Chapter 5

Lean Enterprise
Sakichi Toyoda
(1867-1930)

Lean enterprise refers to a

production principle stating that any
component of a
business enterprise that fails to directly
benefit a final product is
superfluous. Lean
enterprise focuses on value creation
while eliminating waste and non-
essential processes.

Sometimes simply referred to as

"lean." Although both terms came into
popular usage in the 1990s, the concept itself was devised by Toyota Motor Corporation when
it introduced the Toyota Production System (TPS).

The Toyota Production System (TPS) is an integrated socio-technical system, developed by

Toyota, that comprises its management philosophy and practices. The TPS organizes
manufacturing and logistics for the automobile manufacturer, including interaction with
suppliers and customers. The system is a major precursor of the more generic "lean
manufacturing". Taiichi Ohno and Eiji Toyoda, Japanese industrial engineers, developed the
system between 1948 and 1975.

Kiichiro Toyoda (1894-1952)

Originally called "just-in-time production", it builds on the approach created by the

founder of Toyota, Sakichi Toyoda, his son Kiichiro Toyoda, and the engineer Taiichi Ohno. The
principles underlying the TPS are embodied in The Toyota Way.
 Before JIT was introduced by Toyota, most manufacturers kept large amounts of
inventory available just in case they needed it. Taiichi Ohno of the Toyota corporation
developed a production system of ordering parts in small quantities, based on short-term
production cycles. The process was designed to ensure that a part would arrive just in time to
be used, eliminating the need to keep it in inventory. Toyota found that the just-in-time
system reduced lead time on orders by one third and reduced production costs by 50 percent,
and the system eventually spread to many other companies.
A just-in-time (JIT) inventory system is a management strategy that enables a company to
receive goods as close as possible to when they are actually needed.
Here are some of the important effects of a just-in-time inventory management system:
Reduces inventory waste
A just-in-time strategy eliminates overproduction, which happens when the supply of an item in
the market exceeds the demand and leads to an accumulation of unsalable inventories. These
unsalable products turn into inventory dead stock, which increases waste and consumes
inventory space. In a just-in-time system you order only what you need, so there’s no risk of
accumulating unusable inventory.
Decreases warehouse holding cost
Warehousing is expensive, and excess inventory can double your holding costs. In a just-in-time
system, the warehouse holding costs are kept to a minimum. Because you order only when
your customer places an order, your item is already sold before it reaches you, so there is no
need to store your items for long. Companies that follow the just-in-time inventory model will
be able to reduce the number of items in their warehouses or eliminate warehouses altogether.
Gives the manufacturer more control
In a JIT model, the manufacturer has complete control over the manufacturing process, which
works on a demand-pull basis. They can respond to customers’ needs by quickly increasing the
production for an in-demand product and reducing the production for slow-moving items. This
makes the JIT model flexible and able to cater to ever-changing market needs. For example,
Toyota doesn’t purchase raw materials until an order is received. This has allowed the company
to keep minimal inventory, thereby reducing its costs and enabling it to quickly adapt to
changes in demand without having to worry existing inventory.
Local sourcing
Since just-in-time requires you to start manufacturing only when an order is placed, you need
to source your raw materials locally as it will be delivered to your unit much earlier. Also, local
sourcing reduces the transportation time and cost which is involved. This in turn provides the
need for many complementary businesses to run in parallel thereby improving the employment
rates in that particular demographic.
Smaller investments
In a JIT model, only essential stocks are obtained and therefore less working capital is needed
for finance procurement. Therefore, because of the less amount of stock held in the inventory,
the organization’s return on investment would be high. The Just-in-time models uses the “right
first time” concept whose meaning is to carry out the activities right the first time when it’s
done, thereby reducing inspection and rework costs. This requires less amount of investment
for the company, less money reinvested for rectifying errors and more profit generated out of
selling an item.
The main objectives of the TPS are to design out overburden (muri) and inconsistency
(mura), and to eliminate waste (muda). The most significant effects on process value delivery
are achieved by designing a process capable of delivering the required results smoothly; by
designing out "mura" (inconsistency). It is also crucial to ensure that the process is as flexible as
necessary without stress or "muri" (overburden) since this generates "muda" (waste). Finally
the tactical improvements of waste reduction or the elimination of muda are very valuable.
There are eight kinds of muda that are addressed in the TPS:
1. Waste of overproduction (largest waste) Producing more of a product than can be consumed
at the time creates the waste of overproduction. Making too much of something (or making it
too early) creates other types of waste.
Production of components before the next stage in the process is ready to receive them
Printing and filing of unnecessary documents
Creation of meals that are not eaten or partially eaten
Cars that sit unsold in a car dealer lot
Hollywood making a movie that virtually nobody goes to see
2. Waste of time on hand (waiting) Waiting involves customers, patients, or parts sitting
idle. Waiting happens when the person or item is ready for the next step, but the process is not
ready to accommodate them. Here are some examples:
 Patients in waiting rooms
 Software sitting in the QA queue
 Waiting for responses from other departments
 Manufacturing processes waiting for component delivery
 Waiting for a flight that's been delayed due to maintenance being done wrong (a defect)

