Lean Management Introduction Tutorial

1.2 Introduction

Hello and welcome to Lean Management training by Simplilearn! This training is about Lean Management and it will provide you with good details on what it is and how you can use it in your organization. In this section, I will provide you with an Introduction to Lean Management. This will act as foundation for the remaining part of this course. We will start with the Agenda and then move forward with the training content.

1.3 Agenda

Here is the agenda of what we are going to cover in the first section of Lean Management. We will talk about “Roots of Lean”, where it started and how it started, etc. After that we will cover the successes and benefits of using Lean, and then the last but not the least topic would be Challenges. For any methodology or process we need to have good understanding of both benefits and challenges. Hence we will cover all of those aspects. Now, we will go to the next slide – Introduction.


In this subsection, I will provide you overview of Lean, what it is and what it is not. In the “Principles of Lean” subsection, we will cover the 5 principles on Lean and understand the sequence in which these principles can be implemented. Next, I will provide you details of different types of waste in any process that impacts your business in multiple ways. Some of these wastes are usually inherent in the process and are hard to detect. Then we will talk about the Lean Journey, what is it and how this can be implemented and led in an organization. Now, we will move to the next slide and cover overview of Lean.

1.5 Overview of Lean

The definition for lean is creating more value for customer with fewer resources. Lean in simple terms means reducing unwanted activities or process or anything that does not add value to the product or service for the customer. Anytime we have a waste (in any activity), somebody is losing value – either customer or your company or your employees or stakeholders. Lean philosophy is “to provide perfect value to the customer through a perfect value creation process that has zero waste.” Think about the scenario, where we have zero waste – everybody gets full value. Better, cheaper, and faster. While the ultimate goal is to achieve zero waste, you may not always get there in first couple of tries and over a period of time you will get to minimum waste and continue to move towards zero waste. If you have to summarize it in terms of ultimate goal – you can call Lean as path toward perfection. Lean reduces cost, improves quality, and speeds delivery by eliminating non-value-added activity in a process by identifying and eliminating waste. When we talk about reducing waste, people perceive this as stinginess or cost reduction program. A popular misconception is that lean is suited only for manufacturing. Not true. Lean applies in every business and every process. It is not a cost reduction program, but a way of thinking and approach to optimize end to end processes to have maximum value for everybody. I hope you have got good overview of Lean. In the next slide we will talk about principle of lean.

1.6 Principles of Lean

There are 5 key principles on which Lean is based on. To get best results, these needs to be followed and implemented in sequence starting with Identifying the value and moving through each stage for seeking perfection. As you can see in the diagram, there is no ending, after you achieve perfection you start again and improve further. We will now go through each of these 5 principles. The first principle is “Identify Value.” In this, we specify what process creates value. This is not just what we perceive as value to customer, but what the customer is willing to pay for. The next one is “Map Value Stream.” After we identify value for the customer, we need to identify all the steps in the value stream for each product. This will help us in eliminating whenever possible those steps that do not add value or are wasteful. The third principle “Create Flow” helps you optimize the end-to-end process and remove any lead time and gaps between the processes. In this, you make the value-creating steps occur in tight sequence so the product will flow continuously and smoothly through the value-added steps in the system. The next important principle is “Establish Pull.” As the word “Pull” means, all the process need to be revisited to change from Push to Pull method, i.e., make only what is needed by the next step or customer. As continuous flow is introduced, let the customer pull value from the next upstream activity. Once you have these principles in place, you iterate through things and “Seek Perfection.” You will strive for perfection by continually attempting to produce exactly what the customer wants. Begin the process again and continue it until a state of perfection is reached in which perfect value is created with no waste. Manage the process toward perfection so that the number of steps and the amount of time and information needed to serve the customer continually falls. As you can see, with these 5 principles, people can improve end to end processes and move towards perfection. Next, I will provide you with an introduction to waste and types of waste.

