Lean Thinking and Quality Management as Supply Chain Practices - Dissertation Example

Section A Critical Analysis of Lean Thinking and Quality Management as Logistics and Supply Chain Practices Recently, logistics and supply chain management have been established as the key strategies and approaches of management in gaining competitive advantage and effective organizational operations (Srinivasan, 2011:221). In today’s extremely competitive environment, attaining competitive advantage is a critical success factor in both expanding and sustaining a business entity. According to James and Frederick (2001), companies will work on prices and/or quality of the services provided with a common goal of reaching maximum profits by holding onto, acquiring more, and converting more of their most coveted asset; customers. The whole community of the supply chain which comprises suppliers, manufacturers, wholesalers, retailers, distributors and third-party service providers is under intense pressure to cut and stabilize their costs, inventories and time of service in order to make profits while maximally satisfying the customers (Womack, 2003). Simon and Schuster (2003) affirm that the best way to achieve this is via implementation of a lean logistics system which focuses on elimination of waste processes from the supply chain. These are processes that do not add value to the demands and/or requirements of the customer through reduction of avoidable costs, cut on excess inventories and replacement times. The paper is divided into two sections; section A’s principal objective is to provide the reader with a critical analysis of lean thinking and quality management as practices of logistics and supply chain in achieving competitive advantage of an organization with suitable examples in regards their application. The second section of the paper; B is a case study of General Motors Brazil - Service Parts Business in relation to lean thinking and quality management practices in logistics and supply chain management. Lean Thinking A lean way of thinking in an organization enables the organization to specify value, align actions that create value in a suitable succession, accomplish these actions whenever required with minimal interruption and perform them more effectively each time they are performed (Bicheno, 2000). Lean thinking has five key principles of operation as discussed by Pascal (2002): value, value stream, flow, pull and perfection. i. Value – this is the capability provided to a client at the right time and at the right price as per the client’s specifications. Value can only be defined by the client i.e. end user of the product which makes it a crucial start point towards lean thinking. In addition, it is argued that value only applies to a specific product and only makes sense when it is expressed with reference to a specific commodity. ii. Value Stream – this is defined as a set of all the definite actions needed in designing, ordering and provision of a specific product. This process runs all the way from the concept to launching of the product, customer ordering and delivery of the product and from raw materials to the end product in the customer’s hands. A value stream entails a description of all the stages of production of the product right from design to its order, from raw materials to delivery of the product. This stage involves addition of value to the product while at the same time rendering other stages muda (Japanese for waste) (Womack & Jones, 2011). Value-added – activities that definitely create value. Type one muda – activities with no value but cannot be avoided due to the present technologies or production assets. Type two muda – activities that have no value and are avoided immediately. Examples of muda include rectifiable mistakes or commodities that do not certify the customers’ requirements, or a group of people downstream waiting for an activity upstream. iii. Flow – this is the flow of activities that is progressively achieved in the value stream that ensures a product transforms from design phase to launch, ordering of the product to its delivery and from raw materials into the hands of the client without any interruptions, slips or backflows. This is achieved via enabling of quick changes of equipment used in manufacturing as well as using of machines of the right sizes and allocation of successive steps next to each other. iv. Pull – this is a system of cascading production and delivery instructions from downstream to upstream in which nothing is produced by the upstream supplier until the downstream client signals a need (Womack & Jones, 2011). Contrary to this is pushing of goods via an unresponsive system leading to build-ups in unnecessary inventories. v. Perfection – this involves the complete removal of those unnecessary activities from the value stream which do not add/create value to the end product. According to Womack and Jones (2011), this principle makes lean a non-stop process as there will constantly be actions that are unnecessary and their absolute removal is more of an end state that is desired by many organizations than it is an achievable goal. Case Studies Henry Ford was among the first few people to notice that waste was part of a costly yet inefficient production process. During his time, David (2011:111) asserts that resources were abundant and hence there was no necessity of conservation yet Ford became obsessed with reduction of the resources wasted in his company through the use of all raw materials, minimizing packaging and recycling of materials and as a result he managed to reduce the time of production of his products. For Ford to keep up with the pressure he was to respond to the dynamic customer needs but he lacked the necessary responsiveness thus he could not manufacture a variety of automobiles. Due to the automobile industry competitors working towards meeting the demands of the customers, Ford’s approach failed for his approach was towards efficiency which was of less concern in the 1920s (David, 2011:154). Another party to be