Lean: A key success factor in automobile industry

Jyoti Sharma
Asst. Professor
Department of Business Management
Punjab College of Technical Education, Ludhiana (Punjab)
jyotisharmaldh@gmail.com

Abstract

The concept of Lean Manufacturing is well known and is being applied widely in industry. As industry moves forward
in deploying lean concepts, it is important to recognize the potential benefit for attacking waste in above-the-shop-floor
processes. While the benefits are significant in production, this typically constitutes less than 30 percent of the total
cost of a product. Furthermore, the distributed, collaborative nature of manufacturing today depends extensively on
efficient and cost-effective information processes among sites and throughout supply chains.

Keywords: Distributed, Lean, total cost, supply chains

Introduction

The complexity a manufacturing system has to cope with is largely determined by the customer and his or
her articulated needs and requirements. In the past, vehicle manufacturers offered the market unique
models that had a small variety of attributes and long life cycles. Manufacturing organizations must now
provide a high product variety to remain competitive as they are facing increasing customer sophistication
and fast- paced technological developments in the industry. On the one hand organizations can foreclose
market entry and maintain or increase their market share, increase their prices and serve customer needs
better by closely matching customer preferences and offered products.

Costs involved in automotive industry

The auto manufacturing industry is considered to be highly capital and labor intensive. The major Costs
for producing and selling automobiles include:

• Labor - While machines and robots are playing a greater role in manufacturing vehicles, there are
still substantial labor costs in designing and engineering automobiles.
• Materials - Everything from steel, aluminum, dashboards, seats, tires, etc. are purchased from
suppliers.
• Advertising - Each year automakers spend billions on print and broadcast advertising;
furthermore, they spent large amounts of money on market research to anticipate consumer trends
and preferences.
The auto market is thought to be made primarily of automakers, but auto parts makes up another lucrative
sector of the market. The major areas of auto parts manufacturing are:

• Original Equipment Manufacturers (OEMs) - The big auto manufacturers do produce some of
their own parts, but they can't produce every part and component that goes into a new vehicle.
Companies in this industry manufacture everything from door handles to seats.
• Replacement Parts Production and Distribution - These are the parts that are replaced after the
purchase of a vehicle. Air filters, oil filers and replacement lights are examples of products from
this area of the sector.
• Rubber Fabrication - This includes everything from tires, hoses, belts, etc. [1]

Lean Manufacturing

The origins of lean manufacturing dates back to Henry Ford and his first production line in 1913 (Lean
Enterprise Institute 2007). Ford was the first person to consider the flow of production. In today’s
teachings though, Ford’s first assembly line is used as an example of mass production that goes contrary to
many lean principles. The problems are not with the flow or even inventories, which he was able to turn
entire inventories every few days. The problems were with his ability to make only one variety of cars.
There has been so much focus on lean teachings in recent years that some additional facets, tools, or
methodologies have been pulled under the lean umbrella with the Toyota Production System based on how
each company takes the lessons and applies them. Regardless of the name or the origins of the
methodology, lean enterprise is all about serving the customer more efficiently and effectively. Impacts on
the bottom line are in elimination of wastes and growth of customer base. “Lean” Focuses on abolishing
or reducing wastage or “muda” the Japanese word for waste and on maximizing or fully utilizing activities
that add value from the customer’s perspective. Form customer point of view value is equivalent to
anything that the customer is willing to pay for in a product or service that follows. So the elimination of
waste is the basic principle of lean manufacturing. Waste sources are all related to each other and getting
rid of one source of waste can lead to either elimination of, or reduction in others. The most important
source of waste is inventory. Work in process and finished parts inventory do not add value to a product
and they should be eliminated or reduced. When inventory is reduced, hidden problems can appear and
action can be taken immediately. There are many ways to reduce the amount of inventory, one of which is
reducing lot sizes. Reducing lot sizes however, should follow by a setup time reduction so as to make the
cost per unit constant as economic order quantity states.

Transportation time is another source of waste. Moving parts from one end of the facility to another end
does not add value to the product. So it is important to reduce the transportation time with in the
manufacturing process. One way to do this is to utilize a cellular manufacturing layout to ensure a
continuous flow of product. This also helps eliminate one other source of waste which is energy. When
machine people are grouped into cells, unproductive operation can be minimized because a group of people
can be fully dedicated to one cell and excess human utilization is avoided. Another source of waste is
defects and scrap materials. Total productive maintenance is one way to eliminate defects and scrap.
Manufacturing parts that are defects free from the beginning has profound consequences for productivity.
There is no question that the elimination of waste is an essential ingredient for survival in today’s
manufacturing world. Companies must strive to create high quality, and low cost products that can get to
the customers in the shortest time possible.

