Strategic and Operational Issues Facing the Company: Leagile Manufacturing - Case Study Example

Operational Management (Insert Name) (Institution Affiliation) Table of Contents Table of Contents 2 Executive summary 3 1.0 Introduction 4 1.1 Review of the strategic and operational issues facing the company 5 2.0 The Lean Production 6 2.1 overview of the lean Strategy 6 2.2 Lean Principles 9 2.3 Major Wastes 10 3.0 Implementation of the lean strategy 11 4.0 Recommendations and conclusion 14 4.1 Recommendations 14 4.2 Conclusion 16 References 16 Executive summary Leagile manufacturing has been facing several managerial and operational problems for the past six months. This is due following the introduction of lean manufacturing strategy in the production system by the vice president of operations, Scott Murphy. Scott was attracted by stories of success of the lean production system in other companies and decided to give it a try. This paper deeply analyses the problems facing Leagile manufacturing, reviews the linkages between customer needs, the company’s strategies and its current operational issues and recommends a strategy that should be implemented in order to overcome the challenges and at the same time remain competitive in the dynamic customer driven market. 1.0 Introduction In his effort to implement lean production system, the Vice President of Operations at Leagile Manufacturing, Scott Murphy, did not consider the fact that lean cannot be learnt by reading magazines or books. While lean principles can be well explained in books, a personal guidance is often necessary in order to identify the best approach to suit a given organization. This element is what was lacking in Leagile Manufacturing. It requires a good understanding of the key principles and lay down the necessary procedures of implementing lean techniques (Kearney, 2003). Scott got inspired by literary information regarding the success of lean production system elsewhere but it is evident that he lacks practical orientation or exposure with the lean production system. The main aim of this paper is to analyze the problems facing Leagile Manufacturing in the quest of implementing lean production techniques and recommend the right strategy which is driven by customer needs, supply characteristics and contemporary development in manufacturing and supply chain management. Also, the implementation of this strategy will provide Leagile Manufacturing with a sustainable competitive advantage and provide solutions to the problems currently facing the organization. 1.1 Review of the strategic and operational issues facing the company One of the major problems faced by Leagile Manufacturing after the introduction of lean production system is the resistance to change portrayed by the employees. Many employees were still confident in the traditional Manufacturing Resource Planning (MRP) which they still believe was the best way to run a manufacturing operation (Kotter, 2007). The employees believed that lean production strategy was a disaster and even some of them threatened to quit. The workers are very furious at the trends of progress and largely blame Scott and his strategy on that fate. Indeed, many of them are not willing to embrace the chance and the increased amount of work that accompanied the new lean production strategy. Secondly, the management had failed to empower the employees. Scott issued a directive to implement the lean production without taking some time and resources to train the employees. The key to empowering the employee is not only have them generate the new improvement ideas but also be actively involved as part of the team that solves them (Noronha, 2002). Scott failed to provide the necessary guidance and supports to enable the employees of League manufacturing develop a lean culture. Also, there was lack of recognition that lean is a whole philosophy and not just mere techniques and tool. Its true gain could only come from changing the way the whole organization runs which is achieved by changing the whole culture. Minimizing inventory as the first step of eliminating waste caused more problems in the entire production chain than it solved. This was primarily due to inadequate planning and lack of lean suppliers. Inventory, though considered as one of the wastes in a lean environment, is a necessary non-value added activity (Wilson, 2009). This is because from customers’ perspective, it does not add value to a product but is necessary for buffering stock. The inventory waste should instead be reduced gradually and in the long-run eliminated as production becomes more stable. In the case study, the purchasing manager of the Leagile Manufacturing complained about the impacts of reducing inventory. The cost of purchasing orders were sky rocketing due to increased number of orders, the transportation cost was on the rise due to increased rate of flying in of parts and frequent deliveries and delays in deliveries which was costing buyers of their time. The shipping and receiving department is facing a crisis due to lack of enough manpower and resources to handle the increased deliveries. As a result of minimizing inventory, each delivery was critical but there were no enough truck bays and receiving clerks. The delay introduced in this department stalled the entire production process and introduced more waste and inconveniences in the system. It also resulted in heightened overall costs in the attempt to satisfy the general customer requirements. 