An Integrated approach to implementing Lean operations ...



Achieving lean operations within an agile business – a case study

Yi Sun, Orlando Valota and D Z Zhang

School of Engineering, Computer Science and Mathematics

University of Exeter

Exeter EX4 4QF

United Kingdom

E-mail: yi.sun@ex.ac.uk

Telephone: 0044 1392 263 590

Fax: 0044 1392 217 965

Abstract:

Today’s business environment is characterised by the emergence of highly dynamic and cost-driven global competition. In order to survive and stay ahead of the competition, it is important for manufacturing organisations to continuously develop and improve business in terms of cutting cost and increasing sales. Agile Manufacturing (AM) and Lean Manufacturing (LM) were introduced to industry as two manufacturing philosophies for business development and improvement. The core of LM is about saving money by eliminating waste, and inwardly focuses on business process optimisation. The core of AM is about increasing profits by maximising competitiveness, and outwardly focuses on the market place in order to anticipate and take advantage of competitive opportunities. However, it is recognised that the effective balance of the two is the long term solution to today’s business survival and success. This paper proposes a framework of achieving lean operations within an agile business by integrating LM and AM implementation methodologies. A case study was carried out in a contract orientated engineering company to validate the framework.

Keywords: Lean Manufacturing, Agile Manufacturing, E-Manufacturing, and Business Strategy

1. Introduction

As industry is faced with the emergence of fierce global competition, continuous business development and improvement are becoming increasingly crucial to the future of all manufacturers. Noori and Radford [1] identified four distinct structural prerequisites of a successful company: (1) Emphasis on continuous improvement throughout the entire organisation; (2) Investment in research and development; (3) Adoption of advanced technologies; (4) Integration of people and systems. This indicates that a successful business strategy is to innovate in both technology and organisation with a continuous improvement process, which suggests the integration of Lean Manufacturing (LM) and Agile Manufacturing (AM) implementation methods.

Implementing Lean Manufacturing through a continuous improvement process is a practice of ongoing identification and elimination of waste, thus maximising profit and providing customers with highly attractive QCD (Quality, Cost and Delivery). “Waste” in this case is any cost or activity that is unnecessary and does not add value to the end product. The method involves conducting analysis on QCD performance to unearth wastes that prevent perfect performance being achieved. Once identified, waste can be prioritised and eliminated in a manageable and structured manner by selecting and implementing appropriate Lean tools, such as KANBAN, JIT, TQM etc.

In the last decade, turbulence and uncertainties in the business environment have made ground for a new business era, and “change” has become a major characteristic of the new era. With the rapid advance of technology, manufacturing companies experience volatile demand and few repeat orders. Though a successful Lean Manufacturing implementation will increase a company’s business efficiency and the capability to maximise its turnover, it is not sufficient to assist the company coping with the changes and seizing new business opportunities. Naylor et al [2] stated that Lean manufacturing requires, and promotes, a level schedule and it doesn’t fulfill the requirements of wining competition in today’s business environment. Sharp et al. [3] supported that Lean production methods are not suitable for the competitive environment that manufacturers will face during the 21st century.

Agile Manufacturing was introduced as the means for industry to achieve or improve the ability of coping with continuous and unanticipated changes in their business environment and proactively capture opportunities from the turbulent business environment [4]. This concept has since attracted significant amount of attention from both the academia and industry. Discussions were carried out to fully define the concept in [5-11]. By considering the practical situation in industry, Sharifi and Zhang [12] summarised that agility contains two main factors: (i) the ability of responding to changes (anticipated or unexpected) in proper ways and due time; (ii) the ability of exploiting changes and taking advantage of changes as opportunities.

The core of LM is about saving money by eliminating waste, and inwardly focuses on business process optimisation. The core of AM is about increasing profits by maximising competitiveness, and outwardly focuses on the market place in order to anticipate and take advantage of competitive opportunities. However, AM conflict with LM in certain aspects because some Agile capabilities require cost increase. For example, holding a surplus of stock benefits a company’s Agility as to respond more quickly to unexpected demand, but to the detriment of Leanness, as stock costs money to store and ties up company cash. In order for a company to maximise its profitability and turnover, it must achieve a balance between its Leanness and Agility that best suits its specific circumstances.

