A Literature Research and Multiple Case Study

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Faculty of Economics and Business

Master of Science Technology Management

September 2009

The Applicability of the NEPA

Assessment Tool in SMEs

A Literature Research and Multiple Case Study

By

Jan M. Sosnowy

Email: JM.Sosnowy@hotmail.com

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Abstract

In order to increase productivity in the north eastern part of the UK, the North Eastern Productivity Alliance (NEPA) started an initiative which allowed companies to adopt successfully lean principles and practices from Nissan Motor Manufacturing UK, one of the most productive companies in Europe. For this purpose the NEPA developed a three stage methodology: a Productivity Needs Analysis (PNA), Manufacturing Needs Analysis (MNA) and Training Needs Analysis (TNA). The aim of this paper is to test the applicability of one part of the NEPA methodology in Dutch SMEs, namely the PNA. The PNA is an assessment tool which relates performance measures and lean tools to a company’s problems and production processes. This is done with a scoring system which is based on QFD. This scoring format allows priorities to be established. The PNA prioritizes processes most suitable for interventions. Furthermore, most important problems, performance measures and lean tools are identified. The main contributions from this paper are summed up as follows: (1) A list of lean implementation problems is obtained from literature and case studies; (2) The extent to which the scope of the PNA covers these problems is investigated; (3) The suitability of the PNA methodology is evaluated, and; (4) Recommendations are provided in order to increase applicability of the PNA. Recommendations are summarized as follows:

The PNA does not address many of the lean implementation problems, because they are of an organizational or cultural nature. Therefore, other methodologies must be developed that cover these problems. The PNA is a suitable tool to address productivity related issues only.

A methodology must be developed that prioritizes cultural and organizational problems. Because the PNA does not address these problems, an assessor must be aware that these issues are not prioritized. Therefore, companies may focus only on the productivity related issues at hand. A company must implement performance measures before the execution of the PNA takes place.

If this is not the case, it is difficult to establish relationships objectively. Furthermore, future research must point out the usefulness of the PNA performance measures for companies that produce a low-volume and high-variety of products.

The assessor must have a high level of knowledge of lean tools and measures. The PNA is the basis of a detailed intervention plan. Therefore, it is important that the correct tools and measures are identified.

Key words: lean manufacturing, productivity needs analysis (PNA), lean implementation problems, literature

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Preface

Six years ago I signed up for the Royal Netherlands Navy as a midshipman. The first three years in service would be spent at the Netherlands Defence Academy (NLDA) in Den Helder. After that, an internship took place of nearly six months on board the frigate HNLS Van Galen. As a watch officer I was in charge of safely navigating the ship. Once completing my internship, I was provided with two and a half years to finish my study. I was able to do this outside the NLDA at the University of Groningen. After obtaining a bachelors degree in Technology Management I enrolled for the master program. This paper is my final assignment before completing this particular study.

The paper you hold is the result of a study performed for the University of Groningen and the

Noordelijke Ontwikkeling Maatschappij (NOM). Both parties participate in the European Regions for

Innovative Productivity (ERIP) project. This project aims to increase the competitiveness of Western manufacturing companies. The project is based on an initiative of the North Eastern Productivity Alliance (NEPA) in the UK. This initiative enabled companies to successfully adopt lean principles and practices and, hence, increase productivity. For this purpose the NEPA designed a three phase methodology. The aim of this paper was to test the applicability of a part of this methodology in Dutch SMEs.

During this research four case studies were performed. I found out that this kind of research was not straightforward at all. Without the help and advice of many people I would not be able to finish this document successfully. Therefore, I would like to thank the following people for their efforts:

Warse Klingenberg, for supervising me throughout the entire project and providing me with valuable feedback;

Jan Riezebos, for being my co-assessor and providing me with useful feedback; The NOM, for arranging the companies which participated during this project;

Aarnoud de Vries, Eric Micklinghoff, John Oost, Mark Peereboom and Hendrikus Boers, for allowing me to perform case studies at their companies;

Colin Herron, for visiting the Netherlands and providing me with an abundance of useful information.

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1. Introduction

After the Second World War it was difficult for Toyota to afford the capital intensive mass production systems used by Ford (Liker, 2004). The Japanese economy was poor and productivity was 9 times lower than in the