In this report, the writer will critically evaluate the use of, and how the ‘Lean’ and Just in Time (JIT) manufacturing models are applicable within the service sector, using McDonalds as a prime example. Lean principles derive its history from the manufacturing industry, with Toyota Motor Company being given credit to the development of this approach (Duclos & Lummus, 1995).
Its founder ‘Kiichiro Toyota’ was influenced by Henry Ford’s mass production methods of the 1920’s. Motor vehicle demand was low in Japan after their defeat in World War II, (Dale & Lwaarden, 2007) Toyota’s Production System (TPS) built many prototypes of motor vehicles with little capital outlay. What followed were reduced costs, better quality and a fulfilment of customer needs, thereby producing greater efficiency (Slack et al. , 2007). TPS was created by ‘Taiichi Ohno and Eiji Toyoda’ on the existing schools of thought.
The term ‘Lean’ was first coined by John Krafcik in 1988 in the article ‘Triumph of the Lean Production System’ published in the Sloan Management review, and defined by the National Institute of standards of Technology Manufacturing Extension Partnership’s Lean Network published by Kilpatrick (2003, p. 2) “… A systematic approach to identifying and eliminating waste through continuous improvement, flowing the product at the pull of the customer in pursuit of perfection. ”
Lewis (2000) stressed that Lean is an amalgamation of management principles to eliminate waste (muda called by the Japanese), and defined by Canel et al. (2000) “…anything other than the minimum amount of equipment, materials, parts, space and worker’s time, which are essential to add value to the product or service. ” Lean is linked with the term Just in Time (JIT), namely, producing products and services as required, and defined as a process waste-elimination philosophy (Chase & Aquilano, 1992). JIT is simple: inventory is waste. The JIT inventory system ensures that costs are kept to a minimum. An array of new methods is necessary to manage the consequences of change.
This path arises from the disciplines of statistics, industrial engineering, production management, and behavioural science. The JIT inventory philosophy defines how inventory is viewed and how it relates to management. Both concepts overlap to a certain degree. However, as stated by Slack et al. , (2010, p. 433) “…The concept of ‘lean’ stresses the elimination of waste, while ‘just-in time’ emphasizes the idea of producing items only when they are needed. ” Lean and JIT are useful to managers in the service sector.
Examples of the service sector include Retail Sales, Insurance, and Health Services. The Lean and JIT models will now focus on McDonalds. Product development is essential whether in services or manufacturing. What distinguishes a service company from that of a manufacturing organization is the degree of service performance. In the study conducted by Levitt (1976) cited in Bowen & Youngdahl ( 1998), the importance of Lean developed in manufacturing, could be applied equally in the service sector with similar beneficial results.
Over a long period of time the service sector customer has demanded better service with little or no increase in the product price, and to this end, Lean contributes to this outcome with the elimination of waste from the value chain (Bowen & Youngdahl, 1998). However, there is a need to continually address the principle of improvement in the service sector and by utilising the five Lean theories as outlined by Womack & Jones (2003), would thereby achieve accomplishment (Melton, 2005).
These theories are value, the value stream, flow, pull and accomplishment. In order to eliminate waste, these theories go hand in hand with the seven features of waste described by Womack & Jones (2003, p. 352); “Taiichi ohno’s original enumeration of the wastes commonly found in physical production.
These are overproduction ahead of demand, waiting for the next processing step, unnecessary transport of materials (for example, between rocess villages or facilities) over processing of parts due to poor tool and product design, inventories more than the absolute minimum, unnecessary movement by employees during the course of their work looking for parts, tools, prints, help, etcetera and production of defective types” (Womack & Jones, 2003 p. 352) Lean involves broad understanding, high commitment and a deep analysis of problems. Service organizations are implementing Lean as a long-term basis for improving quality, reducing costs, fast delivery and efficient communication between staff (Womack & Jones, 2003).