3.Waste of transportation- Transportation waste involves moving inventory, people, tools, or

other items more often or over farther distances than is necessary. Excessive movement can
lead to product damage, unnecessary work, and exhaustion. Examples of transportation waste
include:

 Moving hospital patients from department to department

 Sending overstocked inventory back to a warehouse or an outlet store location
 Transportation of products from one functional area to another
 In software, it may mean moving code from one server or repository to another
 Transporting out-of-season produce from halfway around the world to your store
instead of eating local

4.Waste of processing itself -Over processing simply means doing work that does not add
value to the customer. Over processing is resolved with simplification. Sometimes, in Lean, we
can stop doing some things instead of figuring out how to do them better.

 Entering the same data in more than one place on a form or in a software application
 Multiple approval levels for a small spending request
 Ordering unnecessary tests for patients
 Extra report information
 Cutting the crusts off of your kids' sandwiches when they're fine eating the crust now
5.Waste of stock at hand The waste of inventory involves storing products or materials that are
not needed at this time. Excess inventory results in a waste of space, and it wastes the cost
associated with the physical inventory. Although it is a significant concern in manufacturing, it
occurs in other sectors as well.

 Excess production of promotional materials or printed forms

 Cabinets full of office supplies
 Produce or food that goes to waste in our kitchen
 Kitchen gadgets that are accumulated and not used
 Unused or rarely used equipment
 Data entry piling up

6.Waste of movement The waste of motion involves unnecessary movement of people or items
within a work center. It is often the result of
neglecting the 5s’. Here are some examples:

 People searching for materials, tools or

equipment
 Handoffs in software development
 Poorly structured or disorganized work spaces
 Unnecessary meetings
 Having to make too many clicks in a website
or software to accomplish a small task
 Writing down your name and address and personal information into your doctor's form
for the umpteenth time

7.Waste of making defective products This waste is related to the time and materials spent
doing something of poor quality and later fixing it or scrapping it.This is the most obvious
waste, but unfortunately often not recognized until it has already reached your customer.
Quality errors within your product that cause defects inevitably require rework or replacement.
It wastes time, resources, materials, creates extra paperwork and could ultimately lead to a lost
customer.

 Administering incorrect doses to patients

 Broken parts
 Software bugs
 Incorrect data entry
 Wrong food being delivered to your table in a restaurant

8.Waste of underutilized workers the waste of human potential has joined their ranks and with
good reason. It is probably the most common and most damaging type of waste that
organizations encounter. You see it when:

 Employees spend time on tasks that do not add value

 Career development and planning is absent
 People with advanced skills do routine work
 Employee ideas for improvement are ignored

The elimination of waste has come to dominate the thinking of many when they look at the
effects of the TPS because it is the most familiar of the three to implement.

Muda – (eliminate waste) Japanese term for production activities that are wasteful and do not
add value to the goods or service

Mura – (Inconsistency) -another waste present is that associated with the unevenness of the
processes.

Muri – (overburden)- The waste resulting from overburden or unreasonableness . This type of
waste can be reduced by better standardization of the production processes.

Concept of TPS

TPS is grounded on two main conceptual pillars:

1. Just-in-time - meaning "Making only what is needed, only when it is needed, and only in
the amount that is needed"
2. Jidoka - (Autonomation) meaning "Automation with a human touch"

Toyota has developed various tools to transfer these concepts into practice and apply them to
specific requirements and conditions in the company and business.

This system, more than any other aspect of the company, is responsible for having made Toyota
the company it is today. Toyota has long been recognized as a leader in the automotive
manufacturing and production industry.
Industrial Engineering is the wider science behind TPS.

TPS Processes

1.Continuous improvement/Kaizen, also known as continuous improvement, is a long-term

approach to work that systematically seeks to achieve small, incremental changes in processes
in order to improve efficiency and quality. Kaizen can be applied to any kind of work, but it is
perhaps best known for being used in lean manufacturing and lean programming. If a work
environment practices kaizen, continuous improvement is the responsibility of every worker,
not just a selected few.
Kaizen can be roughly translated from Japanese to mean "good change." The philosophy
behind kaizen is often credited to Dr. W. Edwards Deming. Dr. Demming was invited by
Japanese industrial leaders and engineers to help rebuild Japan after World War II. He was
honored for his contributions by Emperor Hirohito and the Japanese Union of Scientists and
Engineers.
2.Poka-yoke [poka joke]) is a Japanese term that means "mistake-proofing" or "inadvertent
error prevention". A poka-yoke is any mechanism in a process that helps an equipment
operator avoid (yokeru) mistakes (poka) defects by preventing, correcting, or drawing attention
to human errors as they occur.
3.Kanban -The term 'Kanban' was originally conceived by the Japanese car manufacturer
Toyota. It literally means “visual sign” or “visual card”.
Back in the 1940s, when Toyota used Kanban for the first time, the cards were in the form of
paper notes pinned on a physical board (Kanban board). Toyota workers used the kanban card
system to create a transparent work process and reduce production waste.

