Lean Production - Assignment Example

PART A LEAN PRODUCTION Definition: lean production is whereby a company reduces any activity that uses resources without adding any worth during manufacturing, design, customer service, and distribution processes. 3 examples of lean production i. Levelized Production Levelized production is whereby a company ensures that the work load is maintained at the same level throughout the production process. This principle focuses on both history and forecast and the chief constituent is exploitation of a pull system. ii. Just In Time Production Just in Time (JIT) production is whereby a company manufactures only what is required, in the quantity it is required and when it is required. This principle ensures that goods are produced and sold only when they are required, hence, no time is wasted manufacturing products that cannot be sold. iii. Quality Built In. This principle involves incorporating quality into the manufacturing process, including designing and packaging of the parts. Therefore, quality is a priority throughout the manufacturing process. Three advantages of lean production i. Reduced waiting time for customers ii. The manufacturer’s inventories is reduced, which also saves cost iii. There are few errors and hence reduced reworks How is quality measured? Describe two reasons for producing good quality Quality is measured on how best a product fulfils the needs of the customer. Customer satisfaction, on the other hand, is based on the product’s safety, design, long-lasting, fit for purpose and reliability. One of the reasons for producing good quality is to ensure sustainable growth and competitiveness in the market. In most instances, companies operates in a very competitive environment, and one of the best survival tactics is producing quality goods in order to attract and retain customers. The other reason for producing good quality is to enhance efficiency. For example, when a company produces quality goods, the cost for reworks is substantially reduced and hence saving costs. Also, loss that emanates from customer complaints is reduced greatly. ECONOMIES OF SCALE 1. Why is a large passenger plane more efficient for an airline than a small plane? A large passenger plane is more efficient than a smaller one because it enjoys economies of scale. Such economies of scale result from buying inputs in high bulk, hence, getting quantity discounts, utilizing specialized managers who are very efficient, obtaining finance at low cost because of good credit rating and also enjoying marketing economies, which result from low average marketing costs per unit (Haldi, 1964). 2. What costs advantages do a large airline have compared to a small one? Large airlines enjoy high bargaining powers with their suppliers, hence getting inputs at high quantity discounts and low costs. They also obtain finance at low cost because they are perceived as less risky than small airlines. They also enjoy marketing economies since they are able to spread this cost over a wide range of products, hence cutting average marketing cost per unit. 3. Why do supermarket companies continually increase the size of their shops? Supermarkets increase their size so they can buy inputs in bulk, hence they can enjoy quantity discounts. They also increase their size so they can enjoy marketing economies since they will have a wide range of products to spread the marketing cost. They also increase the size of their shops so they can acquire finance at low cost. 4. What advantages does a large oil tanker have compared to a small one? A large oil tanker is capable of enjoying economies of scale. For example, it buys its inputs in large bulks, hence enjoying quantity discount. Furthermore, the cost of fueling a large tanker is reduced since its fueling cost per unit of load is substantially reduced. Also, a large tanker can be able to sell good to its customer at lower costs than smaller ones, hence attracting many of them (Haldi, 1964). 5. Why does a company offer large discounts to buyers if they purchase large quantities? A company offers large discounts to buyers who buy in large quantities to encourage them to continue buying in large quantities and also to retain them. They also do so because the cost per unit of buying in high quantity is reduced substantially, and hence it is possible to reduce cost for the buyers. PART B 1. What do most successful business develop Most successful businesses develop a strong and positive group culture, which is concerned with management as leadership rather than a mere administration. 2. Describe the role of ‘heroes’, ‘symbol’ and ‘ritual’ in culture Heroes are individuals who are considered to have acted excellently and courageously in their duties. Their stories and reign are retold to others who work for the organization, in a bid to encourage them to embrace the virtues and characters of those heroes. As a result, it is expected that everybody in the organization will adopt the zeal of those heroes because it is considered to be the culture of the organization. Symbols are used to characterize the kind of culture or the core values that are embraced by a certain organization. Rituals are specific behaviors that are done repeatedly during certain occasions, such as organizing a party during certain anniversary events. 3. What are the main benefits of a strong business culture? A strong business culture is highly beneficial to an organization. It ensures that instructions are interpreted in a similar way; therefore, work is completed in similar standards. This ensures that everybody in the organization pursues their duties in a certain manner that ensures that the goals are easily met. Furthermore, when the staff of a certain organization has a common culture to follow, they usually get motivated and hence increase their productivity. It is also very important to note that management control is enhanced by a strong business culture, since the employees feel it is their responsibility to act in a certain manner, even without being nudged. 4. Why could a business have difficulties when trying to create a corporate culture? If a business is a multinational company, then it becomes extremely hard to create a corporate culture since there is a very wide gap between the imported culture and the local culture. In such a situation it becomes very hard to find a manager who can be able to deal with multicultural differences. For instance, an American multinational company that is established in the Middle East finds it extremely hard to establish corporate culture because people in the Middle East attach a lot of importance on family values unlike their American counterparts. Furthermore, most businesses are big entities comprising of several subcultures, which cannot be easily forced to follow some common culture. It is also thought that a strong corporate culture is not necessarily directly related to good performance; therefore, most managers may not be motivated to create strong corporate culture in their organizations. Finally, businesses are usually very complex and, hence, it is hard to impose a single version of culture. PART C 1. Describe what is meant by ‘cash flow’. Cash flow is the cash account adjustments, which results from an expense or a revenue stream over a given period. This cash flow results from activities such as investments, operations or financing as well as from gifts or donations, which occur in personal finance cases. However, in both personal finance and business, cash flow can come from investments or expenses. Business cash flows are used to estimate the financial performance of a certain entity. An entity with sufficient cash flow is able to generate more profit by reinvesting excess cash into the business. 2. Explain how a cash flow forecast can help a business now and in future Cash flow forecasts can be used to foresee future shortages or a surplus, which helps in decision making. For example, cash flow can foretell whenever a cash shortage trouble is expected and hence giving the management of the business an opportunity to seek remedy now, before things get worse. This can also help identify what should be purchased or whether a loan should be secured. These forecasts can also be used to evaluate the impact of future changes in decisions, such as employment of additional staff. 3. Analyze why cash is considered to be more important in a business than revenue or profit. Cash is more important than revenue or profits because it shows the capability of a business to maintain growth in the future. This is true because profits and revenues can be stage-managed by parties with vested interests; hence, it is not an accurate indicator of the worth of a business. Examples of accounting tricks used by management of firms to manipulate revenues and profits include recognition of certain revenues and expenses to increase or lower profits. In other words, profits and revenues are not indicators of an entity’s liquidity. Furthermore, the cash that is held by a business can be gauged through free cash flow, which reveals the company’s liquidity regardless of the interests of the investors. 4. Evaluate the importance of cash flow to a business of your choice. Explain how a recession would most likely affect this business. The business of my choice is a small retail business. The business owner prepares cash flow statement to help him make crucial decisions. For example, the cash flow statement acts as a caution whenever a cash deficit is expected. In such a situation, the business owner is able to decide, on time, what action to take to reduce adverse effects that result from cash deficit. As such, he may decide to put measures to reduce expenditure or to borrow a loan to finance the deficit. During recession, the business revenue is constrained and hence, free cash flow is substantially reduced. Also, the profit margins are substantially reduced. Reference Haldi, J., 1964. Economies of scale in manufacturing plants. New York: SAGE. Read More