, by staff, or through extended pipe-work. Transportation waste can create a potential hazard to quality of products. It costs the organization heavily inform of equipment and labor costs of moving the material around.

Causes of Transportation Waste

• Inefficient or outdated production or plant layout

• Reliance on carts or forklifts to move product and raw material

• Off-site storage

• Warehouse with excess inventories

4. Waste of Over-processing

Over-processing waste occurs when elements of production processes are operated or designed in such a way that they use more resources, time, and/or space than truly necessary. Over-processing waste may originate from equipment working faster than required, processes with more staff than required, or processes that use more man hours and paperwork than required.

Causes of Over-processing Waste

• Lack of a set processing timetable

• Lack of equipment and production controls

• Lack of qualities associated with product specification

• Lack of external and internal communication

• Complex administrative procedures

5. Waste of Inventory

This relates to the excess level of product or material other than what is required to fulfill current customer demand. Inventory waste affects the cash flow of an organization as it is cash tied-up due to unsold products.

Causes of Inventory Waste

• Cycle stock

• Buffer stock

• Safety stock

• Transportation constraints

• Unleveled production schedule

6. Waste of Motion

Motion waste relates to movements that administration or production staff make to complete a task – managing equipment, looking for material or tools or even accessing vital information.

Causes of Motion Waste

• Lack of standard work techniques

• Poorly designed processes

7. Waste of Defects

This is the extra work as well as the effort needed to correct a product that doesn't meet the standards set by customers.

Cause of Corrections Waste

• Low-quality material

• Inadequate work instruction and training

• Lack of process to inspect products at all stages of production

In addition to the above techniques, there are several Waste Walk Audit Questions that managers can ask to help them identify Pain Point in the work area to be leaned. Some of these questions are given in the table below:

Audit questions to help managers determine the "pain points" in the area to be Leaned
WAITING 1.    Is there excessive dependency on other work stations to complete an activity? 2.    Are there too much approvals and signatures needed? 3.    Are delays in receipt of materials rampant? 4.    Is cross department resource allocation a problem? 5.    Is there system response or downtime causing delays? 6.    Are there computer software problems causing delays in production?	OVERPRODUCTION 1.    Are extra copies, more than needed ever produced? 2.    Is there emailing, faxing or printing more than what is necessary? 3.    Is the firm ordering more services or test than what customers are demanding? 4.    Is the firm buying raw materials, just in case they might be needed? 5.    Do we ever prepare reports that are never read or used? 6.    Does the firm hold meeting without a clear agenda? 7.    Does the firm produce multiple documents with repetitive information?
INVENTORY 1.    Does the firm experience delay in receiving information? 2.    Does the form order excess amount of supplies? 3.    Are there obsolete files in a work space? 4.    Are there any forms of batch manufacturing and/or processing of data? 5.    Is there obsolete equipment in work areas?	MOTION 1.    Are workers using multiple-layers or electronic files or spending too much time trying to locate computer files? 2.    Are workers finding it hard to find and locate checklists and work documents in drawers and stores? 3.    Are you manually carrying documents from one cabinet or drawer to another? 4.     Are items occasionally misplaced? 5.    Are workers struggling to reach commonly used equipment and tools?
UNDERUTILIZATION OF PEOPLE 1.    Can the people be trained to become more productive? 2.    Is everyone in the position he or she is trained for? 3.    Are there restrictions on technical training? 4.    Does the firm delay implementation on new computer software? 5.    Are workers given all the tools they need to do their job?	MATERIAL TRANSPORTATION 1.    Are there instance of hard delivering documents that can be sent electronically? 2.    Is material receipt and issue requiring unnecessarily high number of approvals? 3.    Does the firm send documents that don't need to be delivered?
CORRECTION/REWORK 1.    Are there mistakes and errors in data entry?  2.    Does the firm experience quoting, pricing, coding or billing errors? 3.    Does the firm ever lose records or files? 4.    Are there instances where the firm notices inaccurate information on their documents? 5.    Do work standard exist? And are they followed? 6.    Do files or information records go missing?	EXTRA PROCESSING 1.    Does the firm produce repetitive documents? 2.    Is the filing system poor? 3.    Are there instances of repetitive data entry? 4.    Are there areas where more work than is required is being done? 5.    Are there sound visual controls in place?