A PATH DEPENDENT PERSPECTIVE OF THE TRANSFORMATION TO LEAN PRODUCTION ABSTRACT INTRODUCTION

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1 A PATH DEPENDENT PERSPECTIVE OF THE TRANSFORMATION TO LEAN PRODUCTION Patricia Deflorin The Ohio State University, Fisher College of Business, 600 Fisher Hall, Columbus, OH 43221, United States Tel.: , Fax: , Maike Scherrer-Rathje University of St. Gallen, Institute of Technology Management, Dufourstrasse 40a, 9000 St. Gallen, Switzerland, Tel.: , Fax: , ABSTRACT The transformation into a lean production company has mostly been approached from a mass producer perspective. However, mass production is not the only precondition a company can have. Many European companies concentrate on craft production to produce customer specific requirements in small quantities. If they decide to implement lean, the different precondition has to be taken into consideration. To understand the precondition of a craft producer, we studied the transformation process from craft to lean of a machine producer in Switzerland. We show that path dependency has to be taken into consideration when discussing the implementation of lean production. Keywords: Craft production; Mass production; Lean production; Case Study INTRODUCTION What began in the automotive industry in Japan some decades ago has been adapted by many different industries all over the world. Lean, in other words manufacturing without waste, has become a highly recognized possibility to increase productivity and to eliminate abashments within the boundaries of the company and in the whole supply chain. One of the most cited research initiatives about lean production was conducted by Womack et al. [1]. Their concluding book is based on the results of the international motor vehicle program (IMVP) study of management practices in the world motor industry [1]. Consequently, most of the subsequent research projects have as well put their focus on the mass producing automotive industries. Nevertheless, the lean production philosophy is nowadays widely applied all over the world and in different industries. The purpose of this paper is to analyze the factors which have to be addressed differently while implementing lean either from a craft related or a mass production precondition. To do so, we accompany a craft producer transforming into a lean producer and compare the implementation of lean of this craft producer with companies having a mass production background displayed in the books of Womack et al. [1, 2]. We will show that a mass producer has to face different challenges while implementing lean than a craft related company. We claim that future research about lean implementation should specifically consider the preconditions of a company while analyzing lean. To fulfill the research goal, we structure this paper as follows: After a detailed introduction of the characteristics of craft, mass and lean producers we introduce a single case study of a major food machine and equipment manufacturer in Switzerland undertaking the step from craft to lean. We discuss the findings and reflect them on the reported results of Womack et al. [1]. We close the paper by concluding the findings and showing limitations of the study. 2031

2 CHARACTISTICS OF CRAFT, MASS AND LEAN A successful way to reach an understanding of lean production is to compare it to its ancestors: craft production, seen as the production system of the late nineteenth century, and mass production, seen as the production system of the twentieth century. Table 1 summarizes the characteristics of a craft, mass and lean producer. People Table 1: Characteristics of a craft, mass, and lean production Craft Mass Lean highly skilled workers unskilled or semiskilled workers teams of multiskilled workers high percentage of tacit knowledge narrowly skilled professionals to design products cross trained so that they can fill in for each other technical expertise career path engineers with specific specialties, career enhancement is displaying genius in a single area of product, process, or industrial engineering Career path were restructured for engineers so that rewards go to strong team players Machines simple but flexible tools expensive, single purpose machines highly flexible and increasingly automated machines Goal one item at a time high volume large volumes customization standardized products high variety So far, researchers have often neglected the relationship between the actual situation of a company (being a craft vs. a mass producer) and the aimed goal to become a lean producer. With this study, we overcome the existing lack in research by comparing a craft and a mass production starting point and deriving propositions showing which factors have to be taken into account while studying the transformation of lean of a craft related company and a mass producer. We therefore compare the obstacles of the transformation from mass to lean, with an in-depth single case study which shows the implementation of lean from a craft related production precondition. Table 1 provides evidence for the assumption that changing from craft to lean necessitates different steps than changing from mass to lean. Comparing the identified challenges a craft and a mass producer have to face shows the impact of the path dependency and the importance to consider this path dependency while studying the transformation to lean. METHODOLOGY The sample of interest for this study were manufacturing companies still working as a craft producer today which were willing to allow two researchers to participate in their transformation process towards lean. A leading European manufacturer of food processing plants and equipment agreed to this setting. To not disturb the change process but to gather as much insight as possible, a field based interview technique was chosen. The analyzed company hereafter referred to as Machinery Inc. has generated annual sales of over 1 billion (i.e., US $ 1.58 billion). Worldwide, the company employs approximately 6200 people, of which 3000 are located at its head office in Switzerland. Machinery Inc. is organized into three divisions, specifically die-casting, grain processing, and engineered products. DISCUSSION OF THE PATH DEPENDENT DIFFERENCES In this paper, we introduce a first attempt of summarizing what kind of different challenges companies with a different starting position have to face to transform towards a lean producer. To do so, the following section compares the challenges of the transformation to lean of a mass producer and those of a 2032

