Operations and Logistics Management - Book Report/Review Example

Operations and Logistics Management Introduction Operations management and production management form the core activity of almost all manufacturing multinational companies. It is not only the cost efficiency factor but also the need for optimization of activities by elimination of redundant activities for the company that demands focus on the management of supply chain. It is observed that generally firms are ignorant towards the activities, and unable to identify the crucial ones which come under the scope of Operations management, refining operation related processes remains a distant reality for them. Any researcher, who wishes to understand the value of operations management, must familiarize himself with the concept of Just – in – time and lean manufacturing first. None other then Toyota could be chosen to analyze the same in action. Current study involves focus on understanding the key concepts of JIT and lean manufacturing as it has been successfully put in action by Toyota. There are few organizations which have reinvented the key processes related with operations and also have customized them with new innovative concepts. Toyota Automobiles is one of them that have set an example in front of this world on how to manage the operations successfully without compromising with quality and providing with what exactly the customer wants, and still remaining a cash cow. The elimination of non critical steps in a supply chain that helps making the overall chain more responsive, adaptive and valued forms the basis of Lean Manufacturing. The underlying principles which govern such type of continuous improvement in the supply chains are Kaizen and Kanban. However both are often related with just – in – time philosophy (JIT), but altogether (i.e. Kaizen, Kanban and JIT) they signify a much critical activity of lean manufacturing. Where Kanban (also known as Flagging in simpler terms) is means to achieve JIT and Kaizen ensures that through continuous improvement, JIT scales itself up to satisfy requirements of lean manufacturing. Where Just in time philosophy is concerned only with immediate suppliers and the central organization, the lean manufacturing concept is much broader as it ensures value creation throughout the supply chain. About Toyota Toyota Group was established in 1937 with its headquarters in Japan. In post world war II era, Toyota felt desperate need of a revolutionary initiative that could revamp their position in the market. Competition rose tremendously as western and European automobile companies started growing at rapid pace and on the other hand Japanese economy was in dire straits. This led to the introduction of ‘lean’ manufacturing in the production operation. However this ‘Lean’ term was properly recognized in 90’s by the outside world. Toyota has come a long way since then and has become the largest automobile manufacturer in the world when sales figure are taken into consideration. With operating capacity of four hundred cars per day (and it involves thousand of spares everyday) Toyota has proved it to the world that when it comes to efficient utilization of supply chain, they have no parallels. Toyota has significant flexibility in production operation, yet the framework is so rigidly strong that it surprises every analyst who tries to decipher Toyota’s code for success. The scientific approach of Toyota involves controlled experiments, where every hypothesis is tested through action. Had this flexible yet robust system been not in place, such huge operational capability could not have been made possible to achieve. Lean Manufacturing and JIT processes at Toyota Toyota has developed collaborative supply chain bringing both customers and suppliers together, forming a part of the supply chain. Same can also be called ‘lean’ supply chain. Let us understand the lean manufacturing to better understand this type of supply chain. Under this type of production, elimination of all those activities, steps and processes which do not add any value for the final customer (end of the supply chain) is brought into practice. All wasteful expenditure of resources are identified and marked for elimination. It is important to explain the value in the context it has been used in the current paper. ‘Value’ is anything generated during a process or activity for which customer is willing to pay for, considering it useful for him. So, lean is smarter way of value generation and efficient operation. Toyota Production System (TPS) Lean manufacturing was identified much later in Toyota’s production operation, and its recognition could be credited to Toyota Production System (TPS). This unique integrated system takes care of all manufacturing and logistics requirements for Toyota, and above that provides a platform for supplier - customer interaction. Just – In – Time and TPS are synonymous and it is believed that Toyota derived this concept from one American supermarket. Seven kinds of wastes were identified under TPS, and its objective was to eliminate them. These wastes were excess production, dynamics of work/ job, wait time, conveyance, self- processing, excess inventory and rectification (Monden, 1998). Just-In-Time inventory system played a crucial role in resolving most of above issues. JIT believes in quantity reduction that needs to be maintained as per employee requirement, and then precisely ordering the next lot at the best suitable moment. Such low level of inventories was peculiar to Toyota Production System’s with underlying philosophy to reduce the same inventory to zero level. (Ohno, 1988) There are many definitions for Lean that exist today based on the approach to manufacturing. Lean is considered to be whole gamut of ‘tools’ which are used to identify and steadily eliminating the wasteful activities. This simultaneously improves quality while improving the response time and bringing down the cost significantly. (Ohno, 1998) Another way of looking at lean manufacturing comes from Toyota’s approach to the same. This involves focus upon the series of inter connected activities so that all mismatch could be smoothened without thinking of waste reduction. Kanban is a ‘pull’ production technique which is often related with lean production and JIT production. Kanban is considered to be means to achieve JIT and is driven by pull from marled demand. It is a flagging system which initiates action throughout the supply chain (Shingo, 1989). It works extremely well when