Operations Management Deals With The Transformation Of Resource Inputs Accounting Essay


1. Introduction

Operations management deals with the transformation of resource inputs to make useful goods and services as output. The conversion of resource inputs into output involves various operations which are organized into appropriate sequences to produce larger systems of production. Thus the main idea behind the introduction of operations management is to manage all the activities which are involved in the transformation of inputs into useful outputs. While the conversion process takes place, there may be lot of wastes in that process. Thus it becomes very important for the organization to take necessary steps to reduce or eliminate the wastes. Japanese were the pioneers in developing a concept called Lean manufacturing which was focused on minimization of waste in the production system.

Lean manufacturing is mastered at Toyota. But roots of Toyota can be found in Henry Ford's system of line assembly. In the Ford system they manufactured automobiles in large quantities of standard designs. Lean manufacturing made the system highly efficient, delivering a product with low cost.

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The executives of Toyota who studied the Ford system identified the problems in ford system and they tried to develop a new system which managed to fulfill the requirements of customers with standardization in product. They started working on the issue and came up with a unique Toyota Production System which was developed to fulfill the unique requirements of Japanese market. The executives had to look for the different ways to deliver variety of products within short time periods. Thus, Lean Production is also known Toyota Production System.

Toyota designed a system which mainly focused on the market demand and delivered products which the consumers want rather than manufacturing and then looking for the market. This system of production is known as Just-in-Time manufacturing system. Toyota created a unique pull manufacturing system instead of the Ford push manufacturing system which then became the backbone of lean manufacturing.

The extraction of the present Japanese System was developed in Toyota. The key concepts on which the entire Toyota Production System is developed are:

Just-in-Time- the objective of which is to produce the necessary units in the quantities needed at the time at which they are need.

Automation- It is a Toyota coined word which means "autonomous defects control" that is "work control" quality control

Lean manufacturing was developed first by Henry Ford who used the idea of "continuous flow" on the assembly line for his Model T automobile where the production standards kept by him where extremely tight which fitted each stage perfectly and resulted in reduced waste.

Lean production helps in simplifying and organizing the work environment which helps in reducing the wastes and keeps the people, equipment and the workplace receptive to the current need of the organization. The prime objective of lean manufacturing is to aid producers in becoming more competitive with the implementation of different lean manufacturing tools and techniques. Lean manufacturing is all about utilizing the maximum with less time, inventory and all other amenities like space, labor, and money. Lean manufacturing in short, is the commitment to eliminate waste and simplifying the procedures and speeding up the production process. Waste can be defined as anything which does not add any value to the end product. Elimination of waste includes reducing over production, waiting time, transportation, higher holding of inventory over- processing, defective units etc. thus it is highly necessary to eliminate all such activities. There are mainly five areas which are concentrated in lean manufacturing namely:





safety, and


Lean manufacturing is all about finding efficiencies and eliminating wasteful procedures which do not add value to the end product. Lean manufacturing does not allow the quality to be reduced. In lean manufacturing the same task is accomplished with more efficient ways and more effective results are arrived there on.

There are eight categories of wastes in lean manufacturing:

Overproduction- results in producing products more than what thee consumers demand.

Waiting- indicates lag time between the production steps.

Wastage in work-in-progress means that whether the levels of supply and work-in-progress inventory are too high.

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Wastage may also occur while transportation of goods. Whether the movements of materials are efficient or not, is looked is looked in this area.

Over-processing means whether the company is working on the product many times or whether there arise inefficiencies in the work.

Waste in motion refers to the inefficiency in the movement of people and equipment between tasks in the organization.

Defects means how much time is required to find and fix the production mistakes

Wastage in workforce refers to inefficiency in the usage of workers.


2. The benefits of Lean Production

Lean manufacturing has become so popular because of the effective results which have been shown by the application of lean manufacturing in various organizations. Establishment of lean production has resulted in efficiencies in the production process. Mastering of a lean production system allows attaining the following benefits:

Wastes are reduced by 80% in an organization.

Production cost are reduced by 50%

Production cycle times are decreased by 50%

Reduction in use Labor by 50% while maintaining or increasing the quality of the output.

