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APICS Operations Management Body of Knowledge Framework, Third Edition

3.11 Lean management

Lean management refers to an approach to management that focuses on reducing or eliminating waste in all facets of the system.

3.11.1 Total cost of ownership (TCO)

TCO is the sum of all costs in every activity of the supply stream. Examining TCO brings the understanding that unit acquisition cost often is a small portion of the total cost of ownership. In a broader operations management sense, TCO refers to the total system cost of delivering a product or service to the customer.

3.11.2 Value stream mapping

The value stream consists of all the activities or processes necessary to deliver a product or service to the customer. Value stream mapping is a technique using flow charts to identify the key elements and activities in the process and flow of information. In value stream mapping, each activity is identified as either a value- or non-value-adding activity. Lean management seeks to minimize and eliminate non-value-adding activities from all processes.

3.11.3 Principles of lean management

Lean management is closely related to the concepts of the Toyota production system (TPS). It is applied not only in production but across the entire enterprise, and it has broad applications in the service industries. Lean management involves the systematic identification and elimination of waste throughout the entire value stream. In the TPS, waste is identified by the Japanese word muda.

The key points distinguishing lean from other management concepts is the broadening of the definition of waste to include time and inventory. Through this, lean production tends to evolve quickly into continuous flow, utilizing little or no work-in-process inventory, and ultimately reaching the goal of one-piece flow of the product or service.

There are seven categories of waste:

  • overproduction—producing in excess or too early
  • waiting—queuing delays around production areas
  • transportation—unneeded movement of materials in and outside the facility
  • processing—poor process design
  • movement—staff activities that do not add value
  • inventory—idle stock accumulating cost without necessarily providing value
  • defective units—scrapping or reworking products and components.

3.11.4 Visual management

One lean technique to eliminate waste is thoroughly cleaning and simplifying the work environment to make activities instantly and visibly obvious. Visual management also enables ease of understanding the status and current performance levels of the workplace. This is accomplished by making any issues visually stand out, such as missing tools, low inventory, and out-of-place products.

3.11.5 Five Ss

Sort, set in order, shine, standardize, and sustain are five terms beginning with the letter S used in creating a workplace suitable for lean production. Sort means to separate needed items from unneeded ones and remove the latter. Set in order (or simplify) means to neatly arrange items for use. Shine (or scrub) means cleaning up the work area. Standardize means to sort, simplify and scrub daily. Sustain means always following the first four Ss. These are sometimes referred to by the Japanese equivalents of seiri, seiton, seiso, seiketsu, and shitsuke.

3.11.6 Quick changeover (flexibility)

An early insight of lean was the realization that setup costs were a key element and constraint of eliminating waste in any value stream. Therefore, a key activity in any lean management system is to reduce or entirely eliminate the cost of changing from one product or service to another. Toyota's Shigeo Shingo developed a system known as single-minute exchange of die to systematically reduce the time for a setup to a single minute (or less than ten minutes). These techniques have broad applications throughout manufacturing and service industries. In the formula for economic order quantity (EOQ), as the cost of a setup approaches zero, EOQ approaches 1.

3.11.7 Kaizen (continuous improvement)

Kaizen is the Japanese term for improvement. Kaizen is continuing improvement involving everyone—both managers and workers. In manufacturing, kaizen is finding and eliminating waste in machinery, labor, and production methods.

3.11.8 Zero inventory (Just-in-Time)

In lean management systems, zero inventory is the ideal state sought in eliminating the waste (muda) of inventory. In an ideal lean system, a single piece of a product or service is moved through the value stream, completed, and delivered exactly at the time the end customer demands it.

3.11.9 Business process reengineering (BPR)

See section 4.4.5.

3.11.10 Supply chain performance metrics

Two common measures of supply chain efficiency are inventory turnover and week-of-supply. These are effectively measuring the same quantity: Mathematically, they are the inverse of one another. Other common measures include the percentage of orders shipped according to schedule, the percentage of actual line items filled from stock, and the time from when an order is placed to when it is received by the customer (lead time). More advanced metrics measure asset turnover and the time elapsed from cash spent purchasing materials into cash received from a customer.