Managing Operations and Supply Chain - Report Example

Managing Operations and Supply Chain by of 03 February Table of Contents 1.0 Introduction 1 2.0 Lean Management and Value Stream- What are they? 1-2 3.0 Investigating the Value Stream- Why Lean Managers think Value Stream is Important? 2 4.0 Problem Areas of Toyota which have Substandard Performance? 3-4 5.0 What is the Potential Loss to the Company if the Problems Persist? 4-5 6.0 Important Most Lean Management Concepts 5-6 7.0 Why Toyota should Focus More on Lean Skills? 6-7 8.0 How Lean Concepts can be implemented in the Chosen Organisation to improve its Value Stream? 7-8 9.0 How this can solve the Problems Faced by Toyota? 8-9 10.0 Cost-Benefit Analysis 9-10 11.0 Conclusion 10-11 12.0 References 12-13 1.0 Introduction Appropriate management of various processes and supply chain is not a minor issue, but one which has compelled all big organisations around the world to think long and hard. This report is based on scrutinising what the modern literature has to say on the subject of lean management and how different principles related to this business strategy can improve the value stream of an organisation. Lean management is not an enemy as thought by some, and it does not lead to even more serious problems because it is only incorrect lean implementation that is to be feared. This explains why this report will focus at length on multiple important ways showing how to apply lean principles in a safe manner. Lean manufacturing is an entire management philosophy which is often also called Toyotism because it was actually introduced by Toyota automotive manufacturer. Recently, it is suggested by many reports that Toyota is confronted with potential supply chain and quality challenges. For this purpose, this report will discuss the lean philosophy in reference to major issues currently faced by Toyota to assess the extent to which it could prove to be helpful in terms of strengthening the company’s value stream. 2.0 Lean Management and Value Stream- What are they? Lean manufacturing is a management principle which considers the goal of delivering value to the customers to be the most important in terms of lending strength and reputation to an organisation. It stresses that the limited resources available to an organisation are critically valuable and they should be only spent on creating value for the customers. Resources spent on other goals which do not add value are wasted (Duggan 2012, p. 3). A value stream is one of the key features of lean manufacturing which may be either based on internal processes alone or also include external suppliers. It basically encompasses all processes involved in the creation, production, and delivery of goods to the market. Deep investigation into value stream should be considered a top priority by all organisations because before eliminating waste, it is important for it to be identified, which is exactly what a value stream does (Duggan 2012, p. 3). This shows why lean managers attach huge importance to a value stream and stress on applying important lean principles to continually improve it. 3.0 Investigating the Value Stream- Why Lean Managers think Value Stream is Important? There are many potential benefits offered by a value stream, which make this concept enormously important for lean managers. This key principle is developed by Toyota. First, it helps managers to stay committed to the goals which are most promising, and eliminate those from the agenda which do not promise any value. Second, it adds the element of efficiency to the processes of manufacturing and product supply to the market, which boosts customer satisfaction also. Toyota, like many other lean companies, has always strived to create value for end customers by value stream mapping, which stresses on adding value in every area from manufacturing to selling to after-sales customer support. This helps in smooth flow of work from one stage to another until the ready products reach the market. This leads to the development of a value-creating chain which is largely described as a value stream (Hill 2012, p. 376). Delivering value to the end customer is the theme which forms the bedrock of this stream. The flow of work is smartly managed by lean organisations through effective value stream mapping because it uncovers many improvement potentials (Ruffa 2010, p. 189). 4.0 Evidence for the Problem Areas of Toyota which have Substandard Performance Recently troubling issues encountered by Toyota have forced critics to wonder whether its world-famous lean manufacturing model is losing its magic or something else is the problem. There is a line of recalls and quality issues haunting the reputation of this giant of automobile manufacturers and safety of its vehicles (Anderson 2012, p. 22). Quality used to be a trademark of this organisation which played a huge role in attracting customers not only from Japan but from diverse backgrounds. Built on the Japanese principle of continuous improvement, Toyota always capitalised on quality (Rajasekera 2013, p. 2). But, now quality problems have generated a wave of recalls which have been highly publicized. This has left a large number of consumers virtually surprised especially in Japan because Toyota “represents the country to the outside world” (Rajasekera 2013, p. 3). This wave particularly picked momentum in the US after a crash was reported in California which was caused by uncontrolled acceleration. This specific problem was found not