5.3 Lean production and quality management

Full video class on YouTube, summary and notes on Instagram, class extracts on TikTok, text below. Have fun!

The main point of this class is to learn different methods of lean production and quality management and how they impact organisations.

For starters, lean production is not yet another method of production in addition to job, batch and mass/flow. It is more of a characteristic of production process. So, lean production and job, batch, mass/flow production are in different categories. This means that, technically, job production might be lean or not lean at the same time, batch production can be lean or not lean at the same time, mass/flow production can be lean or not lean at the same time as well. However, lean production mostly applies to mass/flow production and is least likely (if even possible) to apply to job production. Now, once we are clear with the categories, let’s get to know in detail what lean production actually is.

Lean production is an approach to manufacturing that aims at reducing the waste and improving efficiency. So the two most important features of lean production, as the definition suggests, are (i) less waste and (ii) greater efficiency. Let’s see what those two things mean.

Waste, with regards to lean production, means inefficiency. It does not only mean physical waste/garbage, it goes way beyond that and includes raw materials, components, labour, productivity, time, space, energy, etc. So, an inefficient use of any of the things I mentioned in a previous sentence is called waste. For example, if workers spend too much time going from one work station to the other to pick up the tools they need — it is a waste.

Efficiency, with regards to lean production, means waste minimisation. You can see examples of waste in the paragraph above and you can see the ways/methods to improve efficiency in the paragraphs below.

Congratulations! You have just achieved the first assessment objective (AO) of this class (to identify the features of lean production), now we’ll kill two birds with one stone: achieve the second AO (to explain the methods of lean production) and learn how exactly efficiency can be improved. Please fill in the table below as you read through the next few paragraphs.

Kaizen (continuous improvement) is a method of lean production whereby small improvements are made regularly as opposed to random one-off improvements. For example, when employees suggest what can be done to improve their working station once a week (e.g. put the tools into a more convenient position or rearrange some tools to save time), that is kaizen. If the CEO once a year arranges updating the tools for all workers because he/she finds it necessary, this is not kaizen.

Kaizen is a Japanese word for continuous improvement and it was developed in Toyota. Kaizen only works when it is down-to-top in the organisational hierarchy: if the managers enforce some changes on employees, it is not kaizen; if employees suggest changes themselves, it is kaizen. One more feature of kaizen is focus on the production process, not output. It means that kaizen is about improving how goods are produced, not about improving the goods and their features. So, please, do not confuse kaizen and R&D (research and development — we will learn it later in Unit 5).

On the one hand, kaizen is motivating for employees because they are in charge of improving their own work. Additionally, it eliminates quality control (when a quality inspector has to check the final output — more about it later in this class). And lastly, kaizen is free to implement, you personally can start practicing it right now and think about how to minimise waste in doing homework or in your note-taking. You do not have to purchase any license or equipment for it, just learn what it is and develop a commitment.

On the other hand, it takes time to develop kaizen culture. If employees are used to being told what to do and have never shown initiative, they will not be able to change in a second and suddenly start suggesting improvements and taking responsibility for their actions. Additionally, kaizen will only work under two conditions: commitment and trust. If anyone is not able to take responsibility and improve their own practice on the regular basis, or if managers are not trusting employees and keep enforcing change — kaizen will not work.

Just-in-time (JIT) is a method of lean production whereby inventory (stocks of raw materials and components) is delivered only as needed, as opposed to having buffer stocks. For example, let’s say, you manufacture desks and you know you need 5 pieces of wood and 10 metallic fixtures per desk. One thing you might do is order 100 pieces of wood and 200 fixtures from your suppliers, keep them in stock and use them when you have orders from customers. But with JIT, you only contact your suppliers once the order is placed, you have zero inventory, you have nothing in stock. If a customer orders two desks, then you will contact your wood supplier for 10 pieces only and your fixtures supplier for 20 pieces.

JIT, same as kaizen, originates in Toyota, Japan. It is the opposite of JIC (just-in-case) system of stock management that uses a buffer stock and stores materials/components for future use. Additionally, JIT only works with developed infrastructure and reliable suppliers. If delivery times are too long or suppliers do not keep their promises, JIT is impossible to implement.

On the one hand, JIT minimises storage costs (because there is nothing to store at all) and thus improves efficiency (because there is no waste in stock management). However, organisations that use JIT are irresponsive to sudden increase in demand. If suddenly a customer places an extremely massive order, suppliers might not have enough materials in their own stock, which means that organisation will not be able to fulfil the customer’s order swiftly. Additionally, JIT requires thorough planning and negotiation with suppliers. Naturally, suppliers would be more interested in selling as much of materials/components as possible at once, so developing a more flexible system and explaining how suppliers might benefit from it is a lengthy exercise.

If you are a HL student, you might want to check out how stock turnover ratio relates to JIT.

Congrats again! Two out of three assessment objectives (AO) for this class should be achieved by now. One more to go: to explain the features of cradle-to-cradle design and manufacturing.

