Quiz 27: Lean Principles, Lean Accounting, and Activity Analysis

Business

Ethics and professional conduct in business: The controller should take the memo from the plant manager to the employees seriously. He needs to ensure that the plant manager retracts the memo. This is because: • Lead times are a measure of the plant manager's performance. The purpose of tagging is to establish lead times and attempt to reduce them. However, the plant manager has instructed workers to give preferential treatment to tagged items, in order to show reduced lead times. • The plant manager's instructions to workers will result a better report for the plant, but will delay the normal schedule for other items. • The plant manager has shown a lack of integrity and ethics through his memo. Noting the correct lead times is expected in the normal course. • There is no attempt by the manager to shorten overall lead times for all items, tagged or untagged. • Increased lead times of other items will lead to lower profitability, due to higher non-value-added lead times. • The controller should pull up the plant manager for failure to take his duties and responsibilities seriously. The plant manager has not acted in the best interests of the company, but has attempted to falsify performance. The plant manager is responsible for improving productivity in the plant and has failed to do so.

Lean philosophy is followed by the lean enterprises in their businesses to manufacture the products or provide services with high quality, low cost, fast response and immediate availability. Lean manufacturing, sometimes called just-in-time processing accomplishes these objectives in a manufacturing setting. The benefits of lean philosophy are as below: Reducing inventory: Lean manufacturing views inventory as wasteful and unnecessary and thus emphasize reducing or eliminating inventory. Under traditional manufacturing system, inventory often hides underlying production problems like shortage of trained employees, unreliable suppliers, or poor product quality. Lean manufacturing solves and removes production problems through reduction or elimination of raw materials, work-in-process and finished goods. Reducing lead times: Lead time is the time that measures the time interval between a product entering production and completion of the product. It means, lead time measures the time taken for manufacturing a product. The lead time can be further classified as Value-added lead time and Non-value-added lead time. Value-added lead time is the time which is spent for converting the raw materials into a finished product. Non-value-added lead time is the time which is spent while the unit of a product is waiting to enter the next production process or is moved from one process to another. The waiting time and moving time is called Non-value-added lead time. Value-added ratio is the ratio which indicates the extent of value-added lead time in the total lead time, which is expressed in terms of percentage. A manufacturing system which has high value-added ratio is a good manufacturing process which produces quality products with in short time. The lead time in a lean manufacturing system is reduced by reducing the batch sizes in the processes, thereby reducing the waiting time. A batch size is the amount of production in units of product that is produced after a setup. If batch size is large, the waiting time will be more which leads to increase in waiting time. The reduction in overall waiting time leads to reduction in lead times. Reducing Setup time: A setup is the effort spent preparing an operation or process for production. A batch size is the amount of production in units of product that is produced after a setup. If setups are long and costly, the batch size for the related production is normally large. Large batch sizes allow setup costs to be spread over more units and thus reduce the cost per unit. However, large batch sizes increase inventory and lead time. The setup time in a lean manufacturing system is reduced by reducing the batch sizes in the processes, thereby reducing the setup time Emphasizing pull manufacturing: In Pull manufacturing, the products are manufactured only when the customer needs and orders the product. As a result, the manufacturers normally maintain low inventory. In pull manufacturing, products can be thought of as being pulled through the manufacturing process. In other words, the status of the next operation determines when products are moved or produced. If the next operation is busy, the production stops so that work in process does not pile-up in front of the busy operation. When the next operation becomes free, the product is moved to that operation. The inventory levels in pull manufacturing are usually low when compared to inventory levels in push manufacturing. As a result, the funds invested in inventory will be minimized, and the carrying and storage cost of inventory also gets reduced. Hence, lean manufacturers prefers pull or "make to order" manufacturing than push manufacturing, because it reduces the inventory levels and investment in inventory. Emphasizing Zero defects: Lean manufacturers usually prefer to produce products without any defects, because the products having defects will be poor in terms of quality. As a result, poor quality increases the costs. In general, lean manufacturers attempts to eliminate poor quality, because poor quality creates troubles to the manufacturers, which are as follows. 1) Scrap 2) Re-processing of returned products 3) Interruption in the production process 4) Dissatisfaction to customers 5) Warranty costs and expenses Lean manufacturers attempts to get rid of the above disadvantages by producing the products with zero defects. This can be achieved by adopting Six Sigma, which improves the product quality and manufacturing processes and reduces the costs to the manufacturer. Employee Involvement: Traditional manufacturing system often values direct labor employees only for their manual labor, whereas lean manufacturing values labor for contribution beyond labor tasks, using employee involvement. Employee involvement is a management approach that grants employees the responsibility and authority to make decisions about operations. Employee involvement is usually applied in lean manufacturing by organizing employees into product cells. Emphasizing Product-Oriented Layout: In lean manufacturing system, the manufacturing process is organized around a product, which is called a product-oriented layout. Organizing work around products reduces: 1) Moving materials and products between processes 2) Work in process inventory 3) Lead time 4) Production costs The above reductions leads to benefits of lean philosophy.