in one, but in a range of models causing Toyota managers to recall as many as 3.8 million automobiles from the US. Another 2.9 million recalls were made just a few months before (Rajasekera 2013, p. 4). The unfortunate incident in California resulted in tragic demise of the driver in addition to three other occupants which became a principal cause of many customers’ dissatisfaction and reluctance in purchasing Toyota vehicles (Linebaugh & Shirouzu 2010). This kind of customer response based on disapproval, fear, and hesitancy is exactly the opposite of what message is stressed by lean management, to deliver value to end customers. Quality issues based on accelerators getting stuck and flawed car interior settings have compelled traffic safety administrative bodies to put pressure on Toyota to boost recalling of their additional vehicles, which is quite insulting for a company of Toyota’s grandeur. However, the pressure is put on Toyota managers for all the right reasons given the very serious nature of quality issues. The company’s bad luck is that these quality problems began to emerge and attract media’s attention at the time when its famous competitors like Ford and Honda were producing much better quality vehicles. Research also suggests that “Toyota’s competitors are eager to grab customers” (Linebaugh & Shirouzu 2010). It is claimed that these quality-related recalls continued since they first became public. This is because Automotive News in 2011 revealed that “more than 20 million Toyota vehicles had been recalled since autumn 2009” (Roland cited in Cole 2011). Amidst the disastrous quality crisis sabotaging the name of Toyota, risks related to supply chain management have also made headlines in recent years. Toyota managers cannot stress enough on separating lean principles from quality and supply chain risks to convey this message that lean principles have nothing to do with such risks because they only concentrate on removing waste. However, there has been a noticeable meltdown in Toyota’s supply chain management system probably because of the company’s rapid growth. It is suggested by research that unfortunately the company has focused more on sending a staggering number of cars to the market than adhering to its famed Toyota Production System (TPS) concept, lean manufacturing. It is claimed by one lean expert that quality and supply chain management problems which are potentially damaging for Toyota’s sales cannot be translated into the failure of lean. This is because lean principles did not fail Toyota managers, but they failed to expertly implement lean principles “at the appropriate levels to support the additional capacity they brought on” (Loughrin cited in SCDigest Editorial Staff 2010). 5.0 What is the Potential Loss to the Company if the Problems Persist? One potential loss to Toyota if the quality and supply chain management problems persist is a reduced pool of customers. Gaining the trust of customers is a kind of process which stretches over many years. Once this hard-earned trust is lost, it becomes very hard for an organisation to win it back. Following the well-publicized turmoil of recent years based on a spate of recalls that research reported “would eventually total more than eight million cars” (Toyota Motor Corporation cited in Anderson 2012, p. 25), the number of loyal customers has started shrinking. Similarly, another research reports that “since 2009, Toyota has recalled more than 11 million Toyota and Lexus vehicles” (Trop 2013). The reaction to Toyota’s difficulties has been such that according to a Gallup national survey conducted in the US in late February 2010, “31% of Americans believed Toyota vehicles were unsafe” (Gallup cited in Cole 2011). With advancement in technology and freedom of media, nothing remains hidden from the public which is why now Toyota needs to focus more on its core lean principles more than on growth or expansion strategies to control the dwindling number of loyal customers. Research also claims that media attention has kept Toyota’s management fully exposed to the public (Rajasekera 2013, p. 1). This is why Toyota managers need to realize that not attaching enough importance to lean techniques to improve its value stream and concentrating all energies on expansion is not the answer anymore to the crisis encountered by the company. 6.0 Important Most Lean Management Concepts One of the most important lean concepts is to motivate people with a sound vision which has the potential to attract and impress them. Sharing vision with everyone can help to gain trust of the workers who are a real asset for an organisation if they are motivated and taken in confidence by the employers. The vision should be inspiring and also believable to ensure the workers that their efforts will not go wasted on any level if invested just as directed by managers. The message conveyed by lean manufacturing is to share the vision with everyone as often and as animatedly as possible. This technique can really motivate the people and educate them about what roles they are supposed to play in the value chain. This can also make them increasingly compliant and supportive of any changes introduced. Delivering value to the customers in the way desired by them is the first lean principle. Second lean principle is about value stream mapping which requires managers to identify all steps which contribute value to the process of product manufacturing and discard those which do not. The third principle is about maintaining smooth flow in the value-adding steps because this is the only way the customer can appreciate the value delivered to him/her by an organisation. The fourth lean principle is about establishing pull, which means letting the customers derive value from the organisational activities regarding quality product manufacturing. In the final principle which is about seeking perfection, value is identified and value stream is established. Flow is created and pull is established. Also, the wasted steps are eliminated (Trent 2008, p. 5). This cycle is then repeated again and again to perfect value and minimise waste to the shortest proportion possible. 