associated with lean manufacturing is the Japanese duo of Taiichi Ohno and Shigeo Shingo who busted into the scene after the 2nd World War with Japan trying to recover from the war (Morgan & Brenig-Jones, 2012:128). The two created the Toyota just-in-time system of production which was centred on improvement of quality and the source of waste materials of production. According to Morgan & Brenig-Jones (2012:147), Ohno came up with a sound and cultural framework to remove waste from the value stream and defined it as any human exploit which uses resources yet yields no value. As this gained much success and praise, it again caught the American eye of James Womack and Daniel Jones who go on to perfect more on lean manufacturing (Pascal, 2002). Quality Management Total Quality Management, sometimes simply referred to as Quality Management is an approach that focuses on improving quality and performances at each level of production to ensure the requirements of the customers are fully met or rather exceeded (Pascal, 2010:12). According to Lambert (2008), it does this by evaluating the overall measures of quality that include quality assurance, managing quality design and development, quality improvement, quality control and maintenance and involving of all employees in the process. Origin Quality management or Total Quality Management (TQM) originated from the methods of quality assurance initially developed during the World War I (Pascal, 2010:19). The efforts employed by the war involved large scale manufacturing which often yielded poor quality. To their rescue came the employment of quality inspectors whose role was to ensure that the production line experienced minimal failures in terms of quality and soon after the war, the practice of quality inspection was common in manufacturing firms leading to development of Statistical Quality Control (SQC) theory by Dr. W. E. Deming which provided statistics of quality based on sampling (David, 2011:177). This theory worked with the assumption that any variation in the production process of a product will result in a variation in the end product as well and elimination of this variation will result in an end product of a higher quality than the original product. The end of World War II saw Japan enter a production spree that comprised poor quality products (Karel & Rohit, 2009). This prompted the invitation of Dr. Deming by the Japanese Union of Scientists and Engineers to oversee the training of engineers in quality processes and by mid 20th century, quality control had established itself in most Japanese manufacturing organizations and was being adopted by workers at all levels within organizations (David, 2011:187). Later on, total quality was the manufacturing industries’ topic of discussion as many non-Japanese companies were incorporating quality management procedures with reference to the outcomes of the Japanese industry. This new wave of quality control was then named Total Quality Management describing the numerous strategies and techniques of quality management being employed in different settings (Blazey, 2009:33). Principles of TQM TQM can be referred to as the management of schemes and strategies that are geared towards delivery of quality products and services. Key principles involved include (Kaplan, 2008:71); i. Executive Management – this is the major TQM driver which should ensure that a TQM environment is created and sustained and is the duty of the top management of the organization to ensure this is achieved. ii. Training – provision of employee training on a regular basis on quality concepts. iii. Customer focus – the improvements made in quality should focus on the customers’ demands. iv. Decision making – making of quality decisions based on measurements and not estimations. v. Methodology and tools – implementation of suitable methodology and tools to ensure that non-conformances are identified early enough, measured and consistently responded to. vi. Continuous improvement – companies should direct their efforts towards improvement of manufacturing and quality procedures. vii. Company culture – the culture of the company should be geared towards development of an employee culture that employs teamwork towards quality improvement. viii. Employee involvement – employees should be interactive and actively identifying and addressing problems related to quality management. Implementation of Quality Management Systems: Case Studies BSI, a leading provider of standards, systems of management, information regarding regulatory approvals and improvement of businesses globally has had the upper hand in supporting organizational implementation of management systems of the highest quality (Fabrizio and Tapping, 2003). Below are two case studies of two companies that practice quality management as a logistic and supply chain management approach. Forticrete This is a leading manufacturer of products in masonry, innovative roofing, cast stones and walling located in the UK which provides employment to around 500 people in 11 sites/plants with its products reaching both public and private sectors (Fabrizio and Tapping, 2003). The company implemented the quality management system several years back but made the ISO 9001:2000 transition towards the end of 2001. According to Fabrizio and Tapping (2003), the changes rang by Forticrete during the transition include the attempt to become a paper-free office in which the initial system required 8 manuals whereas the new system took the format of a flowchart and is intranet based. The second change was focusing on the customer at the heart of the system. Advantages of Implementing ISO 9001:2000 i. An improvement of 18% in the quality of the product ii. An improvement of 18% in the ratings of customer satisfaction iii. An increase of 21% in competition performance against competitors iv. A decrement of 42% in the complaints made about a product. The company identified ways in which to make the improvements namely; a company newsletter and an intranet and system of appraisal to improve the communication