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Influence of Lean strategy on business performnace

 

1. The impact of effective lean implementation on businesses

It is widely acknowledged that the manufacturing industry accounts for a significant amount of resource consumption and the generation of waste across the globe (Abdullah, Zailani, Iranmanesh & Jayaraman, 2016). This is the main reason why stakeholders have put a lot of pressure on the manufacturing sector to be more sustainable because of the environmental issues they cause, such as global warming and social issues (Zailani, Govindan, Iranmanesh, Shaharudin, and Chong, 2015; Iranmanesh, Fayezi, Hanim, and Hyun, 2018; Zailani, Iranmanesh, Sean Hyun, and Ali, 2019).Considering the increase in pressure coming from stakeholders for enterprises to be socially and environmentally responsible, companies have recognized the strategic role that sustainable performance can have on their competitive edge (Wong & Wong, 2014; Mallak, Ishak, Mohamed & Iranmanesh, 2018). This has also led to different studies on the influence of lean production on companies, with some stating that it can improve companies environmentally (Wiese, Luke, Heyns & Pisa, 2015; Caldera, Desha & Dawes, 2017); socially (Moreira, Alves & Sousa, 2010; Taubitz, 2010); and financially (Moyano-Fuentes & Sacristán-Daz, 2012; Thanki, Govindan & Thakkar, 2016) in terms of performance. However, the focus of this study is on how lean implementation can enhance quality, reduce lead time, improve customer service, and improve profitability of a company by referencing the case of Aeroquip-Vickers Inc.

1.1. Improved quality

The concept of lean manufacturing can be traced back to Toyota production systems (TPS) with the objectives of reducing production costs and enhancing the quality of final products by eliminating activities that create waste or that do not add value to the company (Nordin, Deros & Wahab, 2010). The focus of this approach was on inventory management and just-in-time production, which was later extended to the entire manufacturing management process (Beckman & Rosenfield, 2008). It entails reducing inventories and lead time together with enhancing productivity and quality (Forrester, Kazumi Shimizu, Soriano-Meier, Arturo Garza-Reyes & Fernando Cruz Basso, 2010). It has been demonstrated in different studies that lean manufacturing enhances waste management (Folinas, Aidonis, Malindretos, Voulgarakis & Triantafillou, 2014; Pampanelli, Found & Bernardes, 2014; Galeazzo, Furlan & Vinelli, 2014), activities that do not add value to the production process (41), and eventually leads to enhanced quality (Campos, 2016).

From the case study, it was pointed out that the company witnessed increased complexity in the product mix, which saw growth coming from supplying assemblies on more of a just-in-time basis instead of having the components supplied during the weekend. It meant that the company’s production team had exactly what they needed and was able to enhance the quality of the final products at the end of the day. This clearly shows that implementation of lean helps companies to reduce waste and effectively enhance the quality of final products.

1.2. Shortening the lead time

Womack and Jones [2003] pointed out that the prerequisite factors when it comes to attaining lean manufacturing are waste reduction and continuous improvement culture. Lead time is the amount of time that elapses between the start and finish of a production process; because production is not complete until finished goods reach the final consumers, it begins before production and continues after production [Minh, Zailani, Iranmanesh, & Heidari, 2018; Alhuraish, Robledo, & Kobi, 2016].Numerous studies have shown that there exists a positive relationship between lean and reduced lead time, which includes the works of Bergmiller and McCright [2009] and Dues et al. [2013]. This research suggests that in order to enhance the performance of companies, strategic implementation of lean practices allows for production systems to deliver what the customers need, whenever and wherever they need it, effectively reducing lead time. Therefore, lean implementation makes it possible to have the right resources required for production in the right quantity, quality, and location (following successful production) through effective inventory management.

The company understood the essence of flexibility in lean implementation as demand in the spring could be more than double the demand in the fall. The plant did so by decreasing its lead time over the years, helping it respond to demand instead of building inventory. The solution the company adopted was to flex the workforce, providing room to cover for a seven-days-a-week schedule during the seasons it had higher orders. Through flexing the workforce, the company produces more when more is needed and vice versa.

1.3. Better customer service

Close contact with the consumers, which entails involving them when it comes to product design and exchanging information with the customers as a form of customer relationship management, is known to bring about better identification of the needs of the consumers and subsequently increase their loyalty to product, service, and process differentiation from the competitors, one that strives to increase the overall value of the brand (Thanki et al., 2016). Research on the influence of lean manufacturing on enhanced customer service has found that innovative relationships with consumers is one of the outcomes gained through the implementation of the concept of lean manufacturing (Ali, Omar & Bakar, 2016; Esmaeilifar, Iranmanesh, Shafiei & Hyun, 2018). Considering that customers play a crucial role in product innovation (Alhuraish et al., 2016), the implication is that a good relationship with consumers can bring about enhanced diffusion of products.