2.0 The Lean Production 2.1 overview of the lean Strategy With the lean system, more time was being wasted in the production department than when MRP system was in place. This is because a problem introduced in one department propagated exponentially throughout the system. For instance, delay in the delivery of raw materials or change of order specification caused big, inefficient downtimes for setup changes and time wastage as they wait for the delivery of new parts. All these problems could be eliminated by a substantial inventory. Leagile Manufacturing is currently characterized by too low inventory which has resulted in increase in supply costs and endangered customer service. The previous MRP system was not better either, it had high inventories which tied up most of the working capital and resources and made the company to incur additional storage and product handling costs. Whenever there is a discrepancy between two parties, an inventory results. This is clearly portrayed in the case study whereby the leagile manufacturing held stock in order to protect against delivery failures and defects in the MRP system and the supplies are forced to keep a stock buffer in order to be able to handle surprise demands when Leagile manufacturing adopts the lean production system (Noronha, 2002). Furthermore, the company experienced very poor delivery time following the rapid implementation of lean production system. This was basically due to the inefficiencies in supply of raw materials and the entire production process. However, the sales goal was met but despite this, the company reported a big loss. The preliminary report indicated that Scott only concentrated on reducing inventory cost rather than properly implementing the lean culture across all process. This resulted in increased operations cost which is contrary to the lean principles. The production process in the Leagile manufacturing is currently being driven by the customer preferences and demands. The company has adopted the just –in-time strategy that requires production of only what is needed, when it is needed and where it is needed. However, this strategy is faced by major operational issues which have severe impact in product delivery. To address these problems, the company needs to implement fully the lean production strategy. The lean production strategy, if properly implemented, will not only reduce waste but also help in identifying the problems that may exist but are compensated for due to redundancies in the production process and also reduce production cost and time substantially (Davis, 2009). The customer demands not only drive the company to deliver tailor made products to but they are also causing the shrinking of product life cycles. To increase or maintain the market share, manufacturers must work hard and come up with strategies that will enable development of new products or revamping of the existing ones at a faster pace. (Wang, 2010). Shortening of the life cycles of a product has great impacts across the entire manufacturing process. The highly competitive markets which are typically customer driven has rendered the old fashioned managerial styles inadequate in coping up with the heightened customer demands and challenges. Therefore, going back to the MRP system is not an option for Leagile manufacturing if it has to attain a sustainable competitive advantage. Though it is struggling with the problems posed by the implementation of the new strategy, lean production remains the most viable strategy that is recommended for the elevation of the firm’s performance. To avoid the problems caused by immediate change in strategy, the Leagile manufacturing should retain some aspects of the MRP system which will support the implementation of new system. Such aspects include inventory levels which need to be maintained at a substantial level to ensure no delays exist in the production chain. This is because the strength of MRP lies in planning while that of lean system lies in execution and control. A hybrid model consisting of the two strategies will ensure smooth transition. The basic ideas or principles behind the lean production system, which has been successful in many places especially the Japanese firms, are cost reduction, waste elimination and above all employee empowerment. The lean production culture is centered on working at every facet of value stream by eliminating waste in order to generate capital, reduce cost, increase sales and remains competitive in a changing global market (Wilson, 2009). 2.2 Lean Principles In lean production or manufacturing system, the product value is primarily defined by customers’ specs, preferences and the needs they are willing to undertake any cost to satisfy. Under this system the production operation are usually categorized into three major groups as follows (Davis, 2009): Value added activities – this refers to the activities which basically transform the raw material into the final product that meets all the customers’ requirements, specifications and preferences. Non value-added activities –this refers to all the activities that are not necessary in the production system and does not add any value to the end product. These activities are commonly referred as waste in a lean system. These activities usually constitute to addition of unnecessary time, cost or effort in a production process. Customers are usually not willing to pay for these activities. Testing and inspection of products for quality or defects can also be classified as waste under lean operation. Necessary non value-added activities – this category refers to all activities that are necessary in the production process but on the customers perspective they does not lead to ant value addition on the end product. This type of waste can be gradually reduced or eliminated in the long run but they are hard to eliminate in the near term. For instance, high inventory levels are necessary for buffering stock and preventing against failures in deliveries but they can be eliminated if the production is stable. 