7.0 Why Toyota should Focus More on Lean Skills? Growth should always correlate with the quality systems of an organisation so that a balance could be created between the two. However, it is explained by Toyota’s CEO Toyoda himself that “quite frankly, I fear the pace at which we have grown may have been too quick” (cited in SCDigest Editorial Staff 2010). It is also critically important to promote lean thinking at workplace as is emphasized by lean management. Lean skills should be taught to everyone to help them recognise the value stream and appreciate its contribution to the transformation for the better. There are many steps which make the process of creating, producing, and supplying products painfully complicated. Lean philosophy stresses on getting rid of those time-consuming steps and simplifying the operations. Investing in the area of value stream is valuable because not only it helps to enhance profit margins, but also lends solidarity to an organisation. Lean consciousness and value stream mapping help to master perfection, but it is very important to stay focused on this area and not get distracted by others. A positive fact is that Toyota’s CEO acknowledges the company’s weaknesses because he assured the public that he will do his best in overcoming the quality concerns which have cost the company more than $2 billion (Kageyama 2010). However according to another report, the financial burden put on Toyota owing to its global recalls can exceed $5 billion (Sanchanta & Takahashi 2010). 8.0 How Lean Concepts can be implemented in the Chosen Organisation to improve its Value Stream? What needs to be realised presently is that it was never lean itself, but Toyota shifting its focus away from lean which started causing the problems. This intelligent philosophy should not be questioned, rather the tactics Toyota managers used to boost product sales should be disapproved. Therefore, Toyota can still improve its value stream by implementing lean principles as discussed above in the areas which are haunted by storms. Lean manufacturing is a concept which is introduced and developed by Toyota itself, so this organisation should have no trouble in applying this technique to get rid of the troublesome issue. Quality issues and supply chain risks can be avoided by showing commitment with persistent improvement and removal of waste. However, it is suggested by one report that Toyota is in a very critical crisis stage due to not hesitancy of the leaders to “acknowledge the malfunctions of its vehicles and take corrective actions early in the crisis” (Heller & Darling 2011, p. 4). Another business critic also claims that Toyota should be more assertive in terms of “providing consumers comfort” (Elkins 2010). The good news is that Toyota is now in the phase of recovery and vows on showing greater commitment with customer satisfaction by investing considerable time in the quality area. In the global Chief Quality Officer (CQO) meeting held by Toyota in mid-2013, all officers in charge of quality provided evidence of recovery since quality issues began to be publicized in 2009 and confirmed their determination to maintain quality “from the customer’s perspective in the areas of both product quality and sales and after-sales service” (Sustainability Report 2013). Toyota, according to the evidence put forward in the April 2013 CQO meeting, has taken many steps to improve its value stream in response to disturbing issues which occurred in the last decade. For one, Toyota managers and quality control officers have reaffirmed their desire to adhere to their lean principles. For this purpose, they have put everything else aside and have seriously started to practice the principles of “Customer First” and “Quality First”. Lean consciousness is again picking momentum throughout the outlets spread around the globe as managers have become intent on conveying this knowledge and skills to every worker operating on every level. Then, strength is also being inculcated in the internal system to improve quality in addition to promoting support for after-sales service at all dealers and distributors. According to Toyota’s commercials, the company is “investing over one million dollars per hour in order to advance technology and safety” (Anderson 2012, p. 51). All this is begin done very energetically to achieve only end, delivering value to the customer, which is the core principle of lean manufacturing. 