1.7 Types of Waste

We talked about reducing any non-value-add activity or waste. You may have some questions in your mind such as: What is this waste? What are we talking about here? How can I relate this to my processes? Here, I am going to provide you with an overview of waste. Further in the training, we will go into greater details and talk specifically about different types of waste. Now, coming back to the question - What is waste? Think of this as something that is not useful which is considered waste. The simple definition is anything your customer would not be willing to pay for. Another way to state this is waste is any activity that you would rather not tell your customer about. If you’re inclined to conceal it, then it’s probably waste. There is another term you would use commonly with Lean “Non-Value-Add” activity. Non-value-add activity is defined as any activity which clearly creates no value, which can be removed immediately with minimum or no capital investment, and with no detrimental effect on end value. As shown in the diagram, any effort will consume time and money but not all will be adding value. Anything that is not adding value would be considered waste. Think about any process, in which there are lots of activities. If you do deeper analysis you will find out that there are several non-value-add activities, i.e., the steps are there but do not add any value to the product/service or process. The customer typically would not like to pay for it and as a non-value-add activity it will delay the process and/or incur additional cost. If you give a critical look at the process and think of anything that can be avoided or is not adding value to the product or service then it can be considered as waste. For example, if any task takes 6 steps to complete you would analyze each and every step and try to figure out if any of the steps can be avoided and eliminate those steps. If you identify these wastes and reduce/eliminate them, you would get as minimum steps as possible to get the task done. Another example would be in manufacturing industry where there is raw material to be used, if it has to be cut in certain dimension, left over pieces that cannot be used further is another type of waste. Any other example would be, defects in the product or service that leads to rework. The additional effort, time and resources spent on this could have been avoided and hence it is called as waste. There are several types of waste. The main 7 types of waste are: Waste due to transportation, access inventory, motion for parts/people, somebody waiting for another process to complete, over-production, unnecessary over-processing of the product, and defects. Muda is the Japanese word for waste. In a software development process, the time spent in testing and rework would be considered waste. While testing does provide additional assurance, it does not add any additional value to the customer. The rework could have been prevented if it was done the right way the first time. I hope this helps you understand broadly and get a perspective on what a waste is. Later in the training, we will be covering in more detail each type of these waste and techniques to reduce/prevent them and how to go toward perfection. For some of you this might appear to be as straight forward and/or common sense. It is true, Lean is simple, straight forward and lot of it is common sense. But you will all agree, sometimes common sense is not very common. And hence you will hear the team uncommon common sense. Now, you have basic understanding of Lean, its principles and types of waste. You may have questions such as: “How do I start?”, “Where do I start?”, “What are the steps?” and “How the journey looks like?” In the next slide I am going to cover the Lean journey.

1.8 Lean Journey

In this section we will talk about stages of Lean journey one has to go through when implementing Lean. With any improvement program or initiative we need to understand what the journey looks like, what phases and stages it needs to go through. You may have heard the phrase “I will believe it when I see it.” Some of the Lean principle is based on this. If you tell somebody their processes have inefficiencies or waste, it would be hard for them to believe. It becomes easy when they discover it themselves. This part of the Lean journey is to help people move from unknown stage to known stage. To relate with the example I just gave. Access inventory is high level of water and different type of waste would be reefs. In simple terms, you will have smooth sailing when you have good level of water that can hide all the reefs in the river/ocean. As shown in the first diagram, several waste types are hidden under high level of water. So, to get better and Lean you need to lower the tide which will uncover all the reefs, then you can tackle and remove them. This is shown in second diagram when the access inventory level is lowered, several types of defects will be uncovered. I hope this gives you good picture about the Lean and where to begin the journey. There are three primary stages of Lean journey. Starting with Lean operations, first understand the operation process, eliminate waste in production, service operations, and continuously improve the same. This will help us make the operational process Lean at the core and give biggest bang for the buck. Next one to tackle will be at the enterprise level. This would be called Lean enterprise. This includes continuous improvements and elimination of waste throughout the internal value stream of transaction and activities encompassing several departments in the enterprise like engineering, marketing, sales, HR, administration, planning, purchasing, quality, production, etc. Then we move on to Lean network, where we eliminate the waste and drive continuous improvements throughout the demand-driven supply chain globally. Each stage must be considered both independently and interdependently with the other stages of Lean journey. Focusing on a particular stage or technique to the exclusion of the others may yield only localized suboptimal and temporary gains. When holistic thinking across these three stages is infused within the culture of the organization, it will help achieve enduring breakthrough performance. We have completed the subsection on overview of Lean. In the next subsection, we will talk about is roots of Lean.

