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6.3. Lean Manufacturing

A term popularized in recent years has been "lean manufacturing." This descriptive term is indicative of an environment where waste has been trimmed. But, it also entails a focus on speed and quality. Another benchmark of lean manufacturing is the pursuit of standardization for as many processes as possible, without compromising responsiveness to customer demand.

The development of a lean manufacturing facility is not a quick fix like Kaizen. Accountants and others will conduct an extensive and in-depth study of each process with the goal of bringing efficiency to the business. Often, consultants and experts are engaged; these outsiders can bring a fresh perspective and valuable insight gained by their service to a variety of other businesses.

To illustrate, there was a time when automakers had many options for each car produced, and the customers spent considerable time deciding which options they preferred and could afford. This, in turn, complicated the manufacturer's production and inventory management. In time, they discovered that the manufacturing process, inventory management, and customer buying experience could be improved by bundling options into two or three packages. The "leaning" process resulted in a more standardized/ streamlined production effort, and produced a better customer experience. The point is that making a lean manufacturing operation does not mean simply cutting, cutting, and cutting some more. It is the result of an intensive effort to streamline and standardize production, without disappointing the customer!

6.4. Just in Time Inventory

Inventory management often benefits from studies into the development of a lean manufacturing environment. Maintaining raw materials inventory entails not only a considerable upfront investment, but the potential for costly damage and obsolescence. Lean companies will attempt to minimize their raw materials inventory. One method is adopting "just in time" (JIT) inventory systems. In an ideal application, raw materials are received from suppliers just as they are needed in the production process. This approach requires a complete and reliable logistics system, as any disruption in the flow of materials can bring the whole production process to a devastating stop. Such systems are usually dependent upon a strong information system that often links the manufacturer directly to the supplier with automated procurement procedures. A Japanese term that is associated with JIT is "Kanban," which means some form of signal that a particular inventory is ready for replenishment.

A popular modification of the JIT system is for suppliers to "store" their inventory at the manufacturer's physical location. This enables the manufacturer to "buy" raw materials directly from the supplier's stock located within the same physical location. Finally, look carefully as you travel through industrial areas, and notice that "compatible" businesses are located in close proximity. For example, a beverage bottler's neighbor is apt to be an aluminum can manufacturer. All of these measures evolve from significant endeavors to develop lean manufacturing processes, and are usually based upon detailed job cost studies.

6.5. Total Quality Management

Total quality management (TQM) is a key driver of customer satisfaction and business success. Globalization increases the level of competition and drive toward higher product quality. This is often achieved by incorporating detailed standards into the management and productive processes. There is now a globally recognized organization, The International Organization for Standardization, that provides standards and guidelines relating to processes that drive the production of quality outputs. An "ISO 9000" certification suggests that a company, no matter where operating around the world, is able to demonstrate that it has successfully implemented quality management standards. This becomes increasingly important in selecting global trading partners.

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