Organizations like McDonalds require clear and effective communication between management and staff. Constant feedback from employees to management is essential with Lean, with any changes implemented only when there is a perceived increase in value (Chase et al. , 2004). Additionally, Lean permits the employees to complete their tasks in the minimum possible time, resulting in a successful service operation, a contented customer and financial rewards (Hanna, 2007).
These authors state that implementing Lean in the service industries can resolve difficult situations, encourage staff to accept responsibility, with the natural outcome of high customer satisfaction (Krajewski, et al. , 2010). Therefore, the manager is able to extract the maximum dedication of a McDonald’s employee to the overall benefit of the company, whilst not alienating an employee’s commitment to the overall achievement of competitive advantage; namely excellent delivery time and reliability.
There are differing views to what the writer has explained so far as argued by Sarker (2009), that staff behaviour in the service sector is important for the Lean principles to be successful. In the day-to-day working environment, the employee’s mood is vital. Unhappy employees can seriously disrupt the process. Staff harmony cannot be understated, as each individual is just one cog in the overall process. Employees must feel they are valued in eliminating waste (Worley and Doolen, 2006).
The by-product of employees being enlisted to the principle of Lean is an increase in stress levels of the workforce to identify waste wherever it occurs (Womack et al. , 1990). There have been challenges when implementing Lean in the service sector. Worley and Doolen (2006) point out that it is hard to persuade workers in a service organization to change their thinking, in order to focus on customer value and waste identification, because they might be resistant to the new tools, such as Lean. However, some authors argue that various relevant tools introduced by organizations, can bring success to the service sector.
According to Gapp, Fisher and Kobayashi (2008) the five S’s is a tool which is best described by Womack and Jones (2003, p. 348); “Five terms beginning with S utilized to create a workplace suited for visual control and lean production. Seri means to separate needed tools, parts and instructions from unneeded materials and to remove the latter. Seiton means to neatly arrange and identify parts and tools for ease of use. Seiso means to conduct a cleanup campaign. Seiketsu means to conduct seiri, seiton and seiso at frequent indeed daily intervals to maintain a workplace in perfect condition.
Shitsuke means to form the habit of always following the first four Ss. ” (Womack & Jones, 2003, p. 348) These aspects can contribute to the management’s practice of creating a better workplace through visual control, by reducing the workload on employees, errors in the processes, neatness and the creation of a healthier atmosphere. Thus, by introducing a more conducive working environment, McDonald’s reaps the benefits in the form of better housekeeping, as supported and recognized with research by Chase et al. (2004 p. 441) “…
The results are better process work, with the benefits of continuous improvements, which become is easier to develop, and sustain. In this way, customers perceive they are receiving better service. ” However, Wormark & Jones, (2003) argued that in order to maintain continuous improvement, management are forced to confront the unenviable proposition of dismissing people, as a means of reducing overheads. Cutting the workforce, results in the imposition of additional tasks on the remaining employees.
By implementing Lean, the service organizations retain their best employees, who feel more motivated to work harder as they are the most valued people in the organization (Krajewski et al, 2006). However, this motivation decreases with the arrival of high levels of stress that they experience in the workplace (Chen et al. , 2010). The very nature of employment at McDonalds, with its direct service and customer contact, necessitates that employees and managers cement a cordial relationship, which is positive.
This alliance is crucial as to how customers judge the service (Canel et al. , (2000). On the contrary, Womack & Jones (2010) recognized that the establishment of Lean by eliminating waiting times (waste), has resulted in an improvement in customer satisfaction, as well as financial benefits for the organization . The launch of a drive-through facility at McDonald’s has been recognized as of the implementation of a Lean process. More than 90 per cent of McDonalds U. S. restaurants now incorporate a drive-through facility (Love, 1987).
As stated by an industrial specialist cited in Slack et al. , (2010 p. 87) “…eliminate those activities that would not add value to the desires of the end user and customer. ” On the other hand, Chen et al. , (2010) argues that it is an ineffective practice when service companies change their processes to meet the customers’ demands, and can result only in the destruction of an organization, and valued only in the short term by its customers. Success is geared to a well thought-out plan of action before its inception, and the probability of achievement.
