Lean as Risk Management Tool

Defining “Lean”

“Lean” or “leanness” is one of a quintet of paradigms that dominate modern organisational management (Naim et al, 2004), the others being Time-Based Competition (Stalk, 1988), Mass Customisation (Pine, 1993), SCM (Oliver and Webber, 1982; Houlihan, 1987), and agility (Kidd, 1994).

Lean evolved from the Toyota Production System (TPS) developed during the 1970s by Ohno and Toyoda and publicised in the Anglophone world by Shingo (1981), Schonberger (1982) and Ohno (1988). According to Holweg (2007) “lean” was coined by Krafcik (1988) who introduced the “tools” of waste reduction, which also provide the auxiliary but significant benefits of improved quality and reduced cost and lead times.[1]

Womack et al (1990) use “lean” to distinguish Japanese production practices from their Western counterparts. Womack and Jones (1996) elevate lean beyond “production system” to “total management system”. Elliot (2001) expands lean further, explaining it as a mind-set that governs how business processes are perceived. By Liker’s definition (1996, p. 481), lean is “a philosophy that when implemented reduces the time from customer order to delivery by eliminating sources of waste in the production flow”.

“Lean thinking” was originally used by Krafcik and MacDuffie (1989) to describe Japanese manufacturing processes in contrast to the mass production methods of non-Japanese companies. Lean thinking is a cyclical process incorporating four stages leading to one ideal outcome – perfection (Womack and Jones, 2003). The four stages are 1. identifying value to the customer; 2. identifying the value stream (mapping processes in terms of value addition) 3. ensuring value flow; and 4. responding to pull. At each stage, waste is noted and its causes identified and, if possible, eliminated. An overlooked but fundamental point of this system (in its purest theoretical manifestation) is that pull of goods triggers manufacture; pull does not draw from stock.

SC Lean

Large food retailers have embraced the lean SC philosophy (Jones, 2002), and retailers increasingly utilise lean methods for their cost-cutting potential (Womack and Jones, 2005). Debate on the issue of lean SCs has stimulated significant developments in SC design (Giannakis et al, 2004). The SCM principle of lean supply relationships is predicated on the advantage of integration between parties in the SC (Lamming, 1993; Dyer, 2000). Flow management and JIT systems decrease the proximity between buyer and supplier, creating the integrated SC. Liker and Wu (2006) define lean in operations terms – as with lean in manufacturing, the aim of SC lean is waste minimization and delivery of product at required quality and cost.

Critiquing Lean

Ohno (1988) wrote that the TPS was not an instant innovation but the culmination of 30 years of fine-tuning. Instantaneous benefits from lean, without accompanying learning, seem similarly implausible. Bowman (1996) showed that only 10% of companies successfully implement TPM and other lean practices. Hancock and Zaycko (1998) demonstrate that systems cannot be improved by piecemeal adoption of lean principles. The TPS philosophy eulogises incorporative culture; partial implementations often fail if subsystems are not leaned in line with larger systems. Furthermore, Hall (2004) cautions that Toyota’s system cannot be easily emulated, due to significant culture and process variance.

The cornerstone of both lean and SCM is the supremacy of mutuality over adversarial, arms-length relationships. Does adoption of lean principles entail partnerships at the expense of more utilitarian alternatives? The division of profit and the diffusion of responsibility – unavoidable duties in integrated SCs – present complications seldom investigated. If SC leanness by integration boosts competitiveness, then relationship management assumes criticality. However, lean theory, like SCM, neglects to articulate how organisations that are geographically and culturally disparate can or should be managed.

As SCs globalise, how will concepts such as leanness and SC integration develop, given that they evolved in Japan, a country of high homogeneity, high interpersonal trust and communality? Burt and Doyle (1994) observed that Japanese companies reduce costs through working relationships with suppliers, but speculated on whether cultural factors influence perception of partnerships. According to Lamming (1993), partnerships in Western cultures are based on prospects of profit, rather than productivity and efficiency, which are the foremost benefits of partnership formation in the Japanese scenario.

In SCs, the adoption of lean practices might be complicated by outsourcing and supplier bases of ever decreasing size. In such circumstances, leanness becomes a SC vulnerability (Christopher, 2011).

[1] Lean is currently synonymous with a suite of TPS tools.