3 craft related producer. The differences are highlighted according to Liker s [3] 4p pyramid (philosophy, processes, people and problem solving). The comparison of the case studies covering the transformation from a mass production philosophy to a lean one in contrast to the one starting from a craft related production reveals some differences. Liker [3] highlights the main goal of a lean company as to satisfy its customers and give confidence to its employees that the relationships are set-up to be long lasting. This will motivate the customers to stay loyal and the employees to maximize their efforts for the company. An employee working for a lean producer is characterized through self-reliance, trust in the own capabilities, acceptance of responsibility, as well as maintaining and improving the own skills. In comparison a mass producer does not concentrate on long-term relationships with its workforce. The employees working at the shop floor are mainly interchangeable. If an employee quits his job, the company can even take an unskilled person and train the respective production step directly at work. Machinery Inc., being a craft producer shows a different situation. Machinery Inc. has a high degree of skilled workers on the shop floor level. Most of the employees have learned their skills through an apprenticeship and have refined the skills over the time. To not loose the valuable employees who learned their tasks over years, Machinery Inc. tries to establish long-term relationships with its employees. It seams to work, because some employees we interviewed have been working at Machinery Inc. for over 30 years. Next to this, a very important task for employees at a lean producer is to accept responsibilities. The problem solving activities are pushed as far down the hierarchical level as possible. This means that the shop floor employees not only have to work reliable but also have to always think how the processes can be improved and how mistakes and waste can be eliminated. Looking again at a mass producer, the employees working on the shop floor do not have any responsibilities at all. The only thing that is expected from them is to fulfill their working tasks. If mistakes occur, the production flow will not be stopped because at the end of the production line all the parts with quality problems will be re-worked. Looking at Machinery Inc., we see a different picture. Employees are supposed to accept responsibility for their part of work. Nevertheless, if mistakes occur, the employees of Machinery Inc. often try to blame employees from other departments most commonly engineering or sales. Machinery Inc. s employees have to learn to accept the responsibility and to improve the processes as far as possible instead of blaming other departments. Summarizing, a mass producer implementing lean has to train its employees to accept responsibility. In contrast, the employees of the craft related production do not need additional skills; it is much more a change of culture. P1: The transformation to lean starting as a craft related producer needs a change in culture (accepting responsibility) whereas the mass producer has to improve the skills of the employees (ability to be responsible). The second p of Liker's pyramid, processes, shows one main difference which we name standardization. Liker and Meier [4, p. 111] state that: "The establishment of standardized processes and procedures is the greatest key to creating consistent performance." The creation of standardized processes is based on visualization as well as on the definition of the methods that will ensure the best possible results [4]. The main goal of a mass producer is to have as many interchangeable parts as possible. The standardization of the parts is central to the success of a mass producer [1]. During the transformation to a lean producer, the standardized products ease the change because there is at least some transparency at hand. As the case of Machinery Inc. shows, the workers had a high degree of freedom in finishing their work and process improvements were done ad-hoc during craft production. Occurring problems were solved but due to the lack of standardization could not be adopted from similar processes. Until the definition of standards is done, it is not possible to truly make improvements [4]. Based on the historical background as a craft related producer, Machinery Inc. was facing a great need for standardization. The lack of standardized bills of material is only one example the company faced during their struggle to introduce standardized processes. It is not our intention to say that concerning the standardization of processes a mass producer 2033