and training of the employees and help they identify their personal needs that the company focuses on meeting. Pacific Dunlop Bedding Dunlop Bedding is a top supplier of Australian bedding with an expanding existence in New Zealand. Half of the company’s 600 employees belong to Federated Furnishing trades Society, a Division of Construction, Forestry, Energy Union and Mining (Terziovski & Hermel, 2011). The management of Dunlop bedding realized the need to define, employ and sustain internationally recognized practices with respect to the non-ending desire to become competitive internationally in the year 1987. According to Feng, Terziovski, and Samson (2008), the Victorian was the first site to successfully implement the Value Added Management program which was then used as a pilot model to show how the approach could be used to improve the performance of an organization. As a result, Feng, Terziovski, and Samson (2008) affirm that the system was transferred to four other sites in Victoria, New South Wales, Queensland and Western Australia making the process integral to business planning. An integral part of the change process was the development of key performance indicators (KPIs) that help employees understand the performance of the business competitively and the impact they can make in terms of the performance. A number of deliverables were realized from the implementation of quality management including (Feng, Terziovski, and Samson, 2008); i. Improved profits from financial years 1992 to 1993, a total of 31%. ii. Gains in production levels in Queensland and Western Australia, approximating 25-30%. iii. Reduced inventory levels in Queensland. iv. Bedding wastes reduced by 11% at Queensland. v. Errors of overcharging downed by 50% in Victoria site. Section B Case Study: General Motors Brazil - Service Parts Business The year 1925 is when GM Motors started its operations in Brazil and has since been realizing enormous growth in its operations (General Motors, 2012). GM spare parts business was already there but it was operating with very low volumes as it was controlled or rather driven by the demand of the products. The success of the business depended entirely on the demand of the product which resulted in poor market situation after competitors like Toyota and Audi entered the market due to liberalization. As a result, General Motors (2012) reports that GM was forced to further tighten the costs of their undersized car segment and low profit margins they had. In addition, the business had very severe strategic implications for the business of new cars as it has the ability to affect service levels of the car. The need for constant availability of car spare parts took centre stage thus making competition and consumer demands/ requirements in the form of quality service and economy the main players in influencing GM Motors in Brazil to opt for a new way of doing business. Essentially, General Motors (2012) affirms that this happened based on the fact that the service parts business was a profitable business in Brazil due to the tax incentives given by the Brazilian government on the popular cars which was the dominating car type in Brazil accounting for 61.9% of the total car sales in 1999 (General Motors, 2012). Advantages and Disadvantages The companies that implement the AutoGiro system expect to reap a number of advantages and disadvantages too. The advantages include (General Motors, 2012); i. The AutoGiro has the parts locator aspect which helps increase the ease of access of parts at their various sale counters. ii. Due to increased frequency in the rates of replenishment there is an expected drop in cycle stocks at sales points. iii. GM expects to hire a competent and highly qualified personnel dedicated to nonstop improvement of the system which is a benefit to the entire sale points. This means it is unnecessary for individual partners to keep spending funds updating their systems for the improvements costs will be evenly distributed across the whole network. iv. High costs associated with sending express deliveries when sale points run out of stock are reduced due to better inventory management expected at the sale points. v. Previous research shows that dealer parts managers spent close to 80% of their time working out inventories and decision making regarding replenishment. The implementation of the AutoGiro system is expected to change this by automating most of these manager tasks meaning the manager will have more time to perform tasks that require personal presence like development of customer relationships, actual selling of the parts, and exploration of new market ideas. vi. The forecast of the system is that when network efficiencies are fully settled, some of the benefits reaped could be reflected to the end customer in form of reduced costs so as to improve GM competitiveness in the market. The drawbacks expected from implementation of the AutoGiro system as discussed by General Motors (2012) include; i. Some partners have developed own systems which might be a stumbling block in change over implementation for GM cannot force everyone to adopt the system ii. Not all partners are willing to cooperate yet for the AutoGiro system to work; there is need for a cooperative culture in the supply chain. iii. Not all managers of the partnering sale points are extremely committed and for the system to succeed, the top managers are to be totally committed to the goals of the system. iv. Lack of adequate funds to install the necessary IT and telecommunication equipment limited the compliance of certain partners hence making the implementation of the system hard. Success factors for AutoGiro Since the system will involve very high levels of material and information flow, the basic issues to be taken into account when thinking of implementing an AutoGiro system are logistics, telecommunication and information technology infrastructure (General Motors, 2012). Some partners might have problems with IT operations and costs involved with the logistics processes but GM can step in