Management
Every manager in a business, particularly in manufacturing, has to
ensure that all resources—from materials to equipment and staff—
are used efficiently, while keeping the customer continually in
mind. Managers make key decisions to lay down procedures
and set standards and then work continuously to improve
processes to ensure that the company remains profitable.
Which approach?
How people and processes are organized in making and delivering the product
to the customer is critical if a company is to survive fierce competition and rapidly
shifting consumer demands in a global market. In making decisions about how
a business can meet its goals, managers may combine a number of approaches
as many are interlinked and achieve similar outcomes.
No. 1
country for
innovation in
2014: South Korea
Time-based
management
How can we use
time effectively?
See pp.294–295.
Agile
production
How can we be more
responsive to shifts in
customer demand?
See pp.296–297.
Management and leadership are not the same, but are
closely linked:
Managers plan, organize, and coordinate; leaders
also galvanize and motivate.
Managers organize workers to maximize efficiency;
leaders also nurture skills and develop talent.
Managers focus on the bottom line; leaders also
look to the horizon.
Managers tell people what to do; leaders also
ask questions.
Managers make sure workers are doing everything
that needs to be done; leaders also inspire workers
to want to do more than needs to be done.
The following classic distinction has been attributed to
two different business leaders and writers, Peter Drucker
and Warren Bennis: management is doing things right;
leadership is doing the right things.
MANAGER OR LEADER?
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284 285
How operations and production work
Management
Lean
production
How do we
minimize
resources to
reduce costs?
See pp.288–289.
Economies and
diseconomies of scale
What scale of operation is best
for us?
See pp.286–287.
Kaizen
How can we drive
continuous
improvements?
See pp.298–299.
Total quality
management
How do we improve customer
satisfaction?
See pp.292–293.
Just-in-time
How can we meet customer
demand and minimize stock?
See pp.290–291.
Involve
employees
Innovate
strategIc
allIances wIth
supplIers
unInterrupted
workflow
focus
on value
customers
at the heart
of what
we do
mInImIze
waste
$
$
$
US_284-285_Management_overview.indd 285 21/11/2014 16:41
284 285
How operations and production work
Management
Lean
production
How do we
minimize
resources to
reduce costs?
See pp.288–289.
Economies and
diseconomies of scale
What scale of operation is best
for us?
See pp.286–287.
Kaizen
How can we drive
continuous
improvements?
See pp.298–299.
Total quality
management
How do we improve customer
satisfaction?
See pp.292–293.
Just-in-time
How can we meet customer
demand and minimize stock?
See pp.290–291.
Involve
employees
Innovate
strategIc
allIances wIth
supplIers
unInterrupted
workflow
focus
on value
customers
at the heart
of what
we do
mInImIze
waste
$
$
$
US_284-285_Management_overview.indd 285 21/11/2014 16:41
How it works
Economies of scale is a simple concept: the more items
produced or handled, the cheaper the average (unit)
cost, as efficiencies and fixed costs are shared across all
items. This gives a business a competitive advantage.
Supermarkets, for example, buy food in bulk at low
unit costs, which they pass on to consumers. However,
diseconomies of scale may occur when the operation
grows because of high administration costs, wastage
from lack of control, or lack of employee productivity.
Economies and
diseconomies of scale
Economies of scale
While it may be inefficient for a small dairy to supply milk to a supermarket,
it is cost-effective for a large dairy operation producing thousands of bottles.
If a delivery is too large, though, wastage can creep in due to associated costs.
Economies of scale are one of the advantages of large-scale production
and result in a lower unit cost of each item produced. However, costs can
also go up as the operation grows, resulting in diseconomies of scale.
AVERAGE COST AND REVENUE
Few economies of scale
DELIVERY
OF 100
BOTTLES
DELIVERY
OF 10,000
BOTTLES
1 VEHICLE
SUPERMARKET
Average cost high
Average cost low
Economies
$
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HOW OPERATIONS AND PRODUCTION WORK
Management
Network ecoNomy
150
million
the number of eBay
users worldwide in 2014
Online networks, such as eBay and Facebook,
rarely stray into diseconomies of scale. They can
deliver economies of scale even at an international
level: the cost of adding one more user to a
network is almost zero. However, the resulting
benefits may be huge, because each new user
in the network can interact or trade with other
members of the network.