1.9 Roots of Lean

With any topic we are learning, it is always very important to know and understand the roots of it, history, how this was evolved, etc. In this section, I will provide you details on Roots and History of Lean. I will provide details about Lean implementation and journey at Ford. Then, will give you overview of Toyota Production System (also known as TPS). And then we will talk about JIT, i.e., Just-in-Time philosophy. Some of the Lean principles implementations were observed as early as 1450s mostly in manufacturing industry in various forms like flow, interchangeable parts, automatic assembly line, automatic defect detection, etc. Next slide we will cover how Lean was implemented in Ford.

1.10 Lean at Ford

The first instance of truly integrated entire production process was done by Henry Ford at Highland Park city in the state of Michigan USA in 1913. This was done for the Ford car model called “Model T.” He consistently combined interchangeable parts with standard work and moving conveyance to create what he called flow production. Ford lined up fabrication steps in the process sequence using machines and go/no-go gauges to fabricate and assemble each of the components. These delivered perfectly fitting components directly to line-side. This was a truly revolutionary break from the earlier legacy production systems that consisted of generic machines grouped by process, which would manufacture parts. These parts eventually were fit in the finished products after a good bit of rework or tinkering (fitting) in subassembly and final assembly. The problem with Ford’s system was not the flow: He was able to turn the inventories of the entire company every few days. Rather it was his inability to provide variety. The Model T was not just limited to one color but also limited to one specification so that all Model T chassis were essentially identical up through to the end of production in 1926. When the world wanted variety, other automakers responded to the need for many models, each with many options, but with production systems whose design and fabrication steps regressed toward process areas with much longer throughput times and inventories. Next, we will talk about Toyota Production System.

1.11 Toyota Production System (TPS)

Lean manufacturing was developed by the Japanese automotive industry utilizing the Toyota Production System (also known as TPS), following the challenge to rebuild the Japanese economy after World War II. In 1930 Kiichiro Toyoda, Taiichi Ohno, and others at Toyota revisited Ford’s original thinking, and invented the Toyota Production System. The goal was to improve end-to-end production system and provide more value to customer. It occurred to them that a series of simple innovations might make it more possible to provide both continuity in process flow and a wide variety in product offerings. This system shifted the focus from individual machines and their utilization, to the flow of the product through the total end-to-end process. With the approach and mind-set changes, Toyota was able to achieve low cost, high variety, high quality, and very rapid throughput times to respond to changing customer desires. And we all know Toyota cars are one of the best in the world in terms of wholesome value: Price, value and quality. After getting the brief history of Lean, we will next talk about Just-In-Time (also known as JIT philosophy).