Lean manufacturing in Indian automotive industry:

The Automobile industry in India, which includes design, development, manufacturing, repairing and sale
of cars, two-wheelers, three-wheelers, as well as trucks, buses and tractors, has witnessed an upsurge over
the last few years and continues to boom even today. While India's automobile industry is one of the largest
in the world. Additionally, as per the Automotive Mission Plan (AMP) 2006-2016, presented by the
country's Ministry of Heavy Industries and Public Enterprises, India is a favorite investment destination for
international auto-makers, many of whom have set up manufacturing divisions in the country, opening a
whole new vista of job opportunities for engineers. [2]

The Indian Automotive Industry is relatively labour intensive by global standards and is in transition stage
as low cost base for exporting labour intensive products. The Indian automotive industry is booming with
high growth in the domestic as well in the export market. Till date all the growth has been possible because
of Foreign automotive manufacturers and there valuable experience. To safeguard the interest of these
manufactures in the long run in the Indian economy, the manufacturers need to be competitive
simultaneously maintaining the quality standards which could be possible with implementing lean
techniques in their system. The basics of implementing lean begin with having a proper infrastructure of the
economy, to which Indian economy is nowhere near. According to MUL during FY1994-95, a total of 724
vehicles were damaged in transportation. Even if we take the average cost vehicle would have been Rs 3
lac, then MUL nearly lost Rs 217,200,000 because of poor transportation system in India. This money
should have been well spent somewhere else. The government of India needs to realize the threat to Indian
automotive Industry from China. If the Indian government continuous with rigid automotive policies (high
import duty, taxes, FDI), then the foreign investors will simply lose their interest in India and could move
to other countries like Poland, China etc. Japanese are known to be Pandits of Lean manufacturing
techniques. Indian automotive market is not new to Japanese manufacturers; they have been here for good
number of years. But till today they have not been able to implement even 20% of their work lean
techniques. Reasons behind it corruption, poor infrastructure, social excursion within Indian economy. [3]

Techniques of Lean Manufacturing

 • Just in Time
• Six Sigma
• KANBAN
• Kaizen
• Cellular Manufacturing
• 5 S’s

Just in Time (JIT)

The premise of Just in Time, or JIT for short was developed by Toyota Motor Corporation in the early
1980’s. Initially, it was used to describe how parts and materials should be utilized within the plant to
maximize efficiency. In more recent times the term has been appropriated by the manufacturing industry in
general, and has come to describe relationships not only within a plant, but between suppliers and
manufacturers as well.

JIT Strengths and Weaknesses

While JIT works for some businesses, for others it can be detrimental.
If an auto manufacturer is using JIT production methods, someone somewhere down the line has to hold
some amount of inventory as a contingency. Not every supplier in the manufacturing chain has the luxury
of only ordering exactly the materials they need. If inclement weather, strikes or supply shortages were to
cause a supplier to not be able to provide an item needed in the manufacturing process, more than likely the
supplier would be penalized fairly severely. So, we can see that the burden of inventory control is passed
down the line to other suppliers from the JIT manufacturer. JIT can lead to some environmental problems
and additional costs as well. While less space and materials for storage facilities are needed, in some cases
there is a greater cost, both monetarily and environmentally, in moving parts quickly from supplier to
manufacturer. A decrease in storage space and the costs associated with it would be a sizable benefit to a
company. Another benefit would be an increase in capital due to the fact that it’s not tied up in physical
inventory costs.

Six- Sigma

Six Sigma was started in Motorola by engineer Bill Smith in the late 1980s in order to address the
company’s chronic problems of meeting customer expectations in a cost-effective manner. Within
improvement projects quality problems were systematically analyzed at the front end of the process and
continued throughout the manufacturing process using four phases (Measure, Analyze, Improve and
Control). The CEO of GE applied this program across all of GE integrating training of Six Sigma into the
promotion structure. GE added an extra phase to define and manage improvement projects. Therefore the
Six Sigma methodology offers an organizational structure where certified experts lead the improvement
projects.