Cradle-to-cradle (C2C) is a sustainable approach to design and manufacturing whereby products can be recycled/reused after their lifespan. The opposite of C2C is “cradle-to-grave”, which is a more traditional approach that is used by a vast majority of organisations nowadays, whereby the products turn into some sort of non-recyclable trash in the end of their lifespan. However, C2C means that waste (if any) is treated as a resource, that products after use can have a second life. Cradle-to-cradle model was developed by Braungart and McDonough and it is very well illustrated by the picture below.

On the one hand, the main benefit of C2C is that it is ecologically sustainable. The whole point of it is to eliminate physical waste completely. It shifts the paradigm of traditional approaches and it encourages organisations to design and manufacture their products in such a way that there is no waste. However, it is easy to talk about it and understand what C2C is, but it is hard to implement in reality because it is not yet economically sustainable. It still makes more sense (from purely economic perspective) to produce goods that are simply thrown away after use. C2C would only work with comprehensive commitment, whereby the entire industries or economies (as opposed to a few unrelated organisations) are willing to implement C2C. But, at the moment, this “all or nothing” approach is too risky and the idea of C2C might even seem utopian to some.

Quality is the measurement of how the product fits its purpose and meets customer expectations. Quality is something that is subjective and multi-dimensional. “Subjective” means that different people might have different understanding of what high quality is and what low quality is. “Multi-dimensional” means that quality has several aspects and judgements about quality usually include a variety of factors: product price, size, appearance, etc.

Quality product does not necessarily has to be expensive and prestigious. It can actually be something really cheap as long as it fits its purpose for the given price and meets customer expectations.

Quality management is the process of ensuring that the product functions well. There are several components of quality management, but the two that are included in IB Business Management course are quality control and quality assurance. Additionally, there are several methods of quality management, but the three that are included in IB Business Management course are quality circles, benchmarking and total quality management (TQM). Please mind the difference between components of quality management and its methods.

After this brief introduction to quality, we are now ready to start achieving the first assessment objective (AO) of this part of class: to explain the features of quality control and quality assurance, which are, again, components of quality management. As always, I am suggesting you make notes in a systematic manner as you read through this chapter by filling in the table below.

Quality control refers to making sure quality is maintained by testing a sample of the final output. In a few words, the way it works is: employees do their jobs, manufacture goods, and then, at the end, the produced goods (all or a sample from each batch) are tested by quality inspectors whose main job is to look for defects in order to make sure that faulty output does not get to the end customers. Focus of quality control is on finding faulty output. This is a traditional, “old-school” approach to quality management that works under the assumption that mistakes are always made and there are always defects in some products and someone needs to control all output once its produced.

The benefits of quality control are that faulty output is less likely to reach the customer and there is no need to develop kaizen culture (see the previous part of class) that takes some time and effort. All that's needed is to hire someone to check the final output and to make sure goods with defects are eliminated from sale. On the other hand, with quality control, employees are not motivated to maintain high quality because of the assumption that mistakes are always made anyway, so whatever they do will be wrong to a certain extent anyway… Additionally, quality control is mainly concerned with finding defects, but not necessarily with finding the root cause of the problem, so it is quite likely that the same errors in the production process might be made over and over again.

Quality assurance refers to making sure quality is maintained by putting employees in charge of their output at every stage of production. Simply speaking, employees are their own quality inspectors. Let’s consider a simple example to illustrate the difference between quality control and quality assurance.

Let’s say desk manufacturer ABC has 3 workers: wood cutter, wood polisher, assembler. With quality control, all employees do their part of work (cutting wood, polishing wood and assembling desks accordingly) and then a quality inspector comes to see if all desks are okay. With quality assurance, every single employee is in charge of maintaining the highest quality at their stage of production. For example, if wood cutter didn’t cut wood right, he/she would not send the faulty pieces further down the production line until the quality inspector finds it.

Stop for a second and just think about the meaning of the words “control” and “assurance”. It is a very helpful exercise for understanding quality control and quality assurance.

Back to quality assurance. Some other of its features are absence of quality inspectors and zero defects (in case it works the way it’s supposed to). Focus of quality assurance is on manufacturing quality products only: without any defects, without having to check the final output.

On the one hand, quality assurance is motivating for employees because they are in charge of their work and they are trusted way more than in the case with quality control. Additionally, there is no need to hire quality inspectors. However, “easier said than done”: in reality, it takes a long time to build trust and culture within the organisation and quality assurance will only work with full commitment of all employees.

We will now be focusing on methods of quality management and on the second assessment objective (AO) of this part of class: to explain the methods of managing quality (quality circles, benchmarking, TQM). As we always do, please make notes using the table below.

Quality circles refers to groups of employees from all levels of the hierarchy meeting regularly to discuss ways of improving quality. As simple as that: employees sit down together to talk about what can be done to improve production. On the one hand, it increases motivation levels and engagement of employees, it helps to implement kaizen culture and quality assurance. On the other hand, with quality circles, employees have to show initiative in suggesting ways to improve. Showing initiative might also mean extra responsibilities. Additionally, some of the employees might naturally be reluctant to change in case some changes are proposed in quality circles.