1.12 Just In Time (JIT)

Just-in-Time (also called as JIT) is a strategy that companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. Some people also call it production strategy, inventory strategy, or supply chain management strategy. Just-in-time manufacturing was a concept introduced by Ford. It works on a demand-pull basis, contrary to the other technique of production-push. To elaborate further, under just-in-time manufacturing technique, actual orders dictate and drive what should be manufactured, so that the exact quantity is produced at the exact time it is required. Demand-pull enables to production of only what is required, in the correct quantity and at the correct time. To sum-it-up: Get the right thing at the right place at the right time. The interlinked processes depend on each other for signals. When a process needs something, it will send a signal to the previous process. And similarly when something is stuck or needs attention appropriate signals are generated to grab attention of the operator or the supervisor. Companies usually lean towards keeping inventory levels on the high side to insure stock is available when needed. However, this is a high investment which yields a lower return on the investments (ROI). Inventory or stock represent a large portion of the business investment and must be well managed to maximize profits. There is huge cost involved with inventory in terms of investment cost and storage. The just-in-time philosophy is based on planned elimination of all waste and continuous improvement. The primary elements include having only the required inventory when needed. This means that stock levels of raw materials, components, work in progress, and finished goods can be kept to a minimum. Just-in-time production requires a carefully planned scheduling and flow of resources through the production process. To make this a success, every producer and consumer in the system should be able to accurately forecast demand and supply. As shown in the diagram, the supplier gets the raw material just in time and it goes directly to the fabrication department where it is processed and moved to sub assembly section and then to assembly to finalize, then from there it is sold directly to the customers.. In each stage of the process the just-in-time principles are followed. Production manager uses sophisticated production scheduling software and production management tools to plan production for each period of time, which includes ordering the correct stock. Information is exchanged with suppliers and customers through EDI (Electronic Data Interchange) to help ensure that every detail is correct. There is very little room for mistakes, if one of the process delays delivery, there are high chances that the whole process can get delayed. So, it is necessary to have all the systems follow the JIT principles. In summary, the use of just-in-time yields several benefits: First, lower stock holding means a reduction in storage space which saves rent, insurance costs, etc. Second, as stock is only obtained when it is needed, less working capital is tied up in stock Third there is less likelihood of stock perishing, becoming obsolete, or out of date that can occur with sudden changes in demand This helps organization to achieve higher ROI on their investments. In the next subsection, we will talk about some of the Lean successes and benefits.

1.13 Lean Successes and Benefits

I hope you have got good understanding of Lean principles and would have triggered thought process for identifying waste, JIT, etc. Before we move forward with more details and remaining session, let us understand some of the successes and benefits of Lean. Then, we will cover the challenges of implementing Lean. In this sub-section we will cover what are the efficiency gains we will get from Lean and how it will fit in your business model. Then I will provide you with an overview of how lean will help improve your cash flow along with some examples. And after that we will see how Lean will increase capacity for revenue. In the diagram, a triangle is shown with the employee engagement and morale as the foundation layer, next is to attract and retain customers which in turn drives higher revenue and hence higher profits. In the next slide, we will cover efficiency.

1.14 Efficiency Business Model Fit

Here, we will talk about some of the efficiency gains from Lean and how it fits in the overall business model. Let us begin the discussion by talking about the business model. Every business has its own parameters and metrics to define their success criteria. Can you guess what will be some of the metrics that will be most common across any business model? The answer is employees, customers, and profits. If you have guessed it correctly, give a pat on your back. Employees, customer, and profits are some of the success parameters of any business model. And, probably this is not new for you. But, as we are talking about Lean successes and benefits, it would be good for us to review some of these aspects and how lean contributes to them. Let us start with employees. To make your business a success, you need to attract and retain motivated employees. Lean helps you to reduce non-value-add work, improves quality, and optimizes the process. This improves employee morale, as the work they are doing translates into higher value and less waste. Next we will talk about customer. To make the business successful, you need to ensure that you continue to attract new customers, provide excellent products and services to retain existing customer. Your business exists only because of customers. We all understand this. So, with Lean you continue to provide higher value to the customer, so it will be easier for you to attract and retain more customers. The next one, probably the most important, is profit; for any business to be highly successfully it needs to have higher revenue and lower costs. We will talk about the revenue in next slides, for now, let us talk about cost. Cost would include all types of cost such as the raw material cost, operating cost, capital cost or investments, etc. If you reduce the cost, the profit increases and similarly when you reduce the investment cost, you can do more with less. With Lean, you will be able to optimize the process flow, reduce waste, reduce defects, and optimize your investments. This will help you to improve your profit margins. All of these contributes to efficiency and helps you improve your business. It is evident that as we improve efficiency, we generate higher business values. Here are a couple of ways by which we are getting higher efficiencies through Lean. First, we are able to do more with less i.e., the resources needed would be much less to produce more or the same amount of output. Next, just enough mind-set, what is the bare minimum needed to get things done. This can be applied to everything from process to people to raw material and so on. With Lean standardized processes, we are not fixing issues/problems with a short-term solutions or band-aids that might create issues in future. We are looking at holistic view and providing long-term solutions. You will now manage your business with process and not numbers. i.e., you will try and go deep in your process, fix it from an inside-out approach, rather than managing numbers and trying to see what processes need to be looked at. In the next slide we will touch upon some of the specifics of cash flow improvement that would be achieved with Lean.

1.15 Cash Flow Improvement

In this slide, we will talk about how lean helps in overall improvement of the cash flow in the business. As discussed earlier in the section, as we apply Lean Principles we see improvements in various aspects. To start with reduced inventory, with just-in-time production, you no longer have to block your money in inventory but can get better cash flow due to this. People and process do not have to wait for the earlier process to complete. With end-to-end Lean Process, you can get the product moved through various phases without having to wait. As you are reducing inventory and making sure we have only what we need, the space needed is also reduced. You will not have to lease space for storing inventory. You probably can use the space that gets vacated for some other purpose. This will further reduce operating cost and investments. With Lean, overall end-to-end cycle time is reduced and you will be able to process and turnaround your products and services at a faster pace, resulting in a better cash flow. If you have waste, you essentially are losing money. When you apply Lean, you reduce waste significantly and hence the cost needed to produce the product or service is reduced. Defect leads to rework or discard. In both these cases additional cost is needed. When you have less defects, you save on cost. All of these, as you can see, will have you improve your cash flow. Next, we will talk about increased capacity for revenue.

1.16 Increased Capacity for Revenue

In Lean benefits we talked about how it improves efficiency and cash flow, and now we will cover how Lean improves capacity for revenue. Attracting and retaining customers in any business is the core challenge and everybody strives hard to meet it. If you have customers that are happy with your products and services, they will continue to buy them and will be willing to pay premium for higher quality. This means higher revenue for your business. With Lean, your product and service quality improves significantly and customers can see higher value. This not only helps us in attracting newer customer but also leave existing customers satisfied with the products and service. With Lean, you will be able to do “More with Less.” i.e., higher value and better quality can be delivered to the customer with less resource. This leads to business expansion and do more with the current set of resources. With reduced defects and better quality, you can reduce the money spent on the support function. In summary, Lean helps in improving capacity. With process optimization, your process can produce more with the same number of people. Also the process can produce the same amount with fewer people. In the next sub-section, we will talk about challenges we have with Lean.

1.17 Its Challenges

While there are great benefits and successes of Lean, there are few challenges that we need to understand. In this subsection, we are going to cover the following: We will start with understanding how process change causes rethinking of process flow. Then talk about the impact we have due to disruptions, downtime, and design failures. We will try and understand the challenges of low volume and high mix in inventory. Then we will cover challenges that come with customer demands on customizations that result into high variability.

1.18 Process Changes Cause a Rethinking of Process Flow

In this slide we will talk about how process change introduces challenges in process flow and overall functioning. Process as we all know have 3 key parts, inputs, processing, and output. Input is what the process accepts from earlier process or supplier. This input then goes through processing along with other inputs. Processing then produces an output which is consumed by another process or customer. When we are making process change, we are altering one or more parts of the process. This change impacts the output product or service. As the processes are tightly coupled to each other, the next process which is consuming the output from previous process will need to be changed to accept the updated output. This in turn causes a cascading effect in process flow, which leads to rethinking of the process flow. The in-process metrics that were generated earlier needs to be updated as well. Additional training is needed for people handling the process/product with the changes and documents, user manual needs to be updated accordingly. Next will we talk about how some of these causes further impact in the form of disruption, downtime, and design failures.