This paper presents a framework of achieving lea operations within an agile business by integrating LM and AM implementation methodologies. This framework is proposed based around Sun and Zhang’s [13] methodology in AM implementation supporting by LM implementation tools. A case study was carried out in a contract orientated engineering company to implement and validate the framework

2. A methodology to achieve manufacturing agility

Since the concept of AM was introduced in 1991 [4], the benefits of implementing it in companies were soon widely recognised by researchers and industry. In the early 1990s, research was mainly carried out on developing enabling tools to achieve agility by approaching one or several attributes, such as Virtual Enterprise, Adaptable Production, Supply Chain Integration, ERP, Business Reengineering, Mass Customisation, Concurrent Engineering, and Holonic Manufacturing [14-18]. However, because these manufacturing concepts focus on one or several aspects of business operations, they cannot provide companies with the whole picture as to how companies could achieve agility by considering all aspects of business operations.

In the late 1990s, research interest was focused on finding systematic ways in which manufacturing enterprises could approach agility. Kidd [9] suggested that agile manufacturing could be achieved through the integration of three resources: organisation, people and technology into a coordinated, interdependent system. Dove [8] presents a set of change proficiency models for a number of business practices thought to be related to agility. The models contemplate a series of statements representing proactive and reactive proficiency characteristics. Preiss et al [19] defined four steps to achieve agility, understanding business environment, recognising enterprise level attributes, obtaining enabling infrastructure, and implementing business processes. No detailed instructions as to how these steps could be carried out has yet been proposed. Gunasekaran [20] developed a conceptual model to illustrate the concept of agility and defined seven enablers of agile manufacturing. Attempts have been made to formulate a framework within which agile manufacturing systems could be developed. Bessant et al [21] proposed a reference model for agile manufacturing practices, which has four dimensions: Strategy, Process, Linkages and People. These are pinned down to sixteen sub-dimensions for detailed analysis. Ramasesh et al [22] put forward a simple exploratory framework for modelling and simulation of the agility of manufacturing systems, in which attempts have been made to formulate ways to assess agility. The analysis is based on data collected from questionnaires. Sharifi & Zhang [12] proposed a conceptual model for achieving agility based on two hypotheses for agility implementation:

● Agility may be achieved through the strategic integration and utilisation of a selection of managerial and manufacturing methods and tools appropriate to changes experienced by an organisation;

● Organisations are different in terms of changes and levels of pressures resulting from changes and different organisations at different circumstances would require different sets of tools.

According to this model, manufacturing enterprises experience varieties of changes in their business environments (“agility drivers”), which drive the enterprises to identify “agile capabilities” that need to be enhanced in order to respond to and take advantage of changes. The enterprises are then forced to search for ways or tools (“agility providers”) to obtain such capabilities. A list of drivers, capabilities and providers were identified to characterise the model. It is also confirmed that statistical correlation exists between drivers and capabilities. However, this method relies on qualitative scoring assessment, and suffers from being subjective. Attempts to apply this model in industry have identified that such models are not sufficiently convincing and are generally perceived as a management exercise.

Companies usually have limited resources to achieve manufacturing agility from all aspects of business. Over or lack of manufacturing agility in one or more particular important business aspects could also result in business failures. Therefore, it is important for manufacturing companies to develop or improve agility by using an analytical methodology, which identifies important or forthcoming problems, weak, or missing business capabilities, and business practices to improve them.

Motivated by Sharifi and Zhang’s [12] research findings, Sun & Zhang [13] made an attempt to propose an agile manufacturing implementation methodology with benchmarking, modelling, and prediction capability taking into consideration of company characteristics. The following elements are necessitated to be included into the proposed method:

● Quantitative metrics to enable companies to objectively analyse, and continuously monitor, changes in the business environment (and agility drivers), agile capabilities, as well as performances;

● Decision methods to enable companies to identify, model and prioritise agile capabilities that need to be improved, determine the required level of improvements, and predict performances;

● Mechanisms to help identify best practices continuously for improving agile capabilities, and to model relationships between practices and capabilities.

A framework is proposed based on the requirements mentioned above as shown in figure 1. It mainly consists of three elements, a multi-layer Agility Assessment Model (AAM), a Decision Support Simulation Model (DSSM), and a Best Practices Provider (BPP).