OUTPUT
of scale
Diseconomies of scale
DELIVERY
OF MORE
THAN
10,000
BOTTLES
2+ VEHICLES = MORE
DRIVERS AND FUEL AND
POTENTIAL WASTAGE
1 VEHICLE (LARGER,
BUT ONLY ONE
DRIVER AND SAME
FUEL COSTS)
SUPERMARKET
SUPERMARKET
Average cost goes up
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286 287
HOW OPERATIONS AND PRODUCTION WORK
Management
Network ecoNomy
150
million
the number of eBay
users worldwide in 2014
Online networks, such as eBay and Facebook,
rarely stray into diseconomies of scale. They can
deliver economies of scale even at an international
level: the cost of adding one more user to a
network is almost zero. However, the resulting
benefits may be huge, because each new user
in the network can interact or trade with other
members of the network.
OUTPUT
of scale
Diseconomies of scale
DELIVERY
OF MORE
THAN
10,000
BOTTLES
2+ VEHICLES = MORE
DRIVERS AND FUEL AND
POTENTIAL WASTAGE
1 VEHICLE (LARGER,
BUT ONLY ONE
DRIVER AND SAME
FUEL COSTS)
SUPERMARKET
SUPERMARKET
Average cost goes up
US_286-287_Economies_And_Diseconomies.indd 287 21/11/2014 16:28
How it works
The focus in lean production is on
efficiency to maximize value for
the customer, but without affecting
quality. Lean seeks to eliminate all
activities that do not add value to
the production process, including
holding inventory (stock), repairing
faults, and unnecessary movement
of people and products around a
manufacturing plant.
Optimizing the flow of products
and services through value
streams—sequences of activity
that flow horizontally across
technologies, assets, and functions
to customers—allows the business
to respond more quickly to
consumer demand. Efficiency also
makes it simpler and more accurate
to manage information.
The goal of lean production is to reduce the resources used to supply
goods and services to consumers. By cutting down human effort,
materials, space, capital, and time, lean production cuts costs.
Lean production
Waste
Items produced
surplus to
customer
demand
Waste
Unproductive
time spent waiting
for material,
information,
equipment, tools
Waste
Extra, unwanted
stock held in
inventory
Lean solution
Kanban cards used to
indicate material order
points: how much, from
where, and to where
Waste
Consumes materials
and uses up labor;
results in customer
complaints
Lean solution
Total quality
management (see
pp.292–293) used to
improve all areas
Kanban cards Toyota’s demand-
driven scheduling triggers
Value-stream mapping
The process of analyzing how the
product gets from start to finish
now and the design of an
improved flow for the future
NEED TO KNOW
Lean solution
Manufacture based upon a pull system,
producing products as customers
order them
Lean solution
All resources provided
on a just-in-time ( JIT)
basis—not too early,
not too late (see
pp.290–291)
Case study:
how Toyota
eliminates
waste
Lean production is
about getting rid of
waste, sometimes
called non-value-
added activities.
Car manufacturer
Toyota has identified
eight areas of waste
and a lean approach
to counter these.
Overproduction
Waiting
Excess inventory
Defects
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288 289
how operations and production work
Management
According to a US National Institute of Standards and Technology survey,
40 firms implementing lean production reported these benefits:
BENEFITS OF LEAN PRODUCTION
Waste
Superfluous
stages in the
transportation
process
Lean solution
Material shipped
directly from the
vendor to the
assembly line
Waste
Poor workflow,
poor layout,
and inconsistent
working methods
Lean solution
Workplace Organization,
a systematic method
for standardizing the
workplace
Waste
Underutilization of
employees’ mental,
creative, and physical skills
and abilities
Lean solution Work
cells replace assembly line;
better use of labor and
employee involvement
and communication
Waste
Unprofitable stages
in the production
or reworking of
a product
Lean solution
Map the value stream to
identify non-value-added
steps in the process; get it
right the first time
10
million
the number of cars
Toyota expected
to sell in 2014
Lead time (taking product from start to finish) reduced by 90%
Productivity increased by 50%
Work-in-process inventory reduced by 80%
Quality improved by 80%
Amount of space required reduced by 75%
A CB
Transportation in stages
Non-value-added processing
Excess motion
Underused people
A B
BENEFIT
PERCENTAGE
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