In reference to the case, customer service was also enhanced through the effective implementation of lean in the company, with the plant noted to have assigned on-site engineers to some of its main customers, a move that further helped the company to develop new products and services—bringing about enhanced performance (financially and otherwise). Some of the measures put in place by the company to attain this include: 1) reaching long-term order agreements with key customers, making it possible for demand to be level; 2) building an inventory buffer in the off-season, which it then utilized during the peak season, reducing the need for overtime and contract workers; and 3) reorganizing its value streams in order to reduce and enhance the link that exists between customers and production.

1.4. Greater profitability

Past literature has also looked at the relationship between lean manufacturing and the financial performance of a company as being an aspect of its sustainability. In the work of Corbet and Klassen [2006], it was concluded that through lean manufacturing, a company can enhance its financial performance as it allows it to acquire new customers, differentiate its products competitively, and reduce the cost of production by reducing the amount of waste being generated. King and Lenox [2001] supported this view by stating that lean manufacturing enhances the financial performance of a company by reducing the managerial costs through reducing pollution, and the summary is that there exists a positive relationship between lean manufacturing and the financial performance of a company (Iranmanesh, Zailani, Sean Hyun, Ali, & Kim, 2019).

The case study shows that through its improved inventory management, the company was able to significantly increase the number of part numbers it managed, reduce lead time, reduce the size of orders, and create more products and services—all leading to enhanced profitability as more revenues were coming into the company. This is also in line with findings from past studies with respect to how lean manufacturing improves the financial performance of a company.

2. Four (4) advantages of visual management in lean operations, and how the case study company used these advantages to track project progress and increase visibility.

When it comes to visual management in lean operations, there are four pillars viewed as essential to the overall growth of the process, and they are as discussed below in line with their impact on the company.

2.1. Just In Time (JIT)

In its simplest form, JIT is defined as having the precise amount of stock required at the exact moment (Barlow, 2015). A study that was undertaken in the US in 1981 and 2000 showed that when companies had less stock in their warehouses, they were more efficient than when they had more stock in their warehouses. The reason for this is that when the company has moderate stock in its warehouse, it does empower the company to work at an insignificant holding cost, with the setup cost also kept at an absolute minimum, while taking out the undesirable lead time and delivering products that are in line with the client’s arrangement (Mankazana & Mukwakungu, 2018).

In the case study, one of the actions undertaken by the company to leverage the benefits of JIT is that the value streams meet weekly in war rooms, making use of different strategy measuring maps to track projects, tasks, responsibility, and performance, allowing for the addressing of areas that have loopholes in the company—in terms of resource availability.

Integration of the Supply Chain

Research has shown that the lean system is only effective when it is executed across the entire production chain, that is, from the suppliers to the customers. The implication is that the entire chain will be affected in the event that one of them does not deliver. That is to say, it is a long process that covers different interfaces, and the manufacturers need to put in the necessary efforts to ensure that the supplier base is organized (Mankazana & Mukwakungu, 2018).

In terms of the case, it was pointed out that on a weekly basis, the functional leaders attend the war-room meeting where they hear reports on ongoing projects and specific metrics like quality of suppliers and on-time delivery. In the event that there are shortcomings in any of these projects, the value stream manager does the duty of researching the issues and buffering solutions to them.

2.3. Cellular production

In the conventional manufacturing system, the shop floor layout is designed in line with the activities (Mankazana & Mukwakungu, 2018). However, in lean manufacturing, the design is based on keeping the parts of the product in line with separate fixed areas. Therefore, the layout is designed in such a way that it creates a single peace floor, effectively reducing the order floor time, work in progress, cost of material handling, and so on.

In order to attain cellular manufacturing, the company put in place certain actions like reorganizing the value stream to shorten and enhance the connection between production and the customer. The resources used for production are arranged in parts based on the necessary steps taken towards production. The essence is that it enhances the production process as whatever is needed at that point in time is close by.