4 does not face any difficulties but the challenges of a craft related producer are unlike higher and need to be approached differently. P2: Unlike the transformation of a mass producer, the implementation of lean starting as a craft producer needs a thorough effort concerning the standardization. The instance of the petting zoo shows another example of process differences between craft and mass production. If problems occurred at Machinery Inc. the respective machine was taken out of the production process to not disturb the process flow. The machine was banked in a so called petting zoo where all machines with unsolved problems were stored. There, the problems were to be solved and afterwards the machine was put back in the production process. As described by Womack et al. [1] the highest goal of a mass producer is not to disturb the production flow. If a quality problem occurs and even if it is visible for all employees at the production line, the part with quality problems will not be taken out of the production flow. The defective part will stay in the production flow until the sub-process is finished. Then, the part is taken out of the production flow and brought to a re-work area where all parts with quality problems are re-worked. The highest goal of a mass producer is not to disturb the production process at all, even if it means to leave parts with bad quality in the process. The example of the petting zoo at Machinery Inc. as well as the re-work area of the mass producer highlight potential for waste elimination. It shows that a mass and a craft producer have different mindsets concerning the production process. Whereas the ultimate ambition of a mass producer is the process stability no matter if defective parts are in the process flow or not, a craft producer takes out parts with quality issues as soon as they are noticed. While implementing lean, the workforce of a mass producer needs to learn that no mistakes can be accepted whereas a craft producer needs to learn that occurring problems need to be solved immediately instead of banking them until someone finds time to handle them. P3: The implementation of lean from a craft related starting point needs the acceptance of the employees that problems have to be solved immediately whereas the mass producer has to learn that no mistakes can be accepted. The third level of Liker's pyramid, the people-perspective, shows again some interesting differences between a mass producer and a craft related company conducting a lean implementation project. Mass producers have a workforce at the factory level only knowing one single production step. They are not expected to understand what the step prior or after the own step is but only conduct the own production step in a repetitive way. In comparison, a craft producer has a workforce of highly skilled employees at the factory level. The employees have learned their skills in an apprenticeship and have refined them over the time. To change from these different starting positions into a lean producer has different challenges. Employees having worked in a mass production company are up against the requirement to suddenly know more than one production step and to accept responsibilities. Craft producer employees face the demand to work in a more repetitive way than they have done before. As the case study of Machinery Inc. shows, craftsmen are reluctant to follow highly standardized procedures. P4: The transformation to lean starting as a craft related producer needs the acceptance of the employees to follow more repetitive and highly standardized procedures whereas the transformation from a mass producer needs the accumulation of additional skills of the employees which enables them to be responsible for their processes. Another difference between a mass and a craft producer presetting concerns the shop floor people involvement. Shop floor people involvement of a mass producer company does not exist at all. The superior goal of the mass producer is to have stable processes and as activities to eliminate the sources of mistakes endanger the stability of the process flow, no active actions to solve problems are undertaken. If a problem occurs at Machinery Inc., the highly skilled employees try to solve it ad-hoc, often without 2034

5 trying to find the source of the problem. The ad-hoc problem solving is often conducted within the boundaries of one department. Nevertheless to prevent repetitive failures, the people involvement should over span multiple departments. P5: The transformation to lean starting as a craft related producer needs not only people involvement from employees within a single department but employees involvement including multiple departments whereas the change from mass to lean needs the implementation of the people involvement from scratch. The last p of Liker's pyramid, problem solving, reveals more differences. Whereas in a mass production environment problem solving skills are not needed at factory level, the case study of the craft related company highlights two differences. First, as already mentioned above, the employees of Machinery Inc. have problem solving skills. In contrast to a lean production company, these skills are not used systematically and are mainly focused on technical problems and far less on process improvement. Furthermore, due to the low process standardization, the problem solving solution from one process often can not be adapted to another one. Second, the continuous improvement program in place has often been misused to blame mistakes of another employee. During the transformation to a lean producer the craft related company therefore not only has to install a continuous improvement program emblemizing the lean philosophy but also to retrain the employees to the new continuous improvement process. P6: The transformation to a lean producer from a craft related starting point needs a cultural