Reduction in Inventory by 80% while increase in the customer service levels

Increase in the capacity of current facilities by 50%

Increase in the quality of the product.

Profit are increased

Flexibility in the system reacting to changes in the requirements is improved to a higher level.

Strategic focus is increased.

Cash flows are improved through increase in shipping and billing frequencies.

However, by continually focusing on waste reduction, there are truly no ends to the benefits that can be achieved.

Overhead operating costs are reduced 30%

Sales are doubled.

Cuts in Lead time by 50% to 90%

Cuts in process queues by 70%

Frustration on-the-job is reduced.

There are various ways by which Toyota Corporation can achieve Lean. They are:

The current process must be clearly assessed.

Customers true desire must be understood very clearly and based upon that future market trends can be analyzed.

Profound knowledge of the manufacturing process should be developed.

Lean tools and techniques must be applied at the most critical processes.

Until a fully integrated manufacturing process is obtained, Lean implementation must be spread in almost all the areas.

Lean must be implemented with suppliers also.

Lean must be implemented with downstream supply chain organizations, including customers

Lean must be applied into off-line and non-manufacturing areas like Engineering, Design, Marketing, etc.

Thus, by adopting Lean in all the auxiliary areas in the organization will lead to complete elimination of wastage from all spheres of the organization.

Recommendations - how to manage the waste

There are 14 principles of the Toyota philosophy to produce the products which is used in the Toyota Corporation which is known as Toyota Production System. Toyota Production System is also known as Lean Manufacturing. Toyota Production System is one of the best systematic and highly developed models of Toyota. Toyota uses this technique in its production and accomplishes its tasks. The Toyota Way consists of the foundational principles of the Toyota culture, which allows the TPS to function so effectively.

Lean techniques can be used both in production as well as service oriented industries and service environment also. Wastes are contained in all most all the production systems. Once the wastes are identified, the next step is to apply sets of tools and techniques to reduce the waste:

Just in Time - The core idea behind lean manufacturing is based on the 'pull model'. Just-in-Time mainly focuses on fulfilling the needs of an organization whenever the need arise. For example the activities such as purchasing materials producing and distributing materials should be done as and when the requirement arises. This helps the organization to minimize stock and resources. This type of production process helps in producing small, continuous batches of products which helps in smooth and efficient running of organization's production process. Quality of the product can be standardized if the batch size is reduced. Moreover by reducing the batch size. It is easy to monitor and find out the defects and corrective steps can be taken in the initial stage itself. This lessens the possibility of quality to be poor in future batches.

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Kanban - Kanban is a form of Lean Manufacturing in which the key area is to involve people in lean manufacturing process. Here, as a support to the Just In Time model by cues are developed in the system which helps in giving signal to replace, order, or locate something. Here the main is on reducing overproduction, which help in producing units as and when the need arise.

Zero Defects - This type of production system focuses on zero defects. In this system main focus is given to the production of product in the first attempt. Here unnecessary spending of time and money in fixing poor-quality of product is eliminated. By using the Zero Defects system, it is strengthen that no defects are acceptable and people in the organization are encouraged to do things right at the first time.

Single Minute Exchange of Die (SMED) - In this type of lean manufacturing flexibility is mainly focused in the production process. For example, in an automotive industry, it might take many days to change a line to produce a different car model. When we apply SMED, the assembly process and machinery are designed in such a way that it supports quick and efficient change overs. A tool called die is used in SMED. A "die" is a tool which is used to shape an object or material.

The 5S Philosophy - Standardization is the key focus behind Lean manufacturing. To bring simplicity and standardization in tools, processes and workplace arrangements, this philosophy is used. This creates fewer places for things to go wrong, and reduces the inventory of replacement parts that you need to hold. To accomplish a good level of standardization, use the 5S System. http://www.gembutsu.com/articles/toyotaproductionsystem.html

Evaluation of the impact

There are various tools and techniques used to minimize the waste in the organization. There are various reasons which may lead to waste in an organization. Toyota Corporation is likely to encounter wastes due to the following:

Problems in equipments: Sometimes the equipment may have some problems which interrupt the production procedure or may affect the quality of the product, due to which the product does not meet the minimum standard which may further lead to wastage.