2.3 Major Wastes Originally initial lean system developed and used in the Toyota manufacturing system identified only seven major types of wastes. However, the list has been expanded and modified by various practitioners of lean manufacturing (Davis, 2009). The main types of waste include: Over production – this refers to the production of more goods than what is necessarily demanded either intentionally or un-intentionally or sometime producing earlier that they are required. Overproduction increases the risk of products becoming obsolete or production of wrong items that might end up being discarded as scrap or sold at a discounted price especially if the customers’ requirements are changing or dynamic in nature. However, there are some unavoidable circumstances that require a surplus supply of finished or semi-finished goods and a stock must be maintained even by the lean manufacturers. Defects – this is the second type of waste that must be eliminated in a lean system. Physical defects add directly to the cost of goods sold and thus shrink the organizations profits. Defects also include incorrect information about a product, errors in paper work, late delivery, generation of unnecessary scrap, use of too much raw materials and production of products that do not conform to the customer specifications. Inventory – this type of waste is usually associated with the traditional systems such as MRP. Inventory waste refers to the situation where an organization maintains unnecessary high levels of finished products, work in progress and raw materials. High inventory is undesirable since it leads to higher defects rates and heightened storage costs the can be avoided altogether. Transportation – this includes any movement of materials or finished products that do not add value to it. Production process should be synchronized by minimizing material movement in order to shorten the production cycle time and eliminate the inefficient use of labour and space. Waiting – refers to the idle time for workers and machines due to delay in delivery of raw materials, inefficient production flow or bottlenecks. Waiting which also include what might be perceived as small delays especially between processing units results in a significant increase in costs as it increases the depression cost per unit of output on machines and labour cost. Motion – is another major waste which includes walking by workers or the physical motion which diverts the employees from actual processing work. This usually occurs due to lack of proper coordination among various departments and lack of proper guidelines to govern the production process. In many occasions, motion slows down the worker and the entire production process. Correction or reprocessing – refers to situation where an item have to be modified or redone as a result of failure to meet the specification in the first place or use of a defective part. This usually causes major disruptions in the production process, causes time wastage and result in inefficient use of labour and company resources. Knowledge disconnection – this is a kind of waste that refers to situations when information is not available when and where it is needed. This mostly includes information on specifications, correct procedures, ways to solve a problem and sometimes emergency protocols. Lack of correct information often leads to stoppages, bottlenecks, defects or even suspension of an entire production process. 3.0 Implementation of the lean strategy Many challenges usually face organizations while trying to implement the lean system. Womack proposed five principles of lean manufacturing implementation that are globally accepted and are the key importance to successful implementation of the strategy at Leagile Manufacturing (Womack, Jones 1996). Scott must remember that applying these five steps needs to happen on every organizational level and will require complete transformation of the current MRP production system. The real challenge, which is the reason why the strategy failed in the first place, is to know how and where to start. The first step involves precise definition of customers’ value. In this step, the management needs to understand the needs and preferences of its current and potential customers. It is of great importance that every department is value centered. Whenever the customer value is not properly specified, the result is usually production of wrong goods with a greater waste for the organization (Womack Jones, 1996). Thus, through proper definition of customer value, the company will be in a position to produce only what is needed, when it is needed which is one of the basic requirements of lean manufacturing. Secondly, the Leagile Manufacturing will be required to identify the entire value stream and eliminate waste gradually. This stage involves three critical activities namely: product definition, information management and physical transformation. These activities may require some changes in the plant layout in the aim to eliminate the eight major wastes described above. The production work must be properly organized so that its visibility allows the identification of defects and mistakes that may occur during the production process (Wang, 2010). This stage requires complete dedication from the managers and the employees since new organization techniques are needed in order to accommodate the new technology, work boards or new organization of work flow. Making steps flow requires innovative thinking. Many employees in Leagile Manufacturing however, believe that lean