KANBAN

It is often said and proved that Japanese are good at manufacturing. They have created world class
standards in design, material and management. The concept of time management is not new for the
managers and this concept has been in practice for many years. KANBAN process involves more than just
in time deliveries and inventory control. Kanban is a Japanese term used for “visual record” which directly
or indirectly drives much of the manufacturing organizations. It was originally developed at Toyota in the
1950s as a way of managing material flow on the assembly line. Kanban process identifies a “Highly
efficient and effective factory production system” which has developed into an optimum manufacturing
environment leading to global competitiveness. In KANBAN inventories are minimized by supplying them
when needed in production and work in process is closely monitored. It also encourages industrial re-
engineering, such as “module and cellular production” system and human resource management where
teams are responsible for specific work elements and employees are encouraged to effectively participate in
continuous improvement.

Application of KANBAN

KANBAN is a simple parts movement system that depends on cards and boxes or containers to take parts
from one work station to another on a production line. KANBAN stands for KAN- card, BAN- signal. The
essence of the KANBAN concept is that a supplier or the warehouse should only deliver components to the
production line as and when they are needed, so that there is no storage in the production area. Within this
workstation located along production lines only produce/deliver desired components when they receive a
card and an empty container, indicating that more parts will be needed in production. In case of line
interruptions, each work station will only produce enough components to fill the container and then stop. In
addition KANBAN limits the amount of inventory in the process by acting as an authorization to produce
more inventory.

KAIZEN

In simple terms Kaizen is Japanese term for ‘a change for better’, which results in ‘continuous
improvement’. Kaizen ideology can be traced back to the 1980’s; Kaizen was first adopted in the West with
the influx of Japanese car manufacturers brought a wave of new thinking.
Kaizen logic was first enshrined in written text with Masaaki Imai’s book ‘KAIZEN - The Key to Japan’s
Competitive Success’ (1996). Kaizen uses the Japanese logic of bringing improvements internally from
within the workplace; this goes against the European ethics of using external sources such as consultants to
improve processes. [4]

KAIZEN Culture: An organizational culture based on the three super ordinate principles - Process and
Results, Systemic Thinking, and Non-judgmental, Non-Blaming.

KAIZEN Strategy: A business strategy that begins with the customers' needs concerning Quality, Cost, and
Delivery, is founded on a people-oriented culture, is supported by an involved leadership, and consists of
three integrated core elements: Principles and Concepts; Systems; and Tools.

Cellular manufacturing

Cellular Manufacturing and work cells are at the heart of Lean Manufacturing. Their benefits are many and
varied. They increase productivity and quality. Cells simplify material flow, management and even
accounting systems. Cellular Manufacturing seems simple, But this deceptive simplicity are sophisticated
Socio-Technical Systems. Proper functioning depends on subtle interactions of people and equipment. Each
element must fit with the others in a smoothly functioning, self-regulating and self-improving operation.
Work cell is a work unit larger than an individual machine or workstation but smaller than the usual
department. Typically, it has 3-12 people and 5-15 workstations in a compact arrangement. An ideal cell
manufactures a narrow range of highly similar products. Such an ideal cell is self-contained with all
necessary equipment and resources. Cellular layouts organize departments around a product or a narrow
range of similar products. Materials sit in an initial queue when they enter the department. Once processing
begins, they move directly from process to process (or sit in mini-queues). The result is very fast
throughput. Communication is easy since every operator is close to the others. This improves quality and
coordination. Proximity and a common mission enhance teamwork. [5]

Five S (5S):

Five Japanese words which refer to systemically cleaning up and maintaining a clean, efficient working
environment. A 5S’s campaign is frequently used to introduce Total Productive Maintenance into a factory.
Separate/Scrap - get rid of all unused equipment, machinery and parts.
Straighten - arrange all needed equipment, tools, so that there is a place for everything and everything
is in its place, easy to locate and close to where it is used.
Scrub - clean up, paint and repair all machinery, aisles, etc.
Spread - make cleaning and putting things away routine.
Systemize - standardize the process.
 Conclusion
Hence lean techniques provide the competence to achieve another step change improvement in
manufacturing. An era of integrated approach pulls together all of the design tools and maintenance tools
that exist into one whole. In addition, human factors as applied to the operation and equipment maintenance
yield better results. The application of Lean can be taken a step further by evaluating the coordination of
the maintenance function with production planning, inventory management, staffing support, engineering
and design.

References

1. http://www.investopedia.com/features/industryhandbook/automobile.asp

2. http://ezinearticles.com/?Automobile-Industry-in-India&id=3719913)
3. http://www.team-bhp.com/forum/indian-car-scene/27832-lean-manufacturing-indian-automotive-industry.html
4. elsmar.com/Kaizen
5. www.strategosinc.com/cellular_manufacturing.htm