For example, an explorer will find his route much easier to the final destination, by ensuring he has the necessary navigational material at hand. In the same way as a value stream mapping does to a process, it emphasises the important aspects, like the starting point, the activities involved in a process, differing important stages like points in the chain, and ensures that the final point is very visible (Chase et al. ,2004). It also demonstrates clearly the present situation and the desired future outcome.
According to Kollberg et al. , (2006) value stream mapping is one of the most effective components of Lean in the production system, because it clearly improves an understanding of the present process, and highlights all the operations involved, thereby contributing to its identification, and adds differentiation of the activities that add value to the customer. These aspects benefit managers in service sector, such as McDonalds who have many ongoing and specific activities occurring within the restaurants all at the same time.
If a problem arises, it enables them to identify where it started, and then put into effect the relevant action required to bring about the desired value. Value stream mapping is of great importance with process improvement (Womack & Jones, 2003). However, the principal challenge is the absence of a standardized process within the service industry. Sarkar (2009) and George (2003) point out that it is more demanding to identify the mapping processes within the service industry, because the data is not as evident as it is in manufacturing.
In addition, due to the size and complexity of the service industry, with an organization such as McDonalds it is hard to deal with the processes to minimize the waste. The writer will now consider the emphasis on the Just in Time (JIT) systems in relation to the service sector with a particular significance on McDonalds. As explained earlier (Levitt’s, 1976 cited in Bowen & Youngdahl 1998), JIT is a manufacturing strategy that attempts to improve a business by reducing in-process inventory and associated holding costs, as well as improving quality.
Its effectiveness cannot be independent of other key factors of a Lean system, as stated by Shigeo Shingo (1989, p. 187) “… it can end up with the opposite of the desired result. ” To meet JIT objectives, one of the processes relies on signals or Kanban, between different points in the process chain, which tell the production staff when to make the next part (Delbridge, 1998). Kanban are usually ‘tickets’ but can be simple visual signals, such as the presence or absence of a part on a shelf (Krajewski, et al. , 2010). Krajewski et al. (2010) describe Kanban as a controlling mechanism used as an indicator to control and set free a small number of sized materials to be operative only when required.
This is a key operational factor for service sectors such as McDonalds, as it avoids overproduction, as materials (food) do not sit and ‘rot’, thus: saving money. Moreover, the Kanban method can be beneficial for managers as it sends automatic warnings, when employees face difficulties with customers (Krajewski, et al. , 2010) thereby, dealing with the problem more professionally which is of great importance to service sectors highly customer oriented, like Mcdonalds.
In addition, this system may also relieve stress and extra workload for managers in a busy environment such as McDonalds, because of the pull signals etc. , which are automatically sent to the warehouse, distributor or manufacturer for, re-supply (Heizer & Render, 2011). Moreover, the use of this method is significant as described by Slacker et al. , (2010, p. 664) “…Whether it be called Kanban or something else, the advantages of small inventory and pulling material through the plant only when needed are significant.
This is especially important to the JIT systems and organizations such as McDonalds. With the production being completed in this manner, it produces fresh hot hamburgers, which are scheduled to a specific demand and to the need of customers. This satisfaction results in customer retention and increased sales (Heizer & Render 2011). Furthermore, if there is no demand for a product at the time, the assembly process ceases. This saves the company money, either by not having to pay workers overtime or reassigning them to other work or to participate in further training.
Also in theory, this system works, as they require low inventory levels, and leads to reduced overhead expenses. This method reduces costs because it helps to prevent companies such as McDonalds from holding unnecessary inventory that may become obsolete. In addition, by holding fewer inventories the JIT system allows McDonalds to exploit the savings to its maximum effect (Atkinson, 2004). Thereby, McDonalds are able capitalise on this essential part of Lean, by acquiring smaller premises at a much lower cost.