Toyota Way - outline

Respect for people

 Respect (We respect others, make every effort to understand each other, take
responsibility and do our best to build mutual trust.)
 Teamwork (We stimulate personal and professional growth, share the opportunities of
development and maximize individual and team performance.)
External observers have summarized the principles of the Toyota Way as:
1. Create continuous process flow to bring problems to the surface.
2. Use the "pull" system to avoid overproduction.
3. Level out the workload (heijunka). (Work like the tortoise, not the hare.)
4. Build a culture of stopping to fix problems, to get quality right from the first.(Jidoka
automation with human intelligence.)
5. Standardized tasks are the foundation for continuous improvement and employee
empowerment.
6. Use visual control so no problems are hidden. Kanban, Poke yoke
7. Use only reliable, thoroughly tested technology that serves your people and processes.

Continuously solving root problems drives organizational learning

1. Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu,go
and see);
2. Make decisions slowly by consensus, thoroughly considering all options (Nemawashi,
building consensus, prior consultation); implement decisions rapidly;
 3. Become a learning organization through relentless reflection (Hansei, acknowledge ones
mistake) and continuous improvement (Kaizen, 改善).
Toyota originally began sharing TPS with its parts suppliers in the 1990s. Because of
interest in the program from other organizations, Toyota began offering instruction in the
methodology to others. Toyota has even "donated" its system to charities, providing its
engineering staff and techniques to non-profits in an effort to increase their efficiency and thus
ability to serve people. For example, Toyota assisted the Food Bank For New York City to
significantly decrease waiting times at soup kitchens, packing times at a food distribution
center, and waiting times in a food pantry.
Other TPS term most commonly used
1. Andon is a typical tool to apply the Jidoka principle (also referred to as ‘autonomation’), which means
the highlighting of a problem, as it occurs, in order to immediately introduce countermeasures to
prevent re-occurrence.
Originating from the word for a paper lantern, it is a term that refers to an illuminated signal notifying
others of a problem within the quality-control or production streams.
Activation of the alert – usually by a pull-cord or button – automatically halts production so that a
solution can be found. The warning lights are incorporated into an easily visible, overhead signboard,
which also identifies the area or specific workstation that has the problem.
2. Gemba or genba (English: The place where the real work is done)
This visibility is exploited in order for third-parties – usually management or section leaders – to conduct
regular Gemba Walks in order to identify areas where potential improvements might be made, and to
better understand the workload of each associate. Walks around the frontline environment of
the Genba also ensure that the production system is correctly adhered to.
3. Genchi Genbutsu (English: Go and see for yourself)
The best practice is to go and see the location or process where the problem exists in order to solve the
problem quickly and efficiently. To grasp problems, confirm the facts and analyse root causes.
Closely related to the need to walk the Genba, this key principle suggests that to truly understand a
situation you need to visit in person. The Toyota Production System requires a high level of management
presence on the factory floor, so that if a problem exists in this area it should be first of all correctly
understood before being solved.
4. Hansei (English: Self-reflection)
Even if a task is completed successfully, Toyota recognises the need for a hansei-kai, or reflection
meeting; a process that helps to identify failures experienced along the way and create clear plans for
future efforts.
5. Heijunka (English: Production smoothing)
A levelling technique to facilitate Just-In-Time (JIT) production and to smooth out production in all
departments, as well as that of suppliers over a period of time.
A vital technique for reducing waste and improving production efficiency by leveling fluctuations
in performance within the assembly line. Fluctuation normally occurs through either customer demand
or within production itself.
The Toyota Production System uses Heijunka to solve the former by assembling a mix of models
within each batch, and ensuring that there is an inventory of product proportional to the variability in
demand. Furthermore, the disruption of production flow is minimised by making sure that components
are sequenced to be available in the right quantity and at the right time, while changeover periods for
vital processes such as die changes within the steel presses are as short as possible; often in as little as
three minutes.
6. Jidoka (English: automation with human intelligence)
One of the main principles of the Toyota Production System, it is the principle of designing equipment to
stop automatically and to detect and call attention to problems immediately, whenever they occur
(mechanical jidoka).
In the Toyota Production System, operators are equipped with the means of stopping production flow
whenever they note anything suspicious (human jidoka). Jidoka prevents waste that would result from
producing a series of defective items.