Lean philosophy is followed by the lean enterprises in their businesses to manufacture the products or provide services with high quality, low cost, fast response and immediate availability. Lean manufacturing, sometimes called just-in-time processing accomplishes these objectives in a manufacturing setting. Lean manufacturing company always emphasizes to manufacture high quality products with low cost. The CEO of the company told the employees that we need to eliminate the excess inventory we had at present to become a lean manufacturing company. The CEO of the company told the employees to begin reducing inventories until we make products "just-in-time". Reducing or eliminating excess inventory is one of the important principles of lean philosophy. Taking initiative for implementing lean philosophy by communicating employees to eliminate the excess inventory is a good move by the CEO. However, eliminating excess inventory alone cannot make a company a lean manufacturing system. There are several other principles which a company needs to follow and implement to become a lean manufacturing system. They are as follows: Reducing lead times: Lead time is the time that measures the time interval between a product entering production and completion of the product. It means, lead time measures the time taken for manufacturing a product. The lead time can be further classified as Value-added lead time and Non-value-added lead time. The lead time in a lean manufacturing system is reduced by reducing the batch sizes in the processes, thereby reducing the waiting time. A batch size is the amount of production in units of product that is produced after a setup. If batch size is large, the waiting time will be more which leads to increase in waiting time. The reduction in overall waiting time leads to reduction in lead times. A company implementing lean manufacturing system also needs to reduce the lead time by decreasing batch sizes in the manufacturing processes. Reducing Setup time: A setup is the effort spent preparing an operation or process for production. A batch size is the amount of production in units of product that is produced after a setup. If setups are long and costly, the batch size for the related production is normally large. Large batch sizes allow setup costs to be spread over more units and thus reduce the cost per unit. However, large batch sizes increase inventory and lead time. The setup time in a lean manufacturing system is reduced by reducing the batch sizes in the processes, thereby reducing the setup time. Hence, a company implementing lean manufacturing system also needs to reduce the setup time by decreasing batch sizes in the manufacturing processes. Emphasizing pull manufacturing: In Pull manufacturing, the products are manufactured only when the customer needs and orders the product. As a result, the manufacturers normally maintain low inventory. In pull manufacturing, products can be thought of as being pulled through the manufacturing process. In other words, the status of the next operation determines when products are moved or produced. If the next operation is busy, the production stops so that work in process does not pile-up in front of the busy operation. When the next operation becomes free, the product is moved to that operation. The inventory levels in pull manufacturing are usually low when compared to inventory levels in push manufacturing. As a result, the funds invested in inventory will be minimized, and the carrying and storage cost of inventory also gets reduced. Hence, lean manufacturers prefers pull or "make to order" manufacturing than push manufacturing, because it reduces the inventory levels and investment in inventory. Hence, a company implementing lean manufacturing system also needs to implement pull manufacturing for reducing or eliminating inventory levels. Emphasizing Zero defects: Lean manufacturers usually prefer to produce products without any defects, because the products having defects will be poor in terms of quality. As a result, poor quality increases the costs. In general, lean manufacturers attempts to eliminate poor quality, because poor quality creates troubles to the manufacturers, which are as follows. 1) Scrap 2) Re-processing of returned products 3) Interruption in the production process 4) Dissatisfaction to customers 5) Warranty costs and expenses Lean manufacturers attempts to get rid of the above disadvantages by producing the products with zero defects. This can be achieved by adopting Six Sigma, which improves the product quality and manufacturing processes and reduces the costs to the manufacturer. Hence, the company needs to implement Six Sigma, which improves the product quality and manufacturing processes and reduce the costs, for becoming a lean manufacturing company. Employee Involvement: Traditional manufacturing system often values direct labor employees only for their manual labor, whereas lean manufacturing values labor for contribution beyond labor tasks, using employee involvement. Employee involvement is a management approach that grants employees the responsibility and authority to make decisions about operations. Employee involvement is usually applied in lean manufacturing by organizing employees into product cells. The company needs to involve employees of the company in the manufacturing process beyond labor tasks, for becoming a lean manufacturing system. Emphasizing Product-Oriented Layout: In lean manufacturing system, the manufacturing process is organized around a product, which is called a product-oriented layout. Organizing work around products reduces: 1) Moving materials and products between processes 2) Work in process inventory 3) Lead time 4) Production costs A company desires to become a lean manufacturing company needs to adopt product oriented-layout instead of process oriented layout.