Lean Manufacturing In Automobile Industry Of Pakistan Commerce Essay

The objective of the lean manufacturing is to reduce the lead time and cost of production. In competitive markets, the issue of lead-time is of great importance, it is the main driving factor for business profitability but people are less aware of the lean manufacturing & its importance that can bring drastic improvement in Automobile industry of Pakistan.

Lean manufacturing is the production of goods using less of everything compared to mass production. It focuses on less human effort, less manufacturing space, less investment in tools, and less engineering time to develop a new product. Lean manufacturing is a generic process management philosophy derived mostly from the (“Toyota Production”, 1991) Toyota Production System (TPS) Womack, James P., Jones, Daniel T., and Roos, Daniel (1991).

In the simplest form, lean manufacturing means producing goods with less; it applies fewer resources without affecting the quantity or quality of the goods produced. Toyota’s purpose in developing the system was the elimination of waste, and TPS is focused on seven sources of it:

over-production caused by emphasis on supply rather than demand;

wasted motion due to poor processes;

waiting time generated by tuning the production system to the fastest rather than the slowest process;

conveyance waste caused by poorly designed supply systems that delay the transit of goods;

processing waste from badly designed systems;

raw material waste from inefficient design or ineffective supply strategies;

correction waste caused by reworking badly made products. (“Toyota Production,” 1991) Toyota Production System (TPS) Womack, James P., Jones, Daniel T., and Roos, Daniel (1991).

The results of TPS have included enormous advances in robotic manufacturing systems and factory design, just-in-time inventory management, the “kanban” system of visual inventory replacement cues, demand-pull management of manufacturing planning and others. But lean manufacturing also has evolved into a business philosophy based on a unique set of practices, and the resulting business culture demonstrates how to use these to create a lean approach to other aspects of business; one area ripe for this lesson is supply chain management.

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Lean manufacturing is the systematic elimination of waste from all aspects of an organization’s operations, where waste is viewed as any use or loss of resources that does not lead directly to creating the product or service a customer wants when they want it. In many industrial processes, such non-value added activity can comprise more than 90 percent of a factory’s total activity (Simon Caulkin, 2002).

The supply chain permeates every face of the enterprise, and if a lean approach to managing it is to succeed, the entire organization has to focus on removing waste and adding value. As a part of this change it requires everyone to involve for looking beyond the boundaries of the company to relationships with customers and suppliers at all levels. The change in focus is essential, but implementing it can be difficult in today’s international supply chain environment. Nevertheless, the principles of lean business are straightforward and can form the foundation for an organization’s new approach to its supply chain. (Ventana Research , Europe).

First, product value has to be defined from the customer’s point of view, not the company’s. This seemingly simple principle is the key to eliminating waste caused by such things as making the wrong product (one that nobody wants), making the product at an unsuitable quality level, making too much or too little of it, or delivering it too slowly or through the wrong channel.

A second principle is that the supply chain should flow continuously, and so should the information that supports it. Delays and discontinuities in the supply chain process are often caused by starting and ending processes or information streams that could smooth things out if they were operated continuously.

Product should be pulled by the customer, not pushed by the company. That is, no part of any supply chain process should be started without a complete understanding of the demand destination of the final product that will complete the cycle.

Finally, the entire organization needs to continue to manage toward perfection, concentrating on the elimination of waste and the addition of value in all of its supply chain processes. This is a continuous process that starts with the launch of a lean supply chain management strategy and it continues.

Purpose:-

The main purpose of this thesis is to determine the importance of lean manufacturing and create its awareness amongst the automobile industry of Pakistan, which then can be applied by the whole manufacturing sector of Pakistan to make them more competitive in terms of price as well as in speeding the delivery time.

The thesis is to draw together the evidence about the benefits of lean manufacturing in automobile industry of Pakistan. It has been noticed that automobile industry is concerned about the cost & delivery time, which are the key success factors for this industry. At present, the whole automobile sector is suffering from losses, which has led many businesses to shutdown.

