EFFECT OF LEAN MANAGEMENT PRACTICE ON PERFORMANCE OF SELECTED MANUFACTURING FIRMS IN SOUTH EAST NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The concept of Lean Management can be traced as far back in history as the industrial revolution when machines, having shorter through-put times, replaced humans (Hobbs, 2004: 14). Jones, Roos, and Womack (1991) found that “After World War II, Eiji Toyoda and Taiichi Ohno at the Toyota Motor Company in Japan pioneered the concept of Lean production”. Toyota Motor Company developed their original moving assembly line called “Toyota Production System (TPS)” to keep material flow continuously. Monden (1983) states that: The TPS was developed and promoted by Toyota Motor Corporation and is being adopted by many Japanese companies in the aftermath of the 1973 oil shock. The main purpose of the system is to reduce costs; the system also helps increase the turnover ratio of capital (i.e., total sales/total assets) and improves the total productivity of a company as a whole”.

Lean Management (LM), also known as Lean, Lean Enterprise, or Lean Production, are powerful set of tools and techniques that many companies choose to implement and sustain. As ways of increasing the efficiency of production and the overall customer value while at the same time eliminating waste. Waste is anything that does not add value but adds costs to a company. Typically, seven wastes have been identified in the practice of Lean management. These include:  waiting, transportation, over-production, inventory, movement, over-processing, and re-work (Drew, McCallum, and Roggenhoffer, 2004).

Heightening challenges in today’s global competition have prompted many manufacturing firms to adopt new manufacturing management strategies in order to enhance the firms’ efficiency and competitiveness. Manufacturing firms have taken lean manufacturing system as a great management tool and many of them have adopted lean techniques in many different forms and names. Now, LM has become a widely acceptable and adoptable best manufacturing practice across countries and industries (Holweg, 2007). The ultimate goal of a lean organization is to create a smooth and high quality organization that is able to produce finished products concerning the customers demand in the quality looked-for with no waste(Holweg,2007). However, in reality, many companies are not able to transform themselves to a lean manufacturing organization towards creating the world-class companies. Actually the transformation towards LM is filled with formidable challenges, most particularly to understand the real essence of LM concept and philosophy and also to deal with the cultural difference between organizations (Balle, 2005).

Manufacturing firms in south east Nigeria cannot be left out of this global connectivity in terms of technologies, ideals, policies and procedures for achieving business effectiveness and efficiency. In production and operations management, the task of lean production and control is primary; the tools for achieving it varied. The success story of any manufacturing starts with the success of the lean management and it functions. LM intends reducing waste in human effort, inventory, time to market and manufacturing space to become highly responsive to customer demand, while delivering quality products efficiently (Womack, Jones, & Ross., 1990). The importance of aligning production to customer needs while still being able to efficiently manufacture good quality is rising. The perception of manufacturing’s strategic role is increasing (Ward McCreery,  & Anand , 2007) and companies start to improve their production system in terms of efficiency and effectiveness to develop competitive advantages (Grichnik Winkler, , & Rothfeder ., 2008 ).

In this modern world, there is rapid change in management which is affecting all organizations and managers (Burnes, 2004). Organizations are attempting to be more decentralized and transforming their traditional policies by implementing different strategic change tools for improvement of operations (Burnes, 2004; Kotter, 2007). As organizations are struggling to meet increasing competitive pressures and to remain competitive, many of them are embracing Lean, as a tool to improve their position. Lean is one of the quality initiatives that organizations apply to improve organizational performance by identifying waste and reducing costs from the operations. It is argued that companies could benefit by successful implementation of Lean management practices. For example, Lean system can be helpful in maintaining long term customer satisfaction (Maleyeff, 2006).

Over the last years, markets have become more competitive and global. The changing environment forces companies to be more flexible (Dreyer and Grønhaug, 2004) in order to face this challenge. The importance of aligning production to customer needs while still being able to efficiently manufacture good quality is rising. The perception of manufacturing’s strategic role is increasing (Ward, McCreery and Anand, 2007) and companies start to improve their production system in terms of efficiency and effectiveness to develop competitive advantages (Grichnik, Winkler and Rothfeder, 2008; Voss, 2005).A popular approach to reach this aim is the concept of lean production which allows a company to, on the one hand, improve productivity of processes and assets and, on the other hand, to boost flexibility. Lean management can be understood as an integrated manufacturing system that is intended to maximize the capacity utilization and minimize the buffer inventories of a given operation through minimizing system variability (related to arrival rates, processing times, and process conformance to specifications)” (de Treville and Antonakis, 2006).

Lean Manufacturing is considered as a rapid growing manufacturing culture. The manufacturing companies are facing cut throat competition and so are compelled to continuously perform better than their competitors. Hence the organizations are growing at a faster pace, to enhance their position in the competitive world. Industrial organizations have to adopt the new philosophies like lean. Lean Manufacturing may be defined as the technique which is used for the continuous elimination of all types of waste in the production process to improve the efficiency. Management strategies and philosophies are always difficult and uncertain because change is inevitable and the companies should devise it as per the customer’s requirement. The primary competitive measure of lean is “ability to respond to the customer and satisfy his requirements by making the process of the production efficient and waste free(Akhil, 2014).