change concerning the problem solving process (no blaming) whereas the mass producer has to implement it from scratch. Creating a culture to stop the production flow to fix the problem at the source is one main goal in lean production [1]. The focus of mass manufacturing is on high volume output. The primary focus is often short term: reaching the production target every day at any cost. Quality errors are not solved immediately due to the loss of volume but are solved at the end of the line, in the re-work area. Liker and Meier [4, p. 172] summarize this with the following statement: "Don't worry, someone down the line will take care of that. You just worry about your job." In a craft-related environment the goal is to reach a high quality. If problems occur, the employees help each other to solve them. It is far more important to have a high quality than a high performance. As in the examples stated above, the change from mass to lean is different than from craft to lean. P7: The transformation to a lean producer from a craft related starting point needs the implementation of a more standardized problem solving procedure whereas the mass producer has to implement it from scratch. CONCLUSION The literature on the implementation of lean production is often implicitly or explicitly focused on the transformation from a mass producer to lean. This is based on the fact that lean production has its origin in the automotive industry where mass production was common. Nevertheless, the survey sample of Shah and Ward [5] shows that the companies implementing lean production today stem from various industries. In this research project, we followed the question if companies from a craft related production setup and mass producers face similar challenges during the transformation to lean or not. Based on the case study, we summarized that there are various differences which have to be considered if research of the transformation to a lean producer is conducted. We compared the challenges mass producers and craft producers are facing based on the 4p pyramid of Liker [3]. A mass producer implementing a long-term philosophy is facing a major cultural change. In contrast, the relationship to the customers, suppliers and employees of a craft producer are more or less long-term oriented and the needed change is not as striking 2035

6 as the one the mass producer is facing. One of the main challenges of a craft producer implementing lean is the standardization of processes. The ad-hoc problem solving nature of a craft producer and the high percentage of tacit knowledge used to accomplish a task has lead to intransparency. The examples of mass producers show that standardization and transparency is central and the change to a lean producer is easier achieved. Another major difference can be found in the people perspective. Although the craftsmen are used to get involved in problem solving, the focus was on solving technical problems and not on process improvement. Furthermore, the craftsmen are quite reluctant to follow standardized processes. One of the major challenges during the transformation was to convince them that their skills were still needed in the new way of production for process improvements and that standardization is needed to be able to secure the quality and performance level on a continuous basis. The mass producer instead is not used to integrate the shop floor employees at all which shows that training of the employees and a cultural change is needed. The last dimension of the pyramid, problem solving, reveals some differences as well. The craft producer studied did follow a continuous improvement program but not with the needed consequence. The implementation of the problem solving philosophy of a lean producer had therefore to overcome the negative effects of the former program. In comparison, mass producers have to implement the philosophy at all. The comparison of the transformation to lean from a craft or a mass production precondition reveals that the specific asset position of a company influences the activities needed to become a lean producer. We therefore strongly suggest that path dependency and with this the evolutionary theory has to be applied while studying the implementation of the lean philosophy. Future research should take these differences into consideration to avoid generalizations which are only suitable for one of the historical backgrounds of production. As a starting point for further research, we derived seven propositions based on the comparison of the in-depth case study of a Western European manufacturer with the works of Womack et al. [1, 2]. By testing these propositions in various industries and geographical regions, the lack that our single case study does not generate generalizable results can be overcome. This would help to understand the success factors of a transformation to lean without neglecting the historical background of the company. Many companies are only at the starting point of the transformation to be a true lean production company and studies with above mentioned contents would therefore further help to understand this transformation process. REFERENCES [1] Womack JP, Jones DT, Roos D. The Machine that changed the World New York: Rawson Associates, [2] Womack JP, Jones DT. Lean thinking : banish waste and create wealth in your corporation. 2nd ed. New York: Free Press, [3] Liker JK. The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer New York: McGraw-Hill, [4] Liker JK, Meier D. The Toyota Way Fieldbook: A practical guide for implementing Toyota's 4Ps New York: McGraw Hill, [5] Shah R, Ward PT. Defining and developing measures of lean production. Journal of Operations Management, 2007, 25(4),