Kaizen 2.4

Kaizen is the Japanese word that is used to describe continuous improvement. Thus, this term is used to describe a strategy that strives towards perfection by eliminating waste. The process eliminates waste by empowering people with the necessary tools and methodologies to uncover opportunities for improvement and make necessary changes (Jacobs & Chase, 2017). It is understood in Kaizen that waste is any activity in the company that does not add value from the point of view of the customers. By adding value, what is implied is that the work needs to be done right from the start when products or services are changed in ways that a well-informed and reasonable customer will be willing to pay for them. The reason is that waste consumes resources—both in its human and material form—and those that implement wasteful processes are themselves considered to be waste. The reason is that they don't have the time to engage in meaningful activities that are capable of yielding the desired outcomes that customers want (Mankazana & Mukwakungu, 2018).

The case study shows that notwithstanding the success of the value-stream reorganization, Timbila, a leader of one of the value stream teams, stated that the company’s plants are at the beginning of the improvement journey because the company values continuous improvements in their business activities. Such activities can be seen in the most recent reorganization taking place in the company’s value streams, which has ushered in the concept of revenue growth among the team. The team did that by maintaining their current business and understanding the need for them to look for new opportunities. Basically, the company understood its weaknesses through the weekly meetings of the value stream members and made necessary efforts towards correcting the issues in order to enhance its overall growth.

3. The advantages of establishing a lean value-stream culture

Generally speaking, culture is one of the crucial factors that shapes the way things are done in a company and it has an influence on the management systems (Mann, 2014). It shows the personality of the firm, reflecting the norms and values of the company’s employees as well as the way activities are undertaken in the company (Ransom, 2018). In line with the work of Schein [Schein, 2010], culture is defined as a pattern of shared basic assumptions that have been acquired in the course of solving issues and found to be effective enough to be viewed as valid, thus, disseminated to the new members of the company as the right way to view, think, and feel in relation to the issues that the company intends to resolve. What is shown in this definition is that culture does go into the way people think, feel, and perceive the employees of a company.

A study was conducted by AberdeenGroup [2018] which looked at companies that implement lean practices, and it was found that companies that developed lean cultures throughout the implementation of these practices are more effective when compared to those that have low cultural adoption, which represents those that have applied lean practices mainly on the floor. In pact studies, it has also been shown that the lack of a lean culture is one of the main factors behind the failure of lean manufacturing in companies (Tkalcevich, 2015; Willcock, 2013). Therefore, it is normal to think that lean culture moderates the impacts that lean manufacturing practices have on the sustainable performance of companies.

In terms of the company, there are a number of benefits that came with the introduction of value-stream lean culture as discussed below.

3.1. Built-in checks and standardized analysis.

This represents the foundation of the company’s value stream culture. As described by Timbila, the company’s strategy deployment process does offer it the desired baseline for its corporate functions. This is based on the view shared by the leader that if the team didn’t meet every two weeks, its performance numbers would start to drop. The essence of the culture, to them, is that the activities in the company needed to be standardized in order to ensure the delivery of similar values across different markets, helping consumers attain desired outcomes.

3.2. Long-term viability

It was pointed out in the case that in order to create the desired behavior, the company would need to define the baseline, then use it to shape the behavior, and eventually create a culture that could ensure its business sustainability. In terms of the daily work planning, Timbila holds a five-minute meeting with the functional leaders and value-stream managers on a daily basis where they are briefed about the upcoming day.

3.3. Alignment of values and principles across all levels of the organization.

In a lean organization, it is stated that the leader must make sure the principles and values are aligned across all levels of the organization (Petersson et al., 2012). The reason for this is that it would improve value stream thinking across all departments, resulting in a unified goal.As stated by Liker and Convis (2012), the ultimate goal when it comes to lean manufacturing is proper execution of the leadership, and the alignment that has been developed between the leaders and employees is the way through which this ultimate goal can be delivered (Dombrowski & Mielke, 2014). This ultimate goal doesn’t change from year to year, as it is described as a goal of perfection, and while it is unreachable, it should always be the aim of the company, providing the necessary path for the attainment of such a goal (Liker & Convis, 2012).

The case supported this with the statement from Timbila and Sadia, heads of different value streams, that one major factor behind the creation of a value stream-based organization is picking leaders that have the right attitude, which includes being team-oriented, willing to let others try and fail, and possessing the desire to see that those around them actually succeed. These features are applied in the selection of both the value stream managers and functional-group leaders.

3.4. Creation of enhanced valuable-chain integration

A good example of how to spread values across the organization is what is known as the Toyota Way, a compendium that was later translated into different languages and that outlines the core values of Toyota (Modig & hlström, 2015). It features five core values that are further divided into two categories; continuous improvement and respect for people. Liker and Convis (2012) pointed out that these core values are utilized in guiding the lean organization towards full integration.