Benchmarking means assessing the output against the standards set by market leaders. Simply speaking, organisations might take competitor’s product as a benchmark and compare their own product to it in order to see how to improve. On the one hand, benchmarks work as a point of reference and a source of ideas about what to improve, meaning that there is no need to develop the standards from scratch, just take what already is available in the market. On the other hand, since benchmarking assumes competitor’s product as a standard, it might involve repeating competitors’ mistakes. Besides, it puts the organisation that uses benchmarking in an inferior position, because benchmarking works under the assumption that competitors do better.

Review class 4.1 to see how market-oriented approach relates to benchmarking.

Total quality management (TQM) is a method of managing quality that permeates the entire organisation at all levels. This basically means that attention to quality is paid by all employees at all levels of the hierarchy. TQM is a broad concept and it might include kaizen, benchmarking and quality circles. The main feature of it is not some special technique of managing quality (like quality circles or benchmarking) but the fact that it underpins the entire organisation. On the one hand, it has positive effect on motivation, it helps to achieve zero defects in the final output, and it helps organisations to shift towards quality assurance from quality control. However, resistance to change and having to accept responsibility for one’s own work and take initiative are some of the drawbacks that TQM comes with.

The last bit of this part of class is about quality standards and it corresponds to the last assessment objective (AO): to explain the importance of quality standards (AO2). As you hopefully remember from the previous classes, when you are asked to explain the importance of something, please do not feel confused, just think about the pros and cons and why something may be important and not important. Balanced analysis ("on the one hand…, on the other hand…") is the key to success!

Quality standards are criteria that products have to meet to be recognised by independent standard developing organisations. One standard that you definitely have to know is ISO 9001 developed by International Organisation for Standardisation (ISO).

Definitely follow the links above to read a little bit about ISO 9000 & ISO 9001 and International Organisation for Standardisation. Additionally, make a quick research about the quality standards in where you live or come from. Some standards are national, some are international, and both matter.

On the one hand, quality standards are really important because they are developed with the focus on customer satisfaction. It is the whole point of standards — to make sure that whatever product is labelled with a certain standard, quality is guaranteed and customers do not have to verify it themselves. Additionally, quality standards are fair because they are the same for everyone. And lastly, quality standards promote innovation and creativity: when standards are the same for everyone, organisations have to be creative in finding ways how to win customers from competitors.

However, all sorts of standardisation come with bureaucracy and compliance costs. If there were no standards, then customers would have to make their own judgements about all products they purchase, but it will also be very easy for organisations to launch their products without having to run them through standardisation bureaus prior to launch.

Eventually, quality standards protect the customers and push businesses to innovate, even though they come with some bureaucracy.

For starters, let’s look at the assessment objective (AO) for this class: to discuss the impact of lean production and TQM on an organisation. First of all, it is AO3, which means that exam questions that ask you to discuss the impact of lean production and TQM will require you to demonstrate your evaluation skills. Every time we talk about evaluation, I ask you to refer to the SLAP rule (see figure 11 below), and this time there is no exception. Secondly, lean production and TQM are put together in this assessment objective. These two concepts are similar and are closely related to each other, but they do not mean the same thing. Just a reminder that TQM is about assuring and improving quality at all levels and lean production is about reducing waste and improving efficiency. Now you are ready to explore some of the advantages/benefits and disadvantages/costs of TQM and lean production that will help you greatly in discussing their impact on a given organisation.

See the first and second parts of this class above to explore more pros and cons of lean production and TQM separately.

On the one hand, with TQM and lean production, organisations are able to enjoy less waste and more efficiency (see the first part of this class to see what it means exactly). Additionally, workforce would be highly motivated because they are trusted and they feel in charge of what they are doing and producing. Besides, since the focus is on quality assurance (see the second part of this class), there should be zero defects in the final output and there is no need for quality inspectors. And lastly, in the long term, once the appropriate organisational culture is established, mistakes and waste are minimised, which leads to cost reduction. So, overall, in the long-term, TQM and lean production come with long-term benefits.

On the other hand, implementing TQM and lean production are examples of change in business, and as we learnt in class 2.1, change often faces resistance, so managers should make sure they identify the reasons for resistance to change and apply the strategies for reducing the impact of change. One thing that managers might consider in dealing with change is Kotter and Schlesinger’s model. Additionally, implementing TQM and lean production might result in increased costs in the short term. For example, organisations might have to pay for training that is aimed at familiarising staff with the new approaches to production and quality. Besides, TQM and lean production take a long time to implement and cannot just start immediately after the decision to implement them is made. And lastly, lean production and TQM only work with full commitment of the workforce at all levels, which is also quite hard to build in reality. So, overall, despite long-term benefits of TQM and lean production, they are relatively hard to implement and come with short-term costs.

Based on the pros and cons above, and using the SLAP rule from the picture below, think of any organisation that might implement or already has implemented TQM and/or lean production, and discuss their impact on this organisation.

Make sure you can define all of these:

1. Lean production
2. Waste
3. Efficiency
4. Kaizen (continuous improvement)
5. Just-in-time (JIT)
6. Cradle-to-cradle (C2C)
7. Quality
8. Quality management
9. Quality control
10. Quality assurance
11. Quality circles
12. Benchmarking
13. Total quality management (TQM)
14. Quality standards