Problem discussion: –

Pakistan’s automobile industry is losing its competitiveness in the market due to the intense competition faced from world markets in terms of cost & delivery time. Buyers get low quality products which reduces their confidence in Pakistani products. Up till now Pakistan automobile industry has been unable to meet the lead time demanded by highly profitable automobiles and is also unable to fulfill the low price expectations of western markets. Until and unless any initiative to reduce the cost and delivery time of product will not be taken, any improvement in the industry would not take place. In order to bring improvements in this industry, it is important to direct this industry’s attention towards lean manufacturing. This thesis has been done to focus in this area to check that why lean manufacturing has not yet been implemented in the automobile industry of Pakistan.

De limitation of the study:-

There are some limitations of this thesis. The work focuses on Manufacturers and assemblers of Automobiles industry located in Pakistan and which has the sales volume more than 10 million. Due to the limited time only top few Manufacturers are included in the research work, which are

Indus Motor Company -Toyota Motor Co

Pak Suzuki Motors.

Al-Ghazi Tractors

Further the work doesn’t include interview with supplier & customer which requires detail research so it is limited to the organization’s internal boundary only.

Research Question:-

This thesis is an attempt to answer the following question:-

Q: – What is the knowledge level of production people about the lean manufacturing?

Q: – Are the production manager of automobile industry aware of lean tools?

Q: – Are the production manager of automobile industry aware of lean manufacturing benefits?

Q: – To understand the issues of adoption of lean manufacturing in automobile industry in Pakistan?

Implication of the study: –

The purpose of this thesis is to find how much the management of this industry in Pakistan is aware of lean manufacturing and then highlight the obstacles that exist in its implementation. This thesis also provides the benefits of lean manufacturing to the automobile industry of Pakistan, which is facing troubles in these days due to higher cost of production & delay in delivery dates. Hence, this thesis is beneficial for the automobile manufacturers so that they can realize the importance of lean manufacturing and then implement it to gain the competitive advantage in terms of lower costs and on time deliveries.

CHAPTER 2

LITERATURE REVIEW

Lean manufacturing is a technique that allows companies to be more responsive to quickly changing markets and more sophisticated & demanding customers. (Dohse, Jurgens&Malsh,1985,p.118).

History of Lean Manufacturing

Toyota is often considered one of the most efficient manufacturing companies in the world and the company that sets the standard for best practices in Lean Manufacturing. (James Womack & Daniel Roos, 1992). Lean Manufacturing has increasingly been applied by leading manufacturing companies throughout the world, lead by the major automobile manufactures and their equipment suppliers. Lean Manufacturing is becoming an increasingly important topic for manufacturing companies in developed countries as they try to find ways to compete more effectively against competition from developing countrie.

Starting about 1910, Ford and his right-hand-man, Charles E. Sorensen, fashioned the first comprehensive Manufacturing Strategy. They took all the elements of a manufacturing system– people, machines, tooling, and products– and arranged them in a continuous system for manufacturing the Model T automobile. Ford was so incredibly successful he quickly became one of the world’s richest men and put the world on wheels. Ford is considered by many to be the first practitioner of Just in Time and Lean Manufacturing.

Beyond large scale production 7 categories of muda or waste:-

Overproduction – producing more unit than customers are demanding or producing them earlier than customer order them. (Taiichi Ohno, 1988)

Waiting – people waiting for machine or process; product waiting for people, machines or processes.

Transportation – moving product from one place to another.

Inventory – Raw material, work in process (WIP), finished goods in excess of direct customer requirement.

Motion: – Any movement people or machines that does not actually transform product from one state to another.

Over processing – Performing operation that are unnecessary.

Defect – creating or passing along product which contains error in material or processing.

Definition of lean manufacturing

Lean manufacturing is the systematic elimination of waste from all aspects of an organization’s operations, where waste is viewed as any use or loss of resources that does not lead directly to creating the product or service a customer wants when they want it. In many industrial processes, such non-value added activity can comprise more than 90 percent of a factory’s total activity. (Simon Caulkin. “Waste Not, Want Not,” The Observer (September 2002).