One reason that Lean has not been applied to a great extent in service industry is because there is organizational traditional thinking that it is related with production, as it was developed firstly for manufacturing purposes (George, 2003). Appiotti and Bertels (2010) also highlight that Lean behavior was only considered beneficial for manufacturing industries; however, nowadays, Lean is considered a simple tool applicable for all sectors. For example, financial companies develop Lean to increase the efficiency and productivity leading to customer satisfaction

Lean production is focused on identifying and eliminating non value activities in products and services in order to create value to customers. Lewis (2000) emphasize that Lean is considered a set of management principles for production with the aim of reducing waste (muda called by Japanese). Lean involves different techniques of design, such as leadership to direct the process that involves multi-skilled employees; teamwork to assign workers from different functions in groups; communication to resolve critical design trade-offs and prioritize resources; and simultaneous development that involves a process with less tools, inventory and human resources (Womack, Jones and Roos, 1990).

Lean concept is a way to identify where the value is in the process, eliminate the waste within the process and create value to the customer. This concept shows that Lean is applicable in any organization, since the goal of organization is to create value to end customer (Piercyand Rich, 2009). One development of Lean beyond manufacturing was application of Lean in the supply chain management. This helped the organizations to develop closer relationship with suppliers by sharing more information, increasing innovation and lowering the costs (Piercyand Rich, 2009).

Lean is very important concept in organizations because it involves broad understanding, high commitment and deep analysis of problems. More and more organizations are implementing Lean in long term basis to improve quality, and also to reduce costs, fast delivery and efficient queue times. To succeed in Lean implementation, a committed management is necessary to give support to the organizations. Also, an external support might bring a new way of thinking and transfer knowledge to organizations by recommending the areas that Lean application is necessary. External support might be helpful in short term to increase the knowledge of organizations toward Lean; however, the organizations should not be dependent on them because it is a continuous progress that last long (Petersson, Johansson, Broman, Blucher, and Alsterman 2010). Therefore, organizations should be aware that Lean cannot be implemented overnight. There is a need to work continuously to reduce waste and increase commitments by looking at opportunities and limitations (Petersson et al., 2010). Hanna (2007) also discusses that Lean helps organizations to change their way of problem solving capabilities and standardization. Moreover, it encourages empowerment of employees, and enables organizations to achieve competitive advantage with high quality, faster delivery time and delivery reliability (Petersson et al., 2010)

Lean manufacturing is more than a cost reduction program or a problem solving approach (Tapping, 2002). The main idea is that an efficient production can be achieved by a comprehensive approach to minimize wastes. This means eliminating excess production and inventory, redundant movement of material, waiting and delays, over processing, excess worker motion, and the need for rework and corrections .The success of any Lean Manufacturing implementation and sustainment is dependent upon a performance measurement system that combines a set of consistent characteristics with relationships that link those characteristics and enterprise level stakeholder value characteristics (Operational Performance measures) (Mahidhar, 2005).

Lean manufacturing can be best explained as eliminating waste in a production process (Womak and Jones, 1996). Anything (process or product tangible and intangible) that does not add value to the end product is called waste (Henderson and Larco, 2003). Essentially, lean manufacturing seeks to produce a product that is exactly what the customer wants at right time, minimizing all non-value added activities in the production (Womack and Jones, 1994). When the time comes to begin the transformation to lean, management will need to get people together and making them aware what is going to happen, and what is expected (Henderson and Larco, 2003). The lean transition is, an organizational culture transition to manage lean, specifically during the initial phases, is more about managing the change process than managing lean tools and techniques (Csokasy and Parent, 2007). Lean production is a socio-technical system (Shah and Ward, 2007), which is viewed as a philosophy that takes care of both technical and cultural aspects (Bhasin and Burcher, 2006).

1.2 Statement of the Problem

In the present business situation, competitiveness of manufacturing firms in South -East  is determined by their ability to meet and respond as swiftly as possible to the changing business environment  and to produce and supply high-quality products at lower cost as per demand of the customer. All the manufacturing companies in South-East are striving too hard to achieve their aims, objectives and their capabilities by proper planning and skillfulness, through application of automation and innovative concepts, e.g. lean manufacturing, just-in-time (JIT), and total quality management (TQM). Among these innovative concepts, lean manufacturing is recognized by the manufacturing companies as a major driver to achieve world-class capabilities. Many large and medium-size manufacturing companies have adopted lean manufacturing concepts, and experienced reduction in manufacturing lead time and material handling cost, and improvement in quality with other benefits.

Over the last years, markets became more competitive and global. The changing environment forces manufacturing companies in south East Nigeria to be more flexible in order to face this challenge. The importance of aligning production to customer needs while still being able to efficiently manufacture good quality is rising. The perception of manufacturing’s strategic role is increasing and companies start to improve their production system in terms of efficiency and effectiveness to develop competitive advantages. A popular approach to reach this aim is the concept of lean production which allows a company to on the one hand improve the productivity of processes and assets and on the other hand to boost flexibility.  Lean management is the integrated manufacturing system that is intended to maximize the capacity utilization and minimize the buffer inventories of a given operation through minimizing system variability. But as firms keep on producing without fully implementing lean management, waste becomes the bye product. Waste is any activity that consumes time, resources, or space but does not add any value to the product or service. This has called for lean management

However,Manufacturing firms that fail to adopt lean management are bound to experience overproduction, an increase in defective products, high transportation cost, inventory, and over-processing, which will cause customer dissatisfaction, the decline in market share and profitability. Thus the study seeks to investigate effect of lean management on performance of selected manufacturing firms in South -East.

1.3 Objectives of the study

The main objective of this study is to determine the effect of lean management practices on performance of selected manufacturing firms in South East, Nigeria. The specific objectives are to: