Lean Manufacturing Toyota Production System JIT Kaizen Kanban Value Stream 5S
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Friday, December 4, 2009
Lean Manufacturing Example - Toyota Plant
Lean Manufacturing Toyota Production System JIT Kaizen Kanban Value Stream 5S
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Target Costing (II)
Very often the management may decide to go ahead and manufacture a product whose target cost is well below the currently attainable cost (so that there is a cost gap).
To attain the Target cost, management will set benchmarks for improvement towards the target costs, by specified dates.
Options available to reduce costs:
(a) Training staff in more efficient techniques
(b) Using cheaper staff
(c) Acquiring new, more efficient technology
(d) Cutting out non-value-added activities
Cost savings must be actively sought and made continuously. Value analysis will be used to reduce costs if and when targets are missed.
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The following comments appeared in an article in the Financial Times
Mercedes-Benz, one of the world’s most prestigious and tradition-laden carmakers, has taken its time to wake up to the daunting dimensions of the challenges it faces in the rapidly-changing world car market of the 1990s.
The company has accepted that radical changes in the world car market mean that Mercedes-Benz will no longer be able to demand premium prices for its products based on an image of effortless superiority and a content of the ultimate in automotive engineering.
Instead of developing the ultimate car and then charging a correspondingly sky-high price as in the past, Mercedes-Benz is taking the dramatic and radical step of moving to target pricing. It will decide what the customer is willing to pay in a particular product category – priced against its competitors – it will add its profit margin and then the real work will begin to cost every part and component to bring in the vehicle at the target price.
The following extracts are from an article which appeared three months later.
The marketing motto for the Mercedes-Benz compact C-class is that it offers customers more car for their money.
It is the first practical example of a group’s new pricing policy. The range embodies a principle new to Mercedes which states that before any work starts, a new product will be priced according to what the market will bear and what the company considers an acceptable profit. Then each component and manufacturing process will be costed to ensure the final product is delivered at the target price.
Under the old system of building the car, adding up the costs and then fixing a price, the C-class would have been between 15 percent and 20 percent dearer than the 10-year-old outgoing 190 series, Mr Vohnringer said.
Explaining the practical workings of the new system, he explained that project groups for each component and construction process were instructed without exception to increase productivity by between 15 and 25 per cent. And they had to reach their targets in record time.
One result was that development time on the new models was cut to 40 months, about a third less than usual. But the most important effect, according to Mr Vohnringer, has been to reduce the company’s cost disadvantages vis-à-vis Japanese competitors in this class from 35 percent to only 15 percent.
(source: BPP Learning Media)
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To attain the Target cost, management will set benchmarks for improvement towards the target costs, by specified dates.
Options available to reduce costs:
(a) Training staff in more efficient techniques
(b) Using cheaper staff
(c) Acquiring new, more efficient technology
(d) Cutting out non-value-added activities
Cost savings must be actively sought and made continuously. Value analysis will be used to reduce costs if and when targets are missed.
*****************************
The following comments appeared in an article in the Financial Times
Mercedes-Benz, one of the world’s most prestigious and tradition-laden carmakers, has taken its time to wake up to the daunting dimensions of the challenges it faces in the rapidly-changing world car market of the 1990s.
The company has accepted that radical changes in the world car market mean that Mercedes-Benz will no longer be able to demand premium prices for its products based on an image of effortless superiority and a content of the ultimate in automotive engineering.
Instead of developing the ultimate car and then charging a correspondingly sky-high price as in the past, Mercedes-Benz is taking the dramatic and radical step of moving to target pricing. It will decide what the customer is willing to pay in a particular product category – priced against its competitors – it will add its profit margin and then the real work will begin to cost every part and component to bring in the vehicle at the target price.
The following extracts are from an article which appeared three months later.
The marketing motto for the Mercedes-Benz compact C-class is that it offers customers more car for their money.
It is the first practical example of a group’s new pricing policy. The range embodies a principle new to Mercedes which states that before any work starts, a new product will be priced according to what the market will bear and what the company considers an acceptable profit. Then each component and manufacturing process will be costed to ensure the final product is delivered at the target price.
Under the old system of building the car, adding up the costs and then fixing a price, the C-class would have been between 15 percent and 20 percent dearer than the 10-year-old outgoing 190 series, Mr Vohnringer said.
Explaining the practical workings of the new system, he explained that project groups for each component and construction process were instructed without exception to increase productivity by between 15 and 25 per cent. And they had to reach their targets in record time.
One result was that development time on the new models was cut to 40 months, about a third less than usual. But the most important effect, according to Mr Vohnringer, has been to reduce the company’s cost disadvantages vis-à-vis Japanese competitors in this class from 35 percent to only 15 percent.
(source: BPP Learning Media)
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Target Costing Explained
Target Cost is an estimate of a product cost which is derived by subtracting a desired profit margin from a competitive market price.
Target costing is a pro-active cost control system. Techniques such as value analysis are used to change production methods and/or reduce expected costs so that the target cost is met.
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Target cost management:
• It is effective in managing costs in new product design and development stages.
• It also enables the production cost of a proposed product to be identified so that when sold it generates the desired profit level.
• It also plays a useful role in enabling enterprise to set and support the attainment of cost levels.
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Target costing requires managers to change the way they think about the relationship between cost, price and profit.
(a) Traditional approach is to develop a product, determine the expected standard production cost of that product and then set a selling price (probably based on cost) with a resulting profit or loss. Costs are controlled through variance analysis at monthly intervals.
(b) The target costing approach is to develop a product concept and the primary specifications for performance and design and then to determine the price the customers would be willing to pay for that concept. The desired profit margin is deducted from the price leaving a figure that represents total cost.
This is the target cost and the product must be capable of being produced for this amount otherwise the product will not be manufactured.
During the product’s life target cost will constantly be reduced so that the price can fall. Continuous cost reduction techniques must therefore be employed.
(source : BPP Learning Media)
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Target costing is a pro-active cost control system. Techniques such as value analysis are used to change production methods and/or reduce expected costs so that the target cost is met.
*********************
Target cost management:
• It is effective in managing costs in new product design and development stages.
• It also enables the production cost of a proposed product to be identified so that when sold it generates the desired profit level.
• It also plays a useful role in enabling enterprise to set and support the attainment of cost levels.
************************
Target costing requires managers to change the way they think about the relationship between cost, price and profit.
(a) Traditional approach is to develop a product, determine the expected standard production cost of that product and then set a selling price (probably based on cost) with a resulting profit or loss. Costs are controlled through variance analysis at monthly intervals.
(b) The target costing approach is to develop a product concept and the primary specifications for performance and design and then to determine the price the customers would be willing to pay for that concept. The desired profit margin is deducted from the price leaving a figure that represents total cost.
This is the target cost and the product must be capable of being produced for this amount otherwise the product will not be manufactured.
During the product’s life target cost will constantly be reduced so that the price can fall. Continuous cost reduction techniques must therefore be employed.
(source : BPP Learning Media)
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Tuesday, December 1, 2009
Essential Elements of JIT
(1) JIT Purchasing
• Parts and raw materials should be purchased as near as possible to the time they are needed, using small frequent deliveries against bulk contracts.
• Inventory levels are therefore minimized.
(2) Close Relationship with Suppliers
• In a JIT environment, the responsibility for the quality of goods lies with the supplier.
• A long-term commitment between supplier and customer should therefore be established.
• If an organization has confidence that suppliers will deliver material of 100% quality, on time, so that there will be no rejects, returns and hence no consequent production delays, usage of materials can be matched with delivery of materials and inventories can be kept at near zero levels.
(3) Uniform Loading
• All parts of the production process should be operated at a speed which matches the rate at which the final product is demanded by the customer.
• Production runs will therefore be shorter and there will be smaller inventories of finished goods because output is being matched more closely to demand (and so usage costs will be reduced).
(4) Set-up Time Reduction
• Machinery set-ups are non-value-added activities which should be reduced or even eliminated.
(5) Machine Cells
• Machines or workers should be grouped by product or component instead of by the type of work performed.
• Production can flow from machine to machine without having to wait for the next stage of processing or returning to the stores.
• Lead time and work in progress are thus reduced.
(6) Quality
• Production management should seek to eliminate scrap and defective units during production, and to avoid the need for reworking of units since this stops the flow of production and leads to late deliveries to customers.
• Product quality and production quality are important “drivers” in a JIT system.
(7) Pull system (Kanban)
• Products/components are only produced when needed by the next process.
• Nothing is produced in anticipation of need, to then remain in inventory, consuming resources.
(8) Preventive Maintenance
• Production systems must be reliable and prompt, without unforeseen delays and breakdowns.
(9) Employee Involvement
Workers within each machine cell should be trained to operate each machine within that cell and to be able to perform routine preventive maintenance on the cell machines (ie to be multi skilled and flexible).
(source: BPP Learning Media)
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• Parts and raw materials should be purchased as near as possible to the time they are needed, using small frequent deliveries against bulk contracts.
• Inventory levels are therefore minimized.
(2) Close Relationship with Suppliers
• In a JIT environment, the responsibility for the quality of goods lies with the supplier.
• A long-term commitment between supplier and customer should therefore be established.
• If an organization has confidence that suppliers will deliver material of 100% quality, on time, so that there will be no rejects, returns and hence no consequent production delays, usage of materials can be matched with delivery of materials and inventories can be kept at near zero levels.
(3) Uniform Loading
• All parts of the production process should be operated at a speed which matches the rate at which the final product is demanded by the customer.
• Production runs will therefore be shorter and there will be smaller inventories of finished goods because output is being matched more closely to demand (and so usage costs will be reduced).
(4) Set-up Time Reduction
• Machinery set-ups are non-value-added activities which should be reduced or even eliminated.
(5) Machine Cells
• Machines or workers should be grouped by product or component instead of by the type of work performed.
• Production can flow from machine to machine without having to wait for the next stage of processing or returning to the stores.
• Lead time and work in progress are thus reduced.
(6) Quality
• Production management should seek to eliminate scrap and defective units during production, and to avoid the need for reworking of units since this stops the flow of production and leads to late deliveries to customers.
• Product quality and production quality are important “drivers” in a JIT system.
(7) Pull system (Kanban)
• Products/components are only produced when needed by the next process.
• Nothing is produced in anticipation of need, to then remain in inventory, consuming resources.
(8) Preventive Maintenance
• Production systems must be reliable and prompt, without unforeseen delays and breakdowns.
(9) Employee Involvement
Workers within each machine cell should be trained to operate each machine within that cell and to be able to perform routine preventive maintenance on the cell machines (ie to be multi skilled and flexible).
(source: BPP Learning Media)
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Just-in-Time (JIT) Philosophy Explained
JIT is a system whose objective is to produce or to procure products or components as they are required by a customer or for use, rather than for inventory.
JIT is a ‘pull’ system, which responds to demand, in contrast to a ‘push’ system, in which inventories act as buffers between the different elements of the system, such as purchasing, production and sales.
JIT aims to achieve (a) zero inventory and (b) perfect quality.
JIT operates by demand-pull.
JIT consists of JIT Purchasing and JIT Production:
• JIT Purchasing is a System in which material purchases are contracted so that the receipt and usage of material, to the maximum extent possible, coincide.
• JIT Production is a System which is driven by demand for finished products whereby each component on a production line is produced only when needed for the next stage.
JIT results in lower investment requirements, space savings, greater customer satisfaction and increased flexibility.
JIT is often described as a technique, but it is more of a philosophy or approach to management since it encompasses a commitment to continuous improvement and the search for excellence in the design and operation of the production management system.
Problems associated with JIT
(a) It is not always easy to predict patterns of demand.
(b) JIT makes the organization far more vulnerable to disruptions in the supply chain.
(c) JIT, originated by Toyota, was designed at a time when all of Toyota’s manufacturing was done within a 50km radius of its headquarters. Wide geographical spread, however, make this difficult.
Costing implications of JIT
(a) Just-in-Time manufacturing enables purchasing, production, and sales to occur in quick succession with inventory being maintained at minimum levels.
(b) The absence of inventory renders decisions regarding cost-flow assumptions (such as weighted average or first-in, first-out) or inventory costing methods (such as absorption or marginal costing) unimportant. This is because all of the manufacturing cost attributable to a period flow directly into cost of goods sold.
(c) Job costing is simplified by the rapid conversion of direct materials into finished goods that are then sold immediately.
(source: BPP Learning Media)
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JIT is a ‘pull’ system, which responds to demand, in contrast to a ‘push’ system, in which inventories act as buffers between the different elements of the system, such as purchasing, production and sales.
JIT aims to achieve (a) zero inventory and (b) perfect quality.
JIT operates by demand-pull.
JIT consists of JIT Purchasing and JIT Production:
• JIT Purchasing is a System in which material purchases are contracted so that the receipt and usage of material, to the maximum extent possible, coincide.
• JIT Production is a System which is driven by demand for finished products whereby each component on a production line is produced only when needed for the next stage.
JIT results in lower investment requirements, space savings, greater customer satisfaction and increased flexibility.
JIT is often described as a technique, but it is more of a philosophy or approach to management since it encompasses a commitment to continuous improvement and the search for excellence in the design and operation of the production management system.
Problems associated with JIT
(a) It is not always easy to predict patterns of demand.
(b) JIT makes the organization far more vulnerable to disruptions in the supply chain.
(c) JIT, originated by Toyota, was designed at a time when all of Toyota’s manufacturing was done within a 50km radius of its headquarters. Wide geographical spread, however, make this difficult.
Costing implications of JIT
(a) Just-in-Time manufacturing enables purchasing, production, and sales to occur in quick succession with inventory being maintained at minimum levels.
(b) The absence of inventory renders decisions regarding cost-flow assumptions (such as weighted average or first-in, first-out) or inventory costing methods (such as absorption or marginal costing) unimportant. This is because all of the manufacturing cost attributable to a period flow directly into cost of goods sold.
(c) Job costing is simplified by the rapid conversion of direct materials into finished goods that are then sold immediately.
(source: BPP Learning Media)
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