Many of the concepts in Lean Manufacturing originate from the Toyota Production System (TPS) and have been implemented gradually throughout Toyota’s operations beginning in the 1950’s. By the 1980’s Toyota had increasingly become known for the effectiveness with which it had implemented Just-In-Time (JIT) manufacturing systems.

“The brainpower that businesses bring to bear to eliminate wasted assets, materials, and time in production should equally be deployed to improve the processes of consumption that customers follow. Like their earlier work, this is both a landmark synthesis of ideas whose implications haven’t been fully understood and a breakthrough to new territory.” – (Thomas A.Stewart, 2000)

Main Kinds of Waste

Originally 7- 9 main types of waste were identified as part of the Toyota Production System. However, this list has been modified and expanded by various practitioners of lean manufacturing and generally includes the following:

1. Over-production – Over-production is unnecessarily producing more than demanded or producing it too early before it is needed. This increases the risk of obsolescence, increases the risk of producing the wrong thing and increases the possibility of having to sell those items at a discount or discard them as scrap. However, there are some cases when an extra supply of semi-finished or finished products is intentionally maintained, even by lean manufacturers.

2. Defects – In addition to physical defects which directly add to the costs of goods sold, this may include errors in paperwork, provision of incorrect information about the product, late delivery, production to incorrect specifications, use of too much raw materials or generation of unnecessary scrap.

3. Inventory – Inventory waste means having unnecessarily high levels of raw materials, works-in-progress and finished products. Extra inventory leads to higher inventory financing costs, higher storage costs and higher defect rates. For more on this, please see section 2.5 below.

4. Transportation – Transportation includes any movement of materials that does not add any value to the product, such as moving materials between workstations. The idea is that transportation of materials between production stages should aim for the ideal, that the output of one process is immediately used as the input for the next process. Transportation between processing stages results in prolonging production cycle times, the inefficient use of labor and space and can also be a source of minor production stoppages.

5. Waiting – Waiting is idle time for workers or machines due to bottlenecks or inefficient production flow on the factory floor. Waiting also includes small delays between processing of units. Waiting results in a significant cost insofar as it increases labor costs and depreciation costs per unit of output.

6. Motion – Motion includes any unnecessary physical motions or walking by workers which diverts them from actual processing work. For example, this might include walking around the factory floor to look for a tool, or even unnecessary or difficult physical movements, due to poorly designed ergonomics, which slow down the workers.

7. Correction – Correction, or reprocessing, is when something has to be re-done because it wasn’t done correctly the first time. This not only results in inefficient use of labor and equipment but the act of re-processing often causes disruptions to the smooth flow of production and therefore generates bottlenecks and stoppages. Also, issues associated with reworking typically consume a significant amount of management time and therefore add to factory overhead costs.

8. Over-processing – Over-processing is unintentionally doing more processing work than the customer requires in terms of product quality or features – such as polishing or applying finishing on some areas of a product that won’t be seen by the customer.

9. Knowledge Disconnection – This is when information or knowledge isn’t available where or when it is needed. This might include information on correct procedures, specifications, ways to solve problems, etc. Lack of correct information often leads to defects and bottlenecks. For example, unavailability of a mixing formula may potentially suspend the entire process or create defective items due to time-consuming trial-and-error tests.

What kinds of companies benefit most from lean?

Lean is most widely used in industries that are assembly-oriented or have a high amount of repetitive human processes. These are typically industries for which productivity is highly influenced by the efficiency and attention to detail of the people who are working manually with tools or operating equipment. For these kinds of companies, improved systems can eliminate significant levels of waste or inefficiency. Examples of these companies include wood-processing, garment manufacturing, automobile assembly, electronic assembly and equipment manufacturing. Lean Manufacturing is also appropriate in industries for which it is a strategic priority to shorten the production cycle time to the absolute minimum as a source of competitive advantage for the company.

