A study of the extent of which the financial benefits of adopting lean manufacturing practices can be quantified

Comrie, Douglas (2009-03)

Thesis (MBA (Business Management))--University of Stellenbosch, 2009.

Thesis

ENGLISH ABSTRACT: In the face of global competition manufacturers are increasingly finding themselves having to redefine the way they do business. Despite this, and while lean manufacturing has been widely adopted as an inherently superior form of manufacturing when compared to mass production, many companies continue to operate according to a traditional mass production philosophy. This research aims to validate and quantify the existence of a correlation between the presence of lean manufacturing and improved performance in important financial indicators with a view to encouraging the more rapid adoption of lean manufacturing. The intended outcome of this research is therefore firstly an analysis that either confirms or refutes the existence of a correlation between selected lean manufacturing practices and selected financial indicators, and secondly a quantification of the strength of the identified relationship, if any. There are four sub-problems that were identified as being central to the research aims. The first relates to the identification of foundational principles associated with lean manufacturing, while the second relates to the identification of manufacturing practices associated with each principle that can be observed and tested for. The third entailed the evaluation of existing literature on links between lean manufacturing and financial performance. The fourth entailed the development of a set of hypotheses and methodology for the testing of relationships between lean manufacturing practices and financial indicators. The four principles, and their associated practices, were as follows: • Just In Time: kanban; • Total Quality Management: andon and poka-yoke; • Continuous improvement: standardisation of work practices, green areas and suggestion schemes; and • Team-based work organisation: teams, single-piece flow between team members and team leader roles. The review of existing literature provided some guidance in respect of financial performance measures that should be included in the study, but fell short of confirming the type of relationships and correlations sought for the purpose of this research. Data on the financial performance of 22 automotive component manufacturers were obtained from the Benchmarking and Manufacturing Analysts SA (Pty) Ltd’s benchmarking database while data on lean manufacturing practices were obtained through structured observations at the 22 companies between January 2008 and December 2008. Through evaluating Spearman rank correlation coefficients conclusive findings were obtained in respect of the existence of a relationship and a positive correlation between each of the following pairs of variables: • Kanban and average growth in sales; • Kanban and change in Return on Investment; • Andon and operating profit as a percentage of sales; • Poka-yoke and operating profit as a percentage of sales; • Poka-yoke and growth in sales; • Green areas and operating profit as a percentage of sales; and • Standardisation of work practices and operating profit as a percentage of sales. During the analysis and interpretation of the findings value chains dynamics, operational measures, and control variables were cited as key considerations for further research in this field. The paper concludes by suggesting that a study of this nature replicated in the automotive industry in a different economy would likely result in similar outcomes, but that the same outcomes may not necessarily be obtained if the study was replicated in a different industry in the same economy.

AFRIKAANSE OPSOMMING: Met die uitdagings van globale mededinging en vrye toegang tot wêreld markte is vervaardigers blootgestel aan die behoefte om hulle besigheidsprosesse voortdurend te vernuwe en te optimiseer. Ten spyte van die feit dat “Lean Manufacturing” spesifiek in die vervaardigings industrie aanvaar is as die voorkeur model bo die meer tradisionele massa produksie model sukkel maatskapye steeds met die implimentering daarvan. Die doel van hierdie navorsing is om te toon dat daar ‘n verwantskap bestaan tussen die beginsels van “Lean Manufacturing” en die winsgewindheid van maatskappye. Meer spesifiek word daar gesoek na sleutel finansiële aanwysers in die besigheid, en hulle verwantskap met geselekteerde “Lean Manufacturing” beginsels. Daar word gepoog om die verwantskappe te kwantifiseer, en hierdie resultate dan te gebruik as basis vir die motivering om hierdie beginsels verder en vinniger in die vervaardigings industrie te implimenteer. Vier subprobleme is geidentifiseer om die voorgestelde navorsing logies te benader. Die eerste hou verband met die identifisering van die kern beginsels van “Lean Manufacturing”, en die tweede met die identifisering van vervaardigings praktyke wat assosieer kan word met elkeen van die beginsels. Die derde subprobleem is die analise en vewerking van bestaande literatuur met die doel om die verwantskap tussen die identifiseerde kern beginsels van “Lean Manufacturing” en finansiële indikatore te evalueer. Laastens word ‘n hipotese ontwikkel om die identifiseerde verwantskappe te toets en te evalueer. Die vier beginsels en die assosieërde praktyke is: • “Just In Time”: kanban; • Algemene Kwaliteits Bestuur: andon en poka-yoke; • Voortdurende Verbetering: standardisering van werksprosesse; en • Spangebaseerde Organisasies: Spanwerk. Die bestudering van bestaande literatuur het ‘n riglyn geskep vir van die finansiële indikatore wat in ag geneem moet word in die studie. Dit het wel geblyk dat die tipe verwantskap nie duidelik definieer is nie. Die finansiële data van 22 motor komponent vervaardigers is verkry van Benchmarking and Manufacturing Analysts SA (Pty) Ltd’s se databasis. Die data oor “Lean Manufacturing” is verkry deur gestruktureerde waarnemings en onderhoude by dieselfde 22 maatskapye oor die tydperk Januarie 2008 tot Desember 2008. Deur die evaluering van “Spearman rank” korrelasie koëfisiënte kon ‘n korrelasie tussen die volgende veanderlikes verkry word: • Kanban en die gemiddelde groei in verkope; • Kanban en die verandering in die opbrengs op belegging; • Andon en die operasionele wins as ‘n persentasie van verkope; • Poka-yoke en die operasionele wins as ‘n persentasie van verkope; • Poka-yoke en die groei in verkope; • Groen areas en die operasionele wins as ‘n persentasie van verkope; en • Standardisering van werksprosedures en die operasionele wins as ‘n persentasie van verkope. Na aanleiding van die analise en interpretasie van die bevindinge opgelewer deur die studie word die verdere bestudering van die veld sterk aanbeveel. Waardeketting dinamika, operasionele maatstawwe, en beheer veranderlikes is identifiseer as kernaspekte van so ‘n verdere ondersoek. Dit moet egter benadruk word dat die herhaalbaarheid van die studie moontlik sal wees in ander ekonomiese toestande, maar nie noodwendig dieselfde resultate sal lewer vir ander industrieë nie.

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