demand forecasting is difficult and response time cannot be high. The entire focus remains on efficiently managing the intermediate inventories and delivering them to end customer in least possible time with best possible quality. Toyota followed six rules (The Toyota Way) to assure this: Blocking defective products flowing in the supply chain. Each process is adequately focused for what it wants to achieve. Producing the precise number of output to cater the need of subsequent process. Production levelling. Smoothening of processes through Kanban. Rationalization and stabilization of each process. (Toyota, 2001) Logistics Management at Toyota Logistic management at Toyota is J I T driven and is characterized by quick replenishment through consolidated freight. Toyota utilizes the extremely wide network of cross-docks and milk runs (Napolitano, n.d.). Since the production is ‘pull’ driven, so is the logistics operation. The objective of logistic management is to deliver value from the origin point to the other end of the supply chain which is the destination point. Since this itself is driven by pull, the quantity that is being in motion is just appropriate and has eliminated all scopes for waste. Management of optimized quantity not only ensures low inventory (with ultimate goal to convert it into no inventory) but also high availability throughout the supply chain. Smoothening of the supply chain and simultaneously making resource management more streamlined is another characteristic feature of operations management at Toyota. Altogether these factors contribute towards cost reduction. (Womack, 1991) Toyota uses inventory proportionality when it comes to inventory management, where reduction of the inventory beyond a certain specified level triggers‘re- ordering’ and for replenishment of the same. Toyota believes in the idea of buy one, sell one. When it comes to US based suppliers for Toyota, it proactively teaches them the lean manufacturing skills that are prevalent in the organization. This considerably reduces the time that is required to meet the dynamic need of Toyota and the time that supplier has to deliver the same. Depending on this time length, suppliers chose the mode of delivery, so that timely delivery is ensured. Toyota uses the Japanese term ‘heijunka’ for its cash to cash cycle. Now through inventory management Toyota reduces its cash to cash cycle making the overall cycle highly cost efficient. Toyota and its suppliers Since the demand forecast and supply chain management at Toyota is smooth and even, there is no bull-whip effect observed in the supply chain. This simplifies the job in hand for all the suppliers to Toyota Motor Corporation despite of the fact that the supply chain is demand driven (i.e. Kanban or pull). The supplier base of Toyota has developed over a long period of time. It was not the same since the beginning there were flaws in the way which business was carried out, just like all other multinational corporations. Initially the suppliers of Toyota were finding it difficult to match the demand which required high buffer capacity and high quality. It was the underlying philosophy of Toyota due to which it faced serious setbacks. The defects were channelized in the supply chain and they grew to affect the quality parts and it even led to recalling of cars from the market. Toyota had developed strong relations and focused on resolving all the issues with its suppliers who came under the first tier suppliers. Meanwhile Toyota overlooked the actual problem that was inherent with second and third tier suppliers. These second and third tier suppliers were never directly attached to Toyota and this prevented any control or monitoring from this automobile giant. Toyota soon realized the potential of this lacunae and how big it could rise. Considering these facts and the induced defects in the production line, Toyota decided to prepare a hierarchical structure for its supplier base, which would impart sense of responsibility among all of them. This involved stepwise rise in level of responsibility that these suppliers will hold, depending upon the tier to which they belong. Suppliers were now to be treated more like the associates and not just ordinary buying points that have nothing to worry about what quality they need to maintain. This formed the basis of long term relationship of Toyota, and simplified the integration of the chain later. Moreover it also made easy to introduce, communicate and implement any new concept across the supply chain. Quality at Toyota There are two main genres under quality management, namely Quality Assurance and Quality control. Quality assurance is concerned with all the possible steps that need to be taken in order to deliver a product which reflects adequate value to the customer. It must satisfy all the needs of the customer to pass the quality test. This is why quality assurance is important during the design or development phase. It also requires close tie ups suppliers and customers. It is so because customers test the quality while to ensure the quality, suppliers must understand what is exact requirement of the organization so that they can deliver accordingly. Quality control is put in place to, monitor and review the variations that have crept in during the development stage, and check whether variations are significant, good or bad. Toyota’s commitment towards continuous quality improvement is beyond doubt. Toyota has made quality delivery a culture, and this culture is diffused well throughout the organization. From suppliers to end customers, everyone plays an important role in delivering the world class quality that Toyota has developed. Philosophy As discussed earlier, the most important part of Toyota’s quality control system lies in the role that is being played by all team members in the production and operation management. Toyota has introduced a systematic program which involves active participation of all of these team members. This is achieved through Encouragement for actively accepting their role in controlling quality Inviting and accepting their ideas of improvement in the production process Practice of ‘Kaizen’ which ensures consistency and enhancement in quality This is based on treating every individual team member within the production line as a customer. This prevents the delivery of defects, if any, in the supply chain. If in case problem is detected in any product, it shall be resolved then and there before product proceeds further in the