Recently, some companies in Vietnam have actively conducted training and implemented lean methods to eliminate process inefficiencies. This resulted in an improvement to their production and service lead times. For example, Toyota Ben Thanh, a service center of Toyota in Vietnam, has implemented lean methods to significantly reduce the process time for its automobile maintenance service from 240 minutes to 45-50 minutes per car, and as a result, increased the total number of cars processed at each service center from 4-6 cars up to 16 cars per day. Toyota Ben Thanh achieved significant reductions in the process lead time by successfully eliminating unnecessary waiting time, inefficiencies of physical motions and process flow. (Thoi Bao Kinh Te Saigon, 2004)

Objectives of Lean Manufacturing

Lean Manufacturing, also called Lean Production, is a set of tools and methodologies that aims for the continuous elimination of all waste in the production process. The main benefits of this are lower production costs, increased output and shorter production lead times. More specifically, some of the goals include:

1. Defects and wastage – Reduce defects and unnecessary physical wastage, including excess use of raw material inputs, preventable defects, costs associated with reprocessing defective items, and unnecessary product characteristics which are not required by customers.

2. Cycle Times – Reduce manufacturing lead times and production cycle times by reducing waiting times between processing stages, as well as process preparation times and product/model conversion times.

3. Inventory levels – Minimize inventory levels at all stages of production, particularly works-in-progress between production stages. Lower inventories also mean lower working capital requirements.

4. Labor productivity – Improve labor productivity, both by reducing the idle time of workers and ensuring that when workers are working, they are using their effort as productively as possible (including not doing unnecessary tasks or unnecessary motions).

5. Utilization of equipment and space – Use equipment and manufacturing space more efficiently by eliminating bottlenecks and maximizing the rate of production though existing equipment, while minimizing machine downtime.

6. Flexibility – Have the ability to produce a more flexible range of products with minimum changeover costs and changeover time.

7. Output – Insofar as reduced cycle times, increased labor productivity and elimination of bottlenecks and machine downtime can be achieved, companies can generally significantly increased output from their existing facilities.

In a 2004 survey by Industry Week Magazine, U.S. companies implementing lean manufacturing reported a median savings of 7% of Cost of Goods Sold (COGS) as a result of implementing lean (George Taninecz, 2004). We believe that the savings actually are higher for companies in Vietnam considering the higher levels of waste which they typically have compared to U.S. based manufacturers.

Another way of looking at Lean Manufacturing is that it aims to achieve the same output with less input – less time, less space, less human effort, less machinery, less material, less cost.

When a U.S. equipment manufacturing company, Lantech, completed the implementation of lean in 1995, they reported the following improvements compared to their batch-based system in 1991: (James P. Womack; Daniel T. Jones, 1996)

• Manufacturing space per machine was reduced by 45%;

• Defects were reduced by 90%

• Production cycle time was reduced from 16 weeks to 14 hours – 5 days; and

• Product delivery lead time was reduced from 4-20 weeks to 1-4 weeks.

Why Lean Consumption Now?

While lean consumption would be a sensible idea in any era, we see several convergent trends that we think make it inevitable and indeed, a competitive necessity now. With the regulated economy steadily contracting, consumers have a broader range of decisions to make, from how to invest retirement funds, to what telecommunications provider to use, to what airline to fly at what price.

“The mass-producer uses narrowly skilled professionals to design products make by unskilled or semiskilled workers tending expensive, single-purpose machines. These churn out standardized products at high volume. Because the machinery costs so much and is so intolerant of disruption, the mass-producer adds many buffers – extra supplies, extra workers, and extra space – to assure smooth production…. The result: The customer gets lower costs but at the expense of variety and by means of work methods that most employees find boring and dispiriting.” (Womack, 1990 p 13).