[pic]

Figure 1 Proposed Agile Manufacturing Implementation Methodology

The Agility Assessment Model provides a structured way of modelling information related to agility analysis, including a company’s internal and external characteristics, its business factors and turbulence, available resources and capabilities and its current performance. Driving forces for agility, available agile capabilities, and existing performances can be analysed and enterprises benchmarked against each other.

Three sets of Agility Assessment Tools are developed to measure manufacturing organizations’ agility in terms of Agility Drivers, Agility Capabilities and Agility Performances. Agility Drivers are the driving forces from a turbulent business environment that necessitate a company to achieve/improve agility. Agility Capabilities are the abilities to rapidly and cost effectively respond to, capture, and create windows of opportunities within a turbulent environment driven by individualising customer requirements. Agility Performances are a company’s performances in coping with the changes caused by turbulent environment. Agility Capabilities are different from Agility Performances. A company may have a certain level of ability to cope with changes, but the performances in terms of coping with changes may be at a different level. The assessment tools are designed in a hierarchical structured manner. The details of the assessment tools will be discussed in the next section.

The Decision Support Simulation Model is a mechanism to facilitate best practice detection and improvement decision making. This model is used in two ways. First, when the Agility Assessment Models for a number of enterprises are established, similar enterprises are identified and benchmarked against one another to establish relationships between subsets of agility drivers, capabilities, and performances. The best practices for achieving individual/subsets of capabilities are identified through this process. Second, given the Agility Assessment Model of an enterprise, the company will be benchmarked against similar enterprises in the database and weak capabilities could be identified based on the established parameter relationships. The agility strategy formulation methodology is also proposed as a web-based benchmarking mechanism. Manufacturing organisations could access the website and self-assess agility drivers, capabilities and performances to identify weak capabilities and formulate strategies by using the agility assessment tools and the benchmarking mechanism to identify best practices.

The Best Practice Provider provides a mechanism to identify best practices for improving an agile capability, a modelling platform to help evaluate potential improvements to a capability from the implementation of a practice, and a method to document best practices. Best practices for improving a capability (or a subset of capabilities) are identified by comparing business factors, processes and technology related to the capability in different companies. The practices will then be documented in a library using a modelling tool. Information concerning the practices includes a description of the practice, applicable situations, capabilities to be improved, implementation procedures, resources required, maturity metrics, likely improvement to capabilities, and case materials. The library is continuously updated as new practices are identified, and searched to identify and evaluate potential practices for a given enterprise.

3 Agility assessment tools

Due to the complexity of the modern manufacturing systems, it is very difficult to choose the parameters which could represent the measured organisation’s agility. The developed measurement tools - Agility Capability Index (ACI), Agility Drivers Metrics (ADM), and Agility Performance Measurement (APM), respectively measure companies’ agility level, agility needs level and agility performance level. They are presented in a generic and structured manner and aim to cover the relevant areas of manufacturing agility.

3.1 Agility Capabilities Index

Agility Capabilities Index is used to assess a company’s ability to quickly respond to customers’ requirement, capture market trend, and create windows of opportunities within a turbulent market environment. Agility capabilities are measured across five core areas: Product Flexibility, Process Flexibility, People Flexibility, Supply Chain Operational Responsiveness and Organisational Agility.

[pic]

Figure 2 Agility Capabilities Index

Product Flexibility looks at the ability of products and components to be configured in order to produce necessary variations with a minimum number of components types and the ability to use alternative components parts or have components/parts manufactured/sourced from alternative processes/suppliers in case of unforeseen manufacturing/supply problem. It also looks the ability of products and components to be adapted and utilised in new product development, both in terms of structures and functions. The objective is to evaluate how well an enterprise rationalises its products and product development so as to be able to respond to customer needs in a most cost effective and efficient manner. The term used here is product but the tool is expected to apply to both product and service.

Process Flexibility measures the ability of available processes to be configured to meet demand and product variations, to cope with unexpected problems, and to facilitate new product introduction in the most cost effective and efficient manner.

People Flexibility assesses the level of skills and skills flexibility in the workforce, levels of motivations and empowerment, and flexibility in terms of changes in task allocation, roles/ responsibilities, time constraints, etc.

Operational Responsiveness measures the ability of a company and its supply/distribution network to respond to market changes and capture opportunities in the shortest possible time and in the most cost effective and efficient manner.