chain. Planning With main focus on a defect- free product Toyota brings quality into action. Use of new technologies like Computer-Aided Design (i.e. CAD) enables quick creation and modification of all the specifications, and simultaneous improvement of design quality. Quality forms an essential part of Toyota’s management philosophy and remains the main objective in entire pre- production process. It is the main driver behind whole system of cost efficient, high volume production at Toyota. Even the inspection is planned during the planning phase at Toyota, specifying all the details for it. Integration of all departments helps in seeking cooperation among them and makes quality control a much easier management process. Kaizen Kaizen is a Japanese word which means ‘change for better’. It demands continuous improvement in all segments and processes, whether or not it is related with core business activity or a support activity. It is not a onetime act but a perpetual activity that is brought into daily practice, making it a habit for the organization. Kaizen must not be confused with ordinary productivity management. Looking at the broader perspective, it helps developing an environment at the workplace that is conducive for all. This makes synergy derivation from the workforce an automatic, self driven phenomenon. Everyone associated with Toyota participates in Kaizen, right from top management to the external customers. Toyota has a little innovative approach to insure Kaizen in the organization. A small group works for improving the local environment and enhancing the productivity around them. Through a line supervisor, the kaizen process is monitored within this group. These small activities together take a big shape when aligned to meet organizations requirement for continuous improvement. And this improvement is not imposed on the workforce, but voluntarily introduced by them. It can be said that Kaizen is a systematic approach to achieve Total Quality Management (Strategos Consultants, 2010). Kaizen activity is a virtuous cycle (Strategos Consultants, 2010) that can be summed up as under Standardization ( of operations) Measurement ( of already standardized operation) Matching ( against requirements that are existing) Innovation (to match requirements and productivity enhancement) Standardization (new standards with improved operations) Continue (perpetual process) This cycle is similar to PDCA (i.e. Plan – Do- Check- Act) cycle but with Japanese variation. Outsourcing Outsourcing could be an effective way to ensure cost efficiency. Toyota had similar objectives in mind and did not hesitate to use the synergies of available partners/ associates and service providers in leveraging capabilities of each other, thereby making full use of it. Somewhere around 70 percent Toyota’s inventories related to vehicle production is outsourced. Expert, reliable and capable partners help Toyota to focus on its core skills keeping adequate control over its critical processes and taking care of activities assigned to them in a responsible manner. Apart from timeliness, other factors also like quality and responsiveness are ensured through outsourcing. Strategic alliance with suppliers and making them participate in the supply chain of the production process has proven extremely useful for Toyota. Conclusion Toyota revolutionized the area of Operations Management and introduced many new concepts to the world of automobile manufacturers. Toyota borrowed a lot from the teaching of W. Edwards Deming, an American consultant, who achieved immortal fame in Japan by improving the production process of Japan’s manufacturing sector. With its remarkable Toyota Production System (TPS) which is an integration of social and technical systems, Toyota became the model of efficiency for other firms in the manufacturing sector. For Toyota, TPS ceased to be a set of guidelines and instead it became the guiding philosophy of the company. TPS involved elimination of waste, reducing overburden and removing inconsistency. Shigeo Shingo, the engineer in Toyota, who championed the case for lean production, identified seven kinds of waste. They were overproduction, movement, waiting, conveyance/transport, processing, inventory, and correction. Within Toyota, it became each worker’s responsibility to find ways to cut down on these wastes. Because of the respect Toyota gave its workers and suppliers, they also contributed their best to find ways to add value to Toyota by eliminating sources of waste in the production process. Toyota also changed its distribution network from ‘push’ to ‘pull’ where the demand from customer provided the pull to move the inventory downstream. This was an alien concept to the automobile manufacturers who produced vehicles and dumped them to their dealers. With its way of production, The Toyota Way, Toyota was able to cut down on lean time, reduce costs, and improve quality, thus proving wrong the notion that stated that there is a trade-off between cost and quality. It would not be an overstatement to say that Toyota’s Production System revolutionized the automobile manufacturing sector and was the most important factor in Toyota’s rise to become the most profitable automobile company on the earth. It also started a new management philosophy which stated that improvement is a continuous process and everybody in the company is responsible for quality. This philosophy has been adapted with varying degrees of success by different companies in different sectors. References Monden, Y., 1998. Toyota Production System, An Integrated Approach to Just-In-Time. 3rd ed. Norcross, GA: Engineering & Management Press. Napolitano, M., n.d. The Cross Dock Revolution: Are you In or Out? [Online] Available at: http://redigitaleditions.com/olive/ODE/LMX/LandingPage/LandingPage.aspx?href=TE1YLzIwMDgvMDQvMDE.&pageno=NTE.&entity=QXIwNTEwMA.&view=ZW50aXR5 [Accessed 08 May 2010]. Ohno, T., 1988. Just-In-Time for Today and Tomorrow. Productivity Press. Ohno, T., 1998. Toyota Production System: Beyond Large-Scale Production. Productivity Press. Shingo, S., 1989. A Study of the Toyota Production System from an Industrial Engineering Viewpoint. Productivity Press. Strategos Consultants, 2010. Toyota Production - A Brief Introduction. [Online] Available at http://www.strategosinc.com/toyota_production.htm [Accessed 09 May 2010]. Toyota, 2001. The Toyota Way. Womack, J.P...J.D.T...a.R.D., 1991. The Machine That Changed the World: The Story of Lean Production. Harper Business. Read More