and provide help in a number of ways: i. Protection against stock outs and part obsolescence is the duty of GM and not forcing parts on partners to maximize the sales. According to General Motors (2012), AutoGiro guarantees its partners that the parts that spend up to 9 months in a sale point would be repurchased by GM at either the same price paid for it or the current market price. In addition, in cases where sale points run out of stock, it the duty of GM to urgently deliver the parts to the dealer with no cost for the dealer as opposed to prior cases where the dealer personally accounted for the costs. ii. Provide Internet-based parts locator – GM is charged with the responsibility of managing the inventories of all its dealers and for this to be possible there is need for an efficient internet based parts locator that will enhance information flow (General Motors, 2012). This information is required for the frequent updating of the stock which is the duty of GM hence it makes it its duty to help develop an IT infrastructure that will provide efficient flow of information. Persuasion of Dealers into Adopting the New Inventory System GM has a great role to play in ensuring all its dealers see the importance of implementing the new inventory system. The system requires loads of IT infrastructure and for this to be possible; GM should initiate programmes to educate top managers from each dealer on the hows of the system, the functionality and maintenance of the system (Bicheno, 2000). This will provide a chance for the managers to transfer gained knowledge to their respective sale points. In addition, Bicheno (2000) argues that GM should organize frequent seminars that highlight the importance and/or benefits of using the new inventory system to both the individual employees and the sale point as an organization. Tight-Cash Situations GM should not help dealers to improve tight-cash situations. According to Blazey (2009:51), tight-cash situations occur when an organization operates on more credit than cash. A suitable example is when a customer returns with complaints about a product and demands refund. Instead of refunding, the customer is provided with credit to get another product and in this case one is assured of selling a product no matter the case. However, General Motors (2012) believes that this is a limitation to the customer as he/she has no choice but to get another product even of different preference. This has an effect on customers as most may choose not to return to the shop again which is a disadvantage to the dealer and GM in general. In contrast, if GM comes to the rescue of dealers during tight-cash situations and provides cash to the dealer when a similar case occurs, General Motors (2012) asserts that the customer can be refunded with the cash and may decide not to return to the shop due to what may be termed to as poor service and this represents an even greater loss as one loses both the customer and the cash while retaining the product which eventually is to be bought back by GM as part of the guarantee given to dealers. This means that the company reaps no profits as there is no sale made. This is proves the fact that GM should not come to the rescue of dealers during tight-cash situations. New Role of Managers Managers in the traditional system spent loads of their time managing inventories and making organizational decisions (General Motors, 2012). However, with the new system most if not all of these activities have been automated leaving the top managers with plenty of free time. This time can be spent wisely by managers in activities that require them to attend to in person. This include development of customer relationships, actual selling of the parts at their respective sale points, and exploration of new market ideas and opportunities that will boom the business and reap maximum profits. References Section A Blazey, M.L. (2009) Insights to performance excellence 2009-2010: an inside look at the 2009-2010 Baldrige award criteria, ASQ Quality Press. David, R. (2011) The future of lean sigma thinking in a changing business environment, CRC Press. Fabrizio, T. & Tapping, D. (2003) Lean tooling: the right tool at the right time, Dearborn, MI: Society of Manufacturing Engineers. Feng, M., Terziovski, M. & Samson, D. (2008) Relationship of ISO 9001:2000 quality system certification with operational and business performance: A survey in Australian and New Zealand based manufacturing and service companies. Journal of Manufacturing Technology Management, Volume 19 Issue 1. James, A.J. & Frederick J.M. (2001) The lean company: making the right choices, Dearborn, MI, Society of Manufacturing Engineers. Kaplan, G.S. (2008) Advanced lean thinking: proven methods to reduce waste and improve quality in health care, Joint Commission Resources. Karel, K.B. & Rohit, V. (2009) Operations and supply chain management for the 21st century, Cengage Learning. Lambert, M.D. (2008) Supply chain management: processes, partnerships, performance, Supply Chain Management Inst. Morgan, J. & Brenig-Jones, M. (2012) Lean Six Sigma for dummies, John Wiley & Sons. Pascal, D. (2002) Lean production simplified: the nuts and bolts of making assembly operations flow, New York Productivity Press. Pascal, D. (2010) The remedy: bringing lean thinking out of the factory to transform the entire organization, John Wiley & Sons. Srinivasan, M. (2011). Building lean supply chains with the theory of constraints, McGraw-Hill Prof Med/Tech. Terziovski, M. & Hermel, P. (2011) The Role of Quality Management Practice in the Performance of Integrated Supply Chains: A Multiple Cross-Case Analysis, Special Issue, Quality Management Journal, vol. 18, no. 2. Womack, J.P. (2003), Lean thinking: banish waste and create wealth in your corporation, Simon & Schuster, New York. Womack, J.P. & Jones, T.D. (2011). Lean Thinking: Second Edition. Simon & Schuster, Inc. Section B Bicheno, J. (2000) The Lean toolbox, Buckingham, PICSIE Books. General Motors Brazil Service Part Business. Retrieved Sep 26, 2012 at . Read More