However, maintaining such a low inventory and utilising the Kanban system could jeopardise the JIT system by not having the requisite materials needed for immediate production. The failure of materials to arrive in a timely manner would have a detrimental effect on production, with the inevitable delay until supplies arrive. This delay can reduce productivity and result in a loss of sales, higher costs, customer satisfaction problems and profit reductions (Slacker et al. , 2010; Krajewski et al. , 2010). For a well-established service sector such as McDonalds, this an cause great public humiliation and financial damage.
Additionally, as recognized by Koletic (2005) cited in the inventory management review online; “JIT systems are dependent upon particular suppliers under such an inventory system. For example, if a firm were to commission a highly proprietary product to a single supplier (single suppliers being common in JIT), a JIT inventory system would put such a firm at an even higher risk of rip-off on behalf of the supplier because the firm would have no immediate inventory to buffer an interruption of supply.
Such an interruption of supply might be so costly that the firm might just allow the supplier to overcharge the firm up to the cost of this interruption. This rip-off cost might completely cancel out or even exceed the savings that drove a firm to utilize a JIT inventory system in the first place” The writer recognizes that everything in the JIT system is interdependent. Everyone relies on everybody else (Greenberg, 2002). Consequently, due to the strong interdependence within JIT, any weaknesses in this crucial area can be very costly to all those linked in the chain.
However, Atkinson (2004), states that McDonald’s are very skilful in the pivotal area of customer demand. Seemingly, sparse inventory levels could cause McDonalds otherwise smooth operation some difficulty, if there was a sudden high demand, because they would not have their safety stock at hand. However, because they are able to produce a burger in record time and in a skilful manner, they do not have to be concerned about their inventories running out in the middle of an exceptionally busy period. Overall, it would seem JIT manufacturing results in lower total system costs and improved product quality.
With JIT, some plants have reduced inventory by more than fifty-percent and lead-time by more than eighty-percent (Droge, 1998). JIT is able to lowering costs, less inventory, reducing waste, and raising the quality of products, within the service sector. In this report the author has critically evaluated how useful the manufacturing models of Lean and JIT, and their focus on continuous improvement, would be advantageous for management within the service sector, and in particular applying these theoretical concepts to the world-wide renown giants of the fast-food market; McDonalds.
Taking into consideration that Lean and JIT principles/tools were developed with the manufacturing sector in mind, the writer has established that not all of the various methods are applicable and beneficial to the service sector. Within the service industries, these models can achieve employee competence, reduction of lead-time’s, customer satisfaction, and the less usage of inventory, thus reducing costs and overheads (Chase et al. , 2004; Atkinson, 2004; Heizer & Render 2011). Ultimately, the writer considers that the service sectors such as McDonalds benefit financially from engaging in these forms of strategy.
One of the key points identified in the Lean approach is the importance of good staff relations. (Worley & Dooley, 2006). However, the writer does question to what point Lean implementation is successful in the service sectors, with the inevitable stress factors, which arise. (Benders, 1996 cited in Seppala and Klemola, 2004). A negative and key factor of JIT is the philosophy of not holding too much stock on the premises. Any failure of stock supplies would have devastating consequences in all areas of the business. (Slacker et al. , 2010; Krajewski et al. , 2010).
However, considering these principles were developed for the manufacturing sector, it is logical that not all of principles can be effective in all service organizations as they have different operating realities. In conclusion, the concepts of Lean and JIT, demonstrate that the practical imagination exercised effectively in manufacturing, can, given the effort and determination, harvest similar magnanimous results for the service industries (Bowen and Youngdahl, 1998). Understandably, there are a number of realistic differences between the service sectors and the manufacturing industry.
However, applying manufacturing logic to the service sector, is, far less of an issue, when the focus is directly aimed at these principles. They are more than just low inventory, but the elimination of waste, streamlining of operations, fast changeovers and adjustments to alterations on demand (Russell and Taylor, 2011). The writer believes that the twin introduction of Lean and JIT should not be seen as a technological panacea, but a thinking solution that can deliver huge returns if implemented in the spirit of ‘relentless improvement’ rather than a ‘quick fix’ for cost reductions.