system is a nightmare due to its demand for continuous improvement event when things seem to perfect. This system requires integrative thinkers who are ready to embrace challenges. This includes letting the end users or the customers pull the products they want into the system when they need it. That is, Just – in – time production that was being advocated by Scott. In this case, high inventory costs will be eliminated as seen in the case study. The final step in the implementation process is ‘pursue for perfection’. As the production process stabilizes, the organization can start eliminating the traces of the traditional systems slowly. This should be done gradually to ensure that the employees have enough time to adapt to the new processes and techniques. It is usually advisable that all the steps are performed simultaneously so that the influence of every process is strong enough to enhance the outcomes of the others (Dennis, 2007). Lean manufacturing consists of eight principles namely: zero defects, elimination of waste, multifunctional teams, continuous improvement, pull scheduling, team leaders, de-layering and vertical information systems (Dennis, 2007). If Leagile Manufacturing implements these principles properly, all the problems introduced initially will be eliminated. The company was facing problems because it was solely focusing on the principle of eliminating inventory waste while neglecting the others. Although lean production system emphasizes on reducing wastes of all types, strategic focus together continuous improvement of the company’s production process over quality and defect reduction should always be at the first place. The vice president of operations at Leagile Manufacturing, Scott Murphy, must focus towards attaining operational effectiveness before moving on to the elimination of wastes especially the necessary non value-added activities such as inventory. To accomplish operational effectiveness, training is mandatory. The employees should be properly trained into different troubleshooting techniques and into using different hypothetical testing methods in identifying and rectifying faults and search for appropriate solutions (Baines, 2006). All procedure should be outlined in a clear and unambiguous manner to avoid confusion. The lean production should be adopted as the organizations culture and not just as a mere tool or strategy. Every employee should be trained towards developing a culture of identifying the sources of waste or variations and eliminating them. Lean production system also requires that a process be improved always no matter how good is it and the management should encourage the workers to think in this direction of always continuously searching better ways of doing things (Holweg, 2007). This will ensure continuous improvement and innovation that will enable the organization to establish and maintain a competitive advantage and at the same time be able to cope with the changing requirements of its customers. 4.0 Recommendations and conclusion 4.1 Recommendations According to the Leagile Manufacturing case study, supplier support was a critical factor for the successful implementation of lean manufacturing. If the company is to remain competitive in the global arena there is a necessity to maintain a long relationship with the suppliers and ensure they keep up with the current technological advancement. In so doing, the company will secure a lean supplier which will help in eliminating inventories on either sides. Furthermore, in order to enhance long time competiveness and perfect the lean strategy, the company must encourage its customers and suppliers to develop capabilities for Just – in – time (JIT) production as well as JIT delivery (Dennis, 2007). Similarly, the suppliers must also implement lean system and learn to respond quickly to the varying customer demands and heightened specifications in the current competitive market which is driven changing requirements for responsiveness to customer needs, cost reduction and Just- in- time supply. Therefore, for the lean production system to work properly, three things that are essential are effective management, employee involvement and close supplier –customer relationship. With these three in place the company will be able to attain operational effectiveness, finest quality, fastest response time and competitive pricing. Despite the success of the lean production or JIT system, it is usually not suitable in areas where there are large and unpredictable variations in demand and the material flow is complex. In situations where product structures and routings are complex, MRP is often required for planning (Wang, 2010). In continuous flow and environments involving repetitive manufacturing, it is usually possible to combine JIT or lean production with MRP (Lewis, 2000). When the MRP and JIT coexist, a master production schedule usually exists. Material is pulled through production using JIT approach in order to eliminate as much waste as possible whereas planning is MRP based and a JIT based execution is employed (Abo, 1994). 4.2 Conclusion In conclusion, as we have seen, Leagile manufacturing main aims are the focus on customer value, customer satisfaction by meeting their demand and specifications, elimination of all waste and pursuit of perfection through continuous improvement. This aim clearly describes the principles of lean production which every organization aims at achieving. These different techniques and concepts are usually suited to different environments. As it was seen in the case study, poor implementation of the lean production system can lead to total disaster. 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