Layout constraints: Sometime wastage may arise because of the constraints in the layout of the production. Sometimes certain layouts are not fit for the production of certain products. In those cases wastage's may arise. Unique layout constraints including elements such as existing electrical installations, hazmat ventilation requirements may also lead to wastage in the production process.

Over production: Over production is another cause of wastage in the organization. When the products are produced more than the requirement, it may lead to wastages.

These are some of the causes of wastes in the organization. There are mainly three types of activities which exist in an organization namely:

Activities which add value.

Necessary activities which do not add value.

Unnecessary activities which do not add value.

Value adding activities are those activities which create value to the product used by the end consumers. Examples of value adding activities in Toyota may include all those activities like iron ore (with other things) into cars, forging raw material, and painting a car body.

There are five main elements in a lean approach:

Specify Value

Identify and Map the Value Stream




Necessary non-value adding activities are those activities which do not directly create value to the products produced but these activities are necessary under the existing operating systems. Examples from Toyota Company may include walking long distances to pick up parts, or unpacking vendor boxes. These non-value adding activities can be removed by changing the current layout of a line or organizing vendor items to be delivered unpacked. These types of wastes are very difficult to remove in a short period of time but can be focused to remove in a long time period.

Unnecessary non-value adding activities are the activities which neither add value to the product nor are they necessary for the existing circumstances. These activities are mere waste and should be focused to remove as soon as possible. Examples include waiting time, stacking of products and double transfers.

Thus, it is highly necessary to use the tools and techniques to remove the wastes in the organization.

Justification on the recommendations

With continuous efforts on the production processes all the Non-value added activities and the waste are eliminated.

When there is a continuous focus on improvement of processes in the organization, the entire value chain is improved.

With the use of lean manufacturing, Continuous product flow is achieved by way of physical rearrangement of all the machinery and the system structure is well managed and controlled using various mechanisms

Lean manufacturing helps in achieving reduction in equipment set up with the adoption of Single-piece flow / small lot production. Lean manufacturing pays attention to maintenance of the machinery which in turn brings a clean and orderly work place.

Inventory control techniques like Just-in-Time / Pull reduction are used in lean manufacturing which have proven to be a good technique in reducing the wastes in the production system.

Long term sustainability

The application of Lean manufacturing has resulted in Long term sustainability in Toyota Corporation. Long term sustainability refers to the long term maintenance of the production process in Toyota Corporation. The application of lean manufacturing will relieve the company from waste and moreover the flow of production will be smooth. Following are the result of Lean manufacturing in Toyota Corporation:

There will be smooth and continuous flow of production.

There will be close integration of the whole value chain from raw material to finished product through partnership oriented relations with suppliers and distributors.

With the adoption of Just-in-time processing in Toyota Corporation, a part of production moves to a production operation, where the operation is processed immediately, and the part moves immediately to the next operation without any lag.

In Toyota Corporation the production of automobiles is based on orders rather than forecasts. Production planning is in lean manufacturing driven by customer demand or "pull strategy" which does not suit machine loading or inflexible work flows on the shop floor.

The inventories at each stage of production are minimal in Toyota Corporation because of lean production.

The products in Toyota Corporation are produced with one-piece flow in small batches because of quick changeovers of machines and equipments.

The production process is as per the layout which is based on product flow.

The workers in Toyota Corporation are actively involved in trouble shooting and problem solving to improve the quality and eliminate wastes in the organization.

Prevention of Defect is one of the main objectives of Lean manufacturing rather than inspection. Rework by building quality in the process and implementing real time quality feedback procedures is the main feature of lean manufacturing.

All the work in the Toyota Corporation is based on team. Team-based work empowers to make apt decisions and improve the operations in the organization. Such team based work need multi-skilled operators to operate.