The case stressed this by stating that the buyers and planners are well integrated into the lean process and they know more about what is happening in their own part of the production floors, being provided with exchange information about what occurs when the value-stream members are physically located together. Timbila stated that prior to the implementation of lean manufacturing, the value-stream members did not have a clear understanding of how their decisions affected other members of the group, but the new culture now implies integration of the entire value stream and it has a positive influence on the overall productivity of the company.

4. Four (4) ways the leadership of the company was able to cause tremendous change, leading to an effective restructuring and reorganisation.

The culture of an organization is considered a pivotal asset when it comes to facilitating the successful implementation of its strategies (Metcalfe, 2014). In accordance with the work of Zheng et al. [76], it was argued that there is a close relationship between organizational culture and the performance of a firm because it does determine the effectiveness of the strategies being implemented by the firm. In essence, the impacts of culture on the successful implementation of strategies have been shown in different dimensions (O'Neill, 2015).

A good example is in the work of Kurniawan et al. [2017], where it was demonstrated that the risk culture serves to moderate the impact of supply chain visibility and supplier development, which are two risk mitigation strategies on the effectiveness of the supply chain. It was also indicated by Oltero and Waldrip [78] that a culture of continuous improvement in a company can bring about facilitated adoption of environmental management practices and principles. This is also why it is believed by some practitioners and specialists that the extent to which cultural values are shared in the company determines the impact of a company’s capabilities and resources towards performance (O'Neill, 2015).

Some of the prerequisites for moving from conventional manufacturing management to lean management are the introduction of fundamental changes in norms, priorities, and values. In the absence of such changes, especially with reference to the culture of the company, it wouldn’t be possible to attain the benefits that come with lean practices. Womack and Jones [2007] pointed out that reducing waste and improving the manufacturing process cannot be achieved solely through the implementation of lean manufacturing, as it does demand a culture of continuous improvement and waste reduction in the company. In any case, there are many companies that view lean manufacturing as more of a process than a philosophy, and the impact is that it reduces the rate of success in the implementation of lean manufacturing in these companies [Saunders, Lewis & Thornhill, 2016; Starbird, 2017].

In the absence of the right change management and understanding of the lean philosophy, the initiative would be considered a failure. The reason is that the change process should involve the manager actively leading the deployment of lean practices throughout the entire system. However, having a lean culture does require flexibility and creativity as a condition for such change. There are different ways in which the leadership of the company was able to cause tremendous change that led to effective restraint and reorganization as discussed below.

4.1. Clearly defined value stream

In order to attach objectives to the value stream, management started by clearly defining it in its own terms to include all the actions, both those that create value and those that do not create value, that are considered necessary to bring a product from concept to launch (also known as the development value stream) and from the moment they are ordered to the moment such orders are fulfilled (also known as the operational value stream). It also covers the necessary actions to process the information coming from the consumers and the actions that are geared towards the transformation of the products while they are on their way to the consumers.

At Parker Hannifin’s Climate Systems Division, value streams are considered to be across all spheres of the company (where everyone is at). Therefore, the value stream managers, such as Steve Merriman, spend a significant amount of time when it comes to supporting the employees and interacting with the consumers as well as other members of the company and on the plant floor, where the employees are engaged in the activity of producing different kinds of flow-control devices.

4.2. Independence

The management also enhanced the overall autonomy that the staff have in their job. In this case, Steve Merriman explained that the management makes staff (value stream leaders) very autonomic, allowing them to run their activities like a business, and they (the value stream team members) understand that it is the job of the managers and team leaders to run it like a business. At the plant floor level, the floor controlled operations are contained in one area, just like the other five value streams also have their own areas. Production orders are taken by the operators directly from the computer terminal, where they are uploaded in the form of customers’ orders. The orders are turned around in about a day.

4.3: Standardization of work projects

The case indicated that the operators were filling in information about their tasks as part of a standardized work project. This entails dividing the work into elements, and then they are kaizen throughout the year. To further explain this, Merriman, a team leader, stated that all the value stream materials are pulled from incoming materials and supplied from an inbound freight area that is divided by value stream. Timbila, the operations manager, also stated that the material-handling areas are the size of and contain half the inventory they did in the past two years.

4.4. Improved interaction across the entire value chain

Based on the view of Timbila, each value stream has a buyer or planner, and they are not writing any contracts. Their entire focus is on getting their (purchasing) scheduling done in the proper way, in line with the schedule of the production. Therefore, resources that are needed to execute a given project are always available whenever the need for them arises. Essentially, the buyer/planner is now more aware of the things that are happening on their portion of the production floors than their predecessors knew, as these predecessors did not have the information exchange that takes place when value-stream members are physically located together.

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