Organisational Agility assesses the ability of a company to form/implement effective strategies, to communicate effectively within its hierarchy, to be innovative and able to create partnerships with customers and suppliers, to be able to work with others to exploit market opportunities and to scale up/down in response to changes.

3.2 Agility Drivers Metrics

Agility Drivers Metrics is used to assess the degree of driving force towards agility caused by turbulence of changes in the business environment, which has a direct impact on an organisation. Agility Drivers are measured across four core areas: Competition, Customer Requirements, Supply Chain and Macro-Business Factors.

[pic]

Figure 3 Agility Drivers Metrics

Intensity of Competition is looking at the changes that have occurred within the direct competitive environment. How the fight for markets is getting more ferocious, leaving organisations with less room to manoeuvre and exploit existing competitive advantages. It represents changes in market position and company performance that effect competitive advantage.

Dynamic Customer Requirements are those elements driven by the customer and show how the demands of customers are changing and placing additional pressure on individual companies. They also show the extent to which customer needs are diversifying and customer expectations are increasing.

Supply Chain Turbulence describes changes that occur within the supply chain. The supply chain used here is the integrated network of facilities and options that perform the functions of procurement of materials, transformation of those materials into intermediate and finished products, and the distribution of finished products to customers. It includes supplier, manufacturing and distribution. Supply is a crucial element of the production process, because of the domino effect that supply chain problems have on the rest of the production process. The distribution elements are one of the key factors in customer satisfaction.

Changes of Macro-Business Factors

represents the forces caused by the changes occurred in Macro-business environment that affect all organizations, or affect all organizations within a particular industrial sector. Typically these factors will work over a longer time frame than those in other areas.

3.3 Agility Performance Measurement

Agility Performance Measurement is used to assess a company’s performances in coping with changes in terms of customers’ requirements, market trend, supply chain and business environment. In another sense, it assesses how well the agility capabilities are used. Agility performances are assessed across four core areas: Customer Service Performance, Manufacturing Performance, Supply Chain Performance and Design Performance.

[pic]

Figure 4 Agility Performance Measurement

Customer Service Performance assesses the performance of a company’s customer service which includes pre-sale customer service, post-sale customer service, responsiveness to customers, delivery dependability and delivery speed.

Manufacturing Performance assesses the performance of the company manufacturing products in response to changing product characteristics, material supply, and demand, and employing technological process enhancements.

Supply Chain Performance assesses the performance of the supply chain responding to changes from both the business environment and itself.

Design Performance assesses the performance of the design of products and processes coping with the changes in business environments. It includes the design of products to be configured in order to produce necessary variations with a minimum number of components types and products and components to be adapted and utilised in new product development, both in terms of structures and functions. It also includes the design of current processes to be configured for most efficient and effective utilisation, and to adapt to the changes in scheduling and planning.

An enterprise can use the ACI, ADM and APM assessment tools to respectively quantify its current agility level, its required agility level, and how well it can currently cope with change. This information can then be used to formulate a strategy to allow the company to achieve its required level of Agility.

4 A framework of integrating LM and AM implementation

Lean continuous improvement methods tend to focus inwardly on achieving enhanced performance and profitability through waste elimination. By constantly perfecting production, a company can profitably achieve customer satisfaction. This leads to repeat orders, while the company’s marketing department attracts new customers. However, companies operating in turbulent markets experience volatile demand and low order repeatability. It is extremely difficult to perfect production when each new order requires a different set of skills, machines, materials and processes. Such companies require flexibility, responsiveness and proactiveness, and must be in a position to anticipate change and adapt their resources to meet the requirements of new work.

The methodology shown in figure 5, combines Lean QCD analysis with the Agility Assessment Tools. The structure of the methodology allows Leanness to be effectively balanced with Agility, and matched to the demands of the market environment. Hayman [23] uses the engineering analogy of a “Business Transformer” to explain how a company can match its internal capabilities with the market environment. Matching the impedance of internal processes to the corresponding impedance of external events can be achieved with a feedback loop from the market environment to the company.

[pic]

Figure 1. Integrated Lean and Agile Implementation Methodology.