While on a tour of a large customer, Michael Dell saw technicians customizing new Dell computers with their company’s ‘standard’ hardware and software. “Do you think you guys could do this for me?” his host asked. Without missing a beat, Dell replied, “Absolutely, we’d love to do that.”4 Within a couple of weeks, Dell was shipping computers with factory-installed, customer specific hardware and software. What took the customer an hour could be done in the factory in minutes, and furthermore, computers could be shipped directly to end-users rather than making a stop in the corporate IT department. This shortening of the value chain is the essence of lean thinking. Direct from Dell, (Catherine Fredman, 1999)

Basic Principles of Lean

Add Nothing But Value (Eliminate Waste)

The first step in lean thinking is to understand what value is and what activities and resources are absolutely necessary to create that value. Once this is understood, everything else is waste. Since no one wants to consider what they do as waste, the job of determining what value is and what adds value is something that needs to be done at a fairly high level. Let’s say you are developing order tracking software. It seems like it would be very important for a customer to know the status of their order, so this would certainly add customer value. But actually, if the order is in house for less than 24 hours, the only order status that is necessary is to inform the customer that the order was received, and then that it has shipped, and let them know the shipping tracking number. Better yet, if the order can be fulfilled by downloading it on the Web, there really isn’t any order status necessary at all. To develop breakthroughs with lean thinking, the first step is learning to see waste. If something does not directly add value, it is waste. If there is a way to do without it, it is waste. Taiichi Ohno, the mastermind of the Toyota Production System, identified seven types of manufacturing waste, (2002 Poppendieck.LLC)

‘Do It Right The First Time’

It is instructive to explore the origins of the slogan “Do It Right the First Time.” In the 1980’s it was very difficult to change a mass-production plant to lean production, because in mass production, workers were not expected to take responsibility for the quality of the product. To change this, the management structure of the plant had to change. “Workers respond only when there exists some sense of reciprocal obligation, a sense that management actually values skilled workers, and is willing to delegate responsibility to [them].”

The slogan “Do It Right the First Time” encouraged workers to feel responsible for the products moving down the line, and encourage them to stop the line and troubleshoot problems when and where they occurred. ( Womack ,1990 p 99).

A more appropriate translation of such slogans as “Zero Defects” and “Do It Right the First Time” would be “Test First”. In other words, don’t code unless you understand what the code is supposed to do and have a way to determine whether the code works. A good knowledge of the domain coupled with short build cycles and automated testing constitute the proper way for software developers to “Do It Right the First Time”. (2002 Poppendieck.LLC)

Center On The People Who Add Value

Almost every organization claims it’s people are important, but if they truly center on those who add value, they would be able to say:

The people doing the work are the center of:-

Resources

Information

Process Design Authority

Decision Making Authority

Organizational Energy

In mass-production, tasks are structured so that low skilled or unskilled workers can easily do the repetitive work, but engineers and managers are responsible for production. Workers are not allowed to modify or stop the line, because the focus is to maintain volume. One of the results of mass-production is that unskilled workers have no incentive to volunteer information about problems with the manufacturing line or ways to improve the process. Maladjusted parts get fixed at the end of the line; a poor die or improperly maintained tool is management’s problem. Workers are neither trained nor encouraged to worry about such things. “The truly lean plant has two key organizational features: It transfers the maximum number of tasks and responsibilities to those workers actually adding value to the car on the line, and it has in place a system for detecting defects that quickly traces every problem, once discovered, to its ultimate cause.”9 Similarly in any lean enterprise, the focus is on the people who add value. In lean enterprises, traditional organizational structures give way to new team-oriented organizations which are centered on the flow of value, not on functional expertise.

The first experiment Taiichi Ohno undertook in developing lean production was to figure out a way to allow massive, single-purpose stamping machines to stamp out multiple parts. Formerly, it took skilled

machinists hours, if not days, to change dies from one part to another. Therefore, mass production plants had many single purpose stamping machines in which the dies were almost never changed. Volume, space, and financing were not available in Japan to support such massive machines, so Ohno set about devising simple methods to change the stamping dies in minutes instead of hours. This would allow many parts of a car to be made on the same line with the same equipment. Since the workers had nothing else to do while the die was being changed, they also did the die changing, and in fact, the stamping room workers were involved in developing the methods of rapid die changeover.

Ohno transferred most of the work being done by engineers and managers in mass-production plants to the production workers. He grouped workers in small teams and trained the teams to do their own industrial engineering. Workers were encouraged to stop the line if anything went wrong, (a management job in mass production).Before the line was re-started, the workers were expected to search for the root cause of the problem and resolve it. At first the line was stopped often, which would have been a disaster at a mass production plant. But eventually the line ran with very few problems, because the assembly workers felt responsible to find, expose, and resolve problems as they occurred.