1.19 Disruptions Downtime Design Failures

Any change impacts the overall flow and it takes time for everybody to get adjusted to the changes and the new process. The first challenge you will face because of change will be disruption in service or production. As the new process is implemented, everybody may not be aware and even if they are aware they may not have the needed mastery of the process. So, after the Lean changes, the service or production may see disruptions in the beginning. Some of these disruptions might cause unexpected delays and impact the morale of the employees. Collection of these disruptions could result into downtime in production or service. This can impact overall delivery schedule. Some of the process changes could result in to Design Failures as the process changes may impact some of the parameters of the product which was kept in mind while designing. This can cause defect and rework. In the next slide we will talk about the challenges with Low Volume/High Mix.

1.20 Low Volume High Mix

The Toyota production system methods have rendered remarkable results in high-volume manufacturing plants, but it has challenges to be understood and applied in high-mix, low-volume environments. Let me first explain to you what volume and mix is. Volume is the amount of parts or products produced of one single type. The mix is the different type of products or parts. So, when you hear the term “Low Volume/High Mix” – it means producing a low volume of a large variety of parts. Similarly, the term “High Volume/Low Mix” stands for producing some of the parts at very high volume. If we have low mix in parts and are producing high volume, having just-in-time production and pull methods works fine. As, there is not many changes everybody that is operating production system or providing service need to learn only couple of things. Also, the machines do not need to be tuned up or updated regularly. The challenge comes when you have low volume and high mix. This typically happens when lots of customizations are done, or when we procure from multiple vendors. Because of variations, the machines and process needs to be updated for different types. If you are in aircraft maintenance department and have several aircraft models but low volume for each of the model, you will have to keep spares for each of them, and also, the maintenance technicians would be limited. This increases the inventory and time needed to get maintenance people on it would be more. Another example, in a banking system where it would be easy to manage only if you have 5 types of different accounts and lakhs of customers in each type as compared to managing an banking system in which there are 500 types of different accounts and a few hundred customers in each of them. In the next slide we will cover high variability, customization, and demand related challenges.

1.21 High Variability Customization Demand

While we have been talking about challenges, I do not want to discourage you on Lean. Every good thing comes with some challenges. The key here is how well we are able to deliver even with the challenges. Customer is the king or queen. We need to cater to customer demands. Sometimes the customer demands are different from what you are producing, these things force you to rethink on how you produce or provide service. Some customers demand customization, while some of the customizations of color, logo are easy to implement other customization such as changes in the parts used in the assembly or produced will be a challenge. With Lean manufacturing, “Made-To-Order” or very specific product or service will impose challenges as the assembly line or the end-to-end process will have to be tweaked for every order or requests. Let me make this clear to you with an example. Consider a buffet where the guests serve themselves from various dishes displayed on a table or sideboard. This is very quick. Now consider ordering the same food from a restaurant in al-a-cart fashion. This process involves placing the order, then preparing the ordered food, serving and then eating the food. Because of all these steps the process takes a long time to complete and also becomes costly. Take another example of shirt manufacturing unit. They have certain rate of production per day. If you ask for custom size for 2 shirts, it might disrupt their flow and the time needed to deliver these 2 shirts would be much higher than their regular rate of production. This covers our lesson on introduction to Lean, in the next slide we will summarize what we have learned so far.

1.22 Summary

Here is what we have covered in this lesson. We talked about overview of Lean, types of waste, history of Lean, etc. We also covered some of the benefits, successes, and challenges of using Lean. Remember that Lean is about getting to bare minimum, just enough to get things done and removing everything that is not adding value. I hope you had great time learning overview of Lean.

1.24 Thank You

Thank you everybody.

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  • PMP, PMI, PMBOK, CAPM, PgMP, PfMP, ACP, PBA, RMP, SP, and OPM3 are registered marks of the Project Management Institute, Inc.

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