The methodology proposes that Agility Drivers Metrics (ADM) analysis should be conducted to determine the key driving factors that necessitate the company to adopt Lean and Agile capabilities. This feedback loop effectively tells the company how Agile it needs to be. However before this can be acted upon, the company’s current level of Leanness and Agility must be determined. This is done by conducting Lean QCD analysis on manufacturing operations, and Agility Capabilities Index (ACI) analysis on business processes. The data resulting from the ADM, QCD and ACI assessments should be considered simultaneously, using Gap analysis to identify the missing capabilities. In the case of the Lean QCD analysis, the aim should be to eliminate the maximum amount of waste possible, without compromising the required level of business Agility. Having conducted the Gap analysis, relevant Lean Improvement tools and Agility providers can be identified and applied to the company in a structured manner.

5 Case study

The company in this case study offers services in electronic, mechanical, acoustic and optical technology with a focus on the military, geophysical and logistical support service sectors. Recently, major changes have occurred in its customer base. In 1999, around 90% of this company’s orders were from one major customer. In 2002, the major customer adopted a new policy of offering larger portions of purchasing orders to its prime contractors who in turn contract work to other companies. In 2003, orders from the main customer decreased to 49%, while orders from its prime contractors increased to 40% of this company’s total orders. It is recognised by the company that the current way of running business will not be suitable for the business to meet the requirements of the new market conditions. Considering the business characteristics of the company, senior management believes that achieving agility based on lean operation is the solution for the company to continue with the growth and win market share from its competitors. The awareness of the needs for agility in the management and the business characteristics of the company provide a suitable case for studying the application of the proposed methodology and the assessment tools in industry.

The case study started with the understanding of the company’s background and organisation structure. Assessment tools developed within the proposed methodology are tailored by considering the company’s business characters and operations. The tailored assessment tools were applied in the company to analyse the changes in its business environment, the capabilities and performances in coping with the changes. The continuous improvement technique - root cause analysis, was also applied to identify the true root cause of problems. Finally, cost benefit analysis was conducted to identify which problems would bring the greatest gains if addressed, and a manageable Lean and Agile implementation plan was subsequently developed.

The main competencies of the company are specialist skills and experiences in product design, and supply development. Two thirds of this company’s business comes from bidding individual contracts from its customers. Therefore, it is important to analyse the combinations of activities of fulfilling contacts as this company’s products. The business process modelling tool - IDEF0, has been employed here to break down the orders to business activities as components.

The initial results of the analysis show that dramatic changes have taken place in the business environment. The changes in the customer base mentioned above directly affect the customers’ ordering behaviour, and the structure and operations of the supply chain, which in turn add more turbulence to the business environment. Price is no longer the sole reason for getting orders from customers. Delivery lead-time, quality and delivery reliability have more influence on the customers’ decisions than ever.

The analysis of the ADM showed that dynamic customer requirements, in terms of the timing of order placement and the required engineering skills, were a major driving factor towards enhanced Agility. However gap analysis with the ACI indicated that the company was not capable of deploying its engineering resources with enough flexibility or responsiveness to cope effectively with the dynamic customer requirements it was facing. As a result, the company has focused on enhancing its human resource management capabilities, with the development of an IT based resource scheduling system.

The Lean technique “Value Stream Mapping” was used to conduct QCD production analysis, and the main causes of waste were identified. The results were considered during the gap analysis with the ADM and ACI. It was decided that the company would benefit most from implementing the 5S System and Visual Management, as this would eliminate waste in a way that complimented its enhanced control of engineering resources.

In order to sustain continuous improvement, a set of Key Performance Indicators (KPIs) was set up. It was unrealistic to expect the company to measure the entire set of metrics each month, due to the amount of time required to do so. The KPIs comprised a small selection of fundamental Lean and Agile metrics, specific to the company. The monthly measured KPIs allowed the company to monitor the effectiveness of the improvement tools, and to make adjustments accordingly.

6 Conclusions

Lean Manufacturing and Agile Manufacturing are two different perspectives on continuous business development and improvement with supporting and conflicting aspects. Therefore, it is important to reach an effective balance to suit a company’s unique circumstances. This paper suggested an integrated approached to achieve the balance by implementing lean operations within an agile business framework. This framework provides a method for companies to assess their specific requirements, enabling them to implement the correct Lean and Agile capabilities in a complimentary manner.

The practical implications of the framework are the potential enhancements of profitability and turnover in any manufacturing or engineering company, by eliminating waste and maximising competitiveness respectively. Successful utilisation of the methodology will place a company in a stronger market position.

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