Flow Value from Demand

The idea of flow is fundamental to lean production. If you do nothing but add value, then you should add the value in as rapid a flow as possible. If this is not the case, then waste builds up in the form of inventory or transportation or extra steps or wasted motion. The idea that flow should be ‘pulled’ from demand is also fundamental to lean production. ‘Pull’ means that nothing is done unless and until a downstream process requires it. The effect of ‘pull’ is that production is not based on forecast; commitment is delayed until demand is present to indicate what the customer really wants. Pulling from demand can be one of the easiest ways to implement lean principles, as LL Bean and Lens Crafters and Dell found out. The idea is to fill each customer order immediately. In mass-production days, filling orders immediately meant building up lots of inventory in anticipation of customer orders. Lean production changes that. The idea is to be able to make the product so fast that it can be made to order. True, Dell and Lens Crafters and LL Bean and Toyota have to have some inventory of sub-assemblies waiting to be turned into a finished product at a moments notice. But it’s amazing how little inventory is necessary, if the process to replenish the inventory is also lean. A truly lean distribution channel only works with a really lean supply chain coupled to very lean manufacturing.

In addition to rapid, Just-in-Time information flow, Lean Software Development means rapid, Just-in-Time delivery of value. In manufacturing, the key to achieving rapid delivery is to manufacture in small batches pulled by a customer order. Similarly in software development, the key to rapid delivery is to divide the problem into small batches (increments) pulled by a customer story and customer test. The single most effective mechanism for implementing lean production is adopting Just-in-Time, pull-from-demand flow. Similarly, the single most effective mechanism for implementing Lean Development is delivering increments of real business value in short time-boxes. 2002 Poppendieck.LLC

Optimize across Organizations

Quite often, the biggest barrier to adopting lean practices is organizational. As products move from one department to another, a big gap often develops, especially if each department has its own set of performance measurements that are unrelated to the performance measurements of neighboring departments. For example, let’s say that the performance measurement of a stamping room is machine productivity. This measurement motivates the stamping room to build up mounds of inventory to keep the machines running at top productivity. It does not matter that the inventory has been shown to degrade the overall performance of the organization. As long as the stamping room is measured primarily on machine productivity, it will build inventory. This is what is known as a sub-optimizing measurement, because it creates behavior which creates local optimization at the expense of overall optimization. (2002 Poppendieck.LLC)

Lean manufacturing & Automobile Industry

Lean manufacturing is applicable to almost every industry and it is known that the initiators of this technique is TOYOTA by the name Toyota Production System, than this techniques became generalize and open for all with some modifications and named as Lean. We fully expect that lean manufacturing will give a competitive advantage to this industry.

Automobile Industry of Pakistan

Pakistan is a rising market for automobiles offers massive business and investment opportunities. The total involvement of Auto industry to GDP in 2007 was 2.8% which was expected to increase up to 5.6% in 5 years. Total gross sales of automobiles in Pakistan were Rs.214 billion in 2006-07 or $2.67 billion. The industry tax accumulated to Rs.63 billion in 2007-08 that the government has imposed on automobiles. There are 500 auto-parts producers in the country that supply parts to original equipment manufacturers. Auto sector presently, contributes 16% to the manufacturing sector which also is projected to increase 25% in the next 7 years, compared to 6.7% during 2001-02. Vehicles ‘manufacturers directly employ over 192,000 people with a entire investment of more than $ 1.5 billion. At present, there are about 82 vehicles’ assemblers in the industry producing passengers cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers. The auto policy is geared up to make an investment of $ 4.09 billion in the next five years thus, making a target of half a million cars per annum achievable.

Pakistan has the highest number of CNG-powered vehicles in the world with more than 1.55 million cars and passenger buses, constituting 24% of total vehicles in Pakistan with improved fuel efficiency and conforming to the l