Porter's Value Chain

Value Chain is the separation of business system into series of value generating activities through which a firm develops competitive advantage and creates shareholders value. The main idea behind Value Chain is developed by Michael Porter in his book called Competitive Advantage in 1985, in which Michael Porter introduced a generic value chain model which comprises a sequence of activities found to be common to a wide range of firms. Porter identified primary and support activities as shown in the following diagram:

Porter's Generic Value Chain    

There exists a link between the value chains. Porter's Value Chain model helps to analyze specific activities which help in creating value and brings competitive advantage to the organization.

The main objective of all these activities is to provide greater value to the customers which include a level which is more that the cost of the activities which results in profit margin.

There are eight categories of wastes which are likely to occur in both primary and supporting activities. They are:

Overproduction- results in producing products more than what thee consumers demand.

Waiting- indicates lag time between the production steps.

Wastage in work-in-progress means that whether the levels of supply and work-in-progress inventory are too high.

Wastage may also occur while transportation of goods. Whether the movements of materials are efficient or not, is looked is looked in this area.

Over-processing means whether the company is working on the product many times or whether there arise inefficiencies in the work.

Waste in motion refers to the inefficiency in the movement of people and equipment between tasks in the organization.

Defects means how much time is required to find and fix the production mistakes

Wastage in workforce refers to inefficiency in the usage of workers.

The Value Chain framework of Michael Porter is a model that helps to analyze specific activities through which firms can create value and competitive advantage.


Inbound Logistics

Includes receiving, storing, inventory control, transportation scheduling.


Includes machining, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform the inputs into the final product.

Outbound Logistics

The activities required to get the finished product to the customers: warehousing, order fulfillment, transportation, distribution management.

Value Chain model of Michael Porter: Marketing and Sales

The activities associated with getting buyers to purchase the product including channel selection, advertising, promotion, selling, pricing, retail management, etc.


The activities that maintain and enhance the product's value, including customer support, repair services, installation, training, spare parts management, upgrading, etc.


Procurement of raw materials, servicing, spare parts, buildings, machines, etc.

Technology Development

Includes technology development to support the value chain activities, such as Research and Development, Process automation, design, redesign.

Value Chain model of Michael Porter: Human Resource Management

The activities associated with recruiting, development (education), retention and compensation of employees and managers.

Firm Infrastructure

Includes general management, planning management, legal, finance, accounting, public affairs, quality management, etc.

Inbound Logistics

Framework for Assistance:

The newly employed first-line manager in Toyota Corporation can very easily identify the types of wastes in the primary and supporting process. The following procedure can help the newly employed line manager:

Identifying the waste: One of the main tools used to find this type of waste is a Value Stream Map (VSM). This shows how the flow of materials and processes across your organization to get the product or service to the consumer. Examines how the actions and departments are connected, and highlights the waste. In analyzing the MSM, you can see the processes that add value and which do not. You can then create a "future state" VSM that includes as few non-value-adding activities as possible.

Analyze the waste and find the cause: Root Cause Analysis is one of the best methods to analyze the cause of wastage. Sometime continuous breakdowns in the machinery or some problem from the mechanical side may be the root cause of wastage. This can be identified through proper monitoring.

Solving the root cause and repeating the cycle: There are various tools and techniques to solve the problems which may arise in the production process. In order to minimize the wastage Toyota Corporation can use various techniques called Just-in-Time, zero defects, Kanban, Single Minute Exchange of Die and The 5S Philosophy.

Thus, these steps will help the newly joined line-managers to identify the defective areas and will assist them to take necessary steps to reduce or eliminate the danger signals which may arise in the production process of the Toyota Corporation.

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Lean manufacturing has been effective in all the aspects. The application of lean manufacturing has reduced waste by 80%. Moreover the tools and techniques are cost effective and have improved the quality of the product. Toyota Corporation has improved the quality of their products and has come up with new innovative automobile products. This is mainly due to the application of lean manufacturing and hard work. Thus, we can say that the application of lean manufacturing has proven to be a good technique for production system as well as for service industries also. Tools like JIT leads to productivity improvements and reduction in delays in the production system. Toyota Corporation has adopted this technique which has proven to be very effective in all the spheres.