9.0 How this can solve the Problems Faced by Toyota? Lean manufacturing has helped Toyota to sufficiently recover from the turmoil of recent years. Research also suggests that “Toyota’s lean manufacturing helped the company recover in a way that other auto makers probably couldn’t have” (Ritter 2012). Though this organisation is still in the phase of recovery and has a long way to go in terms of winning customers’ trust again, but truth is that its expansion strategy is not as unrestrained and frenzied as it was a couple years ago. Now, its expansion strategy has “an air of caution and appears aimed at both meeting customer demand and limiting supply chain risk” (Ludwig 2013). Toyota’s logistics management has worked wonders in the areas of quality and supply chain to boost recovery and win back the coveted position of world number one automobile manufacturer. Increased efforts are being made to efficiently measure both logistics performance and cost. This is critically important because adding value in the area of well-planned logistics and creating a flow in it can ensure increased flexibility in the supply chain. The vice-president of Toyota’s Logistics Control has also claimed that “we want to limit cost but also make sure we are more efficient and flexible in our supply chain when we come out of these projects” (Brown cited in Ludwig 2013). 10.0 Cost-Benefit Analysis Benefits of Lean Manufacturing Costs of Lean Manufacturing There is creation of flow in the work, which ensures smooth functioning. Toyota’s lean managers have often been criticised for subjecting their employees to long working hours because within a system of lean production, working hours are in full control of managers. Focus is maximised on creating value, not on maximising growth. There is a sense of urgency instilled by a workplace atmosphere dominated by lean production, which leads to a stressed workforce. A balance is created between expansion strategies and inculcation of value in each area. Lean principles force people to change, rather than allowing them to change on their own. All those steps which do not add value and consume too much time are identified and discarded. Workers may feel they are pushed to their limits in the process of adding value, which generates uncomfortable responses. Real value is delivered to end customers, which generates more loyalty and respect for the organisation. Lean manufacturing extensively depends on supplier efficiency and small disruptions in supply chain can significantly dissatisfy customers. Elimination of waste ensures lower manufacturing costs. Employee input is constantly required which may make many employees feel unnecessarily burdened. 11.0 Conclusion Concluding, managers of a lean company should principally focus on managing their value stream and not on increasing growth. Toyota has always described itself as a lean organisation. But, due to losing focus on value stream and largely concentrating on growing as rapidly as possible, unpleasant results in the form of billion dollar recalls and poor quality began to surface for Toyota. Understanding the value stream helps in numerous amazing ways to control the flow of work. Such strategic flow of work is singularly important for large organisations like Toyota which, without lean principles and the concept of value stream, can get easily distracted by certain steps which add no value to the process. This is exactly what has happened to Toyota in the last decade because this organisation shifted its focus from lean manufacturing to maximizing growth, with the result that imperfect products began to reach the customers in large numbers. This is because wasted steps were not eliminated and flow was not created as is stressed by the philosophy of lean management. 12.0 References Anderson, L 2012, ‘Recalling Toyota’s Crisis: Utilizing the Discourse of Renewal’, Journal of Professional Communication, vol. 2, no. 1, pp. 21-42. Cole, RE 2011, ‘What Really Happened to Toyota?’, MITSloan Management Review, viewed 4 February 2014, Duggan, KJ 2012, Creating Mixed Model Value Streams: Practical Lean Techniques for Building to Demand, 2nd edn, CRC Press, USA. Elkins, C 2010, ‘Toyota chief: ‘Facing a crisis’’, The Daily Journal, viewed 4 February 2014, Heller, VL & Darling, JR 2011, ‘Toyota in crisis: denial and mismanagement’, Journal of Business Strategy, vol. 32, no. 5, pp. 4 – 13. Hill, AV 2012, The Encyclopedia of Operations Management: A Field Manual and Glossary of Operations Management Terms and Concepts, FT Press, USA. Kageyama, Y 2010, ‘Toyota chief apologizes for product recall’, The Marietta Daily Journal, viewed 4 February 2014, Linebaugh, K & Shirouzu, N 2010, ‘Toyota Heir Faces Crisis at the Wheel’, THE WALL STREET JOURNAL, viewed 4 February 2014, Ludwig, C 2013, ‘Toyota’s total supply chain vision’, Automotive LOGISTICS, viewed 4 February 2014, Rajasekera, J 2013, ‘CHALLENGES TO TOYOTA CAUSED BY RECALL PROBLEMS, SOCIAL NETWORKS AND DIGITISATION’, Asian Academy of Management Journal, vol. 18, no. 1, pp. 1 –17. Ritter, D 2012, Here’s How Toyota’s Lean Logistics Helped the Company Recover Faster, viewed 4 February 2014, Ruffa, SA 2010, The Going Lean Fieldbook: A Practical Guide to Lean Transformation and Sustainable Success, AMACOM Div American Mgmt Assn, USA. Sanchanta, M & Takahashi, Y 2010, ‘Toyota’s Recall Costs Could Top $5 Billion’, THE WALL STREET JOURNAL, viewed 4 February 2014, SCDigest Editorial Staff 2010, ‘Supply Chain News: Is “Lean” to Blame for Toyota’s Recall Issues?’, Supply Chain Disgest, viewed 4 February 2014, Sustainability Report 2013, Initiatives to Improve Quality, viewed 4 February 2014, Trent, RJ 2008, End-to-end Lean Management: A Guide to Complete Supply Chain Improvement, J. Ross Publishing, USA. Trop, J 2013, ‘Toyota Agrees to Settlement in Fatal Acceleration Crash’, The New York Times, viewed 4 February 2014, Read More