LEAN PRODUCTION v/s MASS PRODUCTION

Lean v/s Mass Production



Lean v/s Mass Production

Mass production

In the mass production paradigm, the marketing department forecasted demand and these forecasts drove complex MRP systems to order the required parts and materials far enough ahead of time so that they would, hopefully, all arrive at the factory before the production run was scheduled. Assuming this was successful, equipment would be set up and a batch of products was built to satisfy the forecast. In order to make a batch of products, batches of parts would wait in queues before each operation - hence mass production is more aptly described by the less glamorous phrase, batches and queues. (Hunter, 2004, 22-25)

If all the parts did not arrive on time or if market demand had changed since the original forecast, then more parts would have to be procured by expensive expediting. Finished products were then put in a warehouse or series of distribution centres where they awaited the anticipated orders, relying on the industrial version of the "Field of Dreams" philosophy: If you build it, they will come.

Not only has it become harder to satisfy customer demand from inventory, it is also becoming more expensive. For the last 25 years, the average inventory carrying cost has been 25% of inventory value per year. In other words, $4 million in inventory will cost the company $1 million per year to pay for the interest, space, insurance, and administration. From a competitive standpoint, it doesn't matter if the inventory is at the factory, distributors, or stores -- customers still have to pay for it. When inventory goes obsolete, manufacturers face a deadly dilemma: write it off or delay new products until the old products can be sold off, usually at huge discounts. Packard Bell suffered severe consequences when it got caught with a warehouse full of 75 MHZ computers when consumers wanted higher speed computers. (Hunter, 2004, 22-25)

In mass production, batches of parts go from one machine or work station to another until they reach test, which may discover that a recurring error at any one of the steps ruined the whole batch. Then the entire batch would have to be reworked or scrapped, thus raising costs, delaying delivery, and reducing production capacity. In addition to recurring defects, large WIP (work in process) inventory levels cover up many other quality and efficiency problems when buffer inventory abounds, "just in case."

Today, labour and raw materials are only a small portion of the only cost that matters -- the customer's cost which is the manufacturer's price. But, since they are the only costs measured in most companies, they become the exclusive attention of "cost reduction" efforts, which often produce counterproductive results by buying cheap parts, awarding the lowest bidder, or moving production to countries with low labour costs. (Hunter, 2004, 22-25)

The majority of total cost is "overhead," which is rarely quantified, instead being allocated (averaged) over all products. And when overhead is not quantified, no one understands ...