Monday, January 03, 2005

Lean Manufacturing

My Spring 05 Classes
Course Calendar

The term "Lean Manufacturing" is becoming quite common now days in manufacturing circles. Not having a manufacturing background and seeing that most of the people involved in lean manufacturing projects were engineers, I was a little apprehensive a year ago when the topic was first brought up at the college's Center for Business Solutions where I work.

However, after attending an all morning workshop on lean manufacturing basics, I came away confident that this was well within my area of expertise. Basically, it is Economics 200 in action. Instead of "widgets" and a theoretical business, lean focuses on how to better utilize scarce resources to produce more of a real product at a lower cost. I not only felt very comfortable with lean manufacturing but discovered that, without knowing it, and 25 years before the term "lean manufacturing" was coined, I had been utilizing lean principles when I set up and ran an operation to automate mortgage loan document production at the savings and loan where I worked back in the 1970s.

Lean Manufacturing involves continually studying production processes within an organization with the objective of eliminating waste. Time is an area that is closely studied. Every step of a particular production process is closely studied to identify steps which consume production time but add no value to the final product. For instance, on a shop floor, tools are stored on one side of the room and the workbenches on the other. Every time a worker needs a new tool a trip has to be made across the room. Taking 30 seconds to walk across the room to change tools does not seem like much, but, if a worker has to change tools twice an hour during an eight hour day this adds up to eight minutes per day. This does not appear to be much.

However, if it takes four minutes to assemble the part being produced, the eight minutes lost to walking between the workbench and tool bin comes out to two fewer parts per day being produced. Again, this may not seem like much, but, multiply this times 200 employees and we have 400 additional units that could be produced each day. At four minutes per unit, each employee can produce 120 units in an eight hour day. Now, when multiplied by 200 employees, the eight minutes wasted by each as they walk back and forth to the tool bin is the equivalent of 3+ employees not working at all each day.

Assuming there are sufficient tools for each employee and that there is room for a full set of tools at each workbench, we can eliminate the wasted time. In this case, eliminating the wasted time is the same as hiring 3+ additional employees at zero pay. This would obviously have a very positive impact on the firm's bottom line.

In addition to time, lean manufacturing seeks to eliminate other forms of waste such as inefficient use of raw materials (i.e., using raw materials in a manner in which large amounts end up as scrap) and processes that result in large numbers of finished product having to be discarded due to poor quality.

American manufacturing has become so good at using lean processes that, coupled with our extensive use of capital, our workers have become the most productive in the world. True, American workers are the highest paid in the world but the value of the product they produce is also the highest in the world and this is how American manufacturers are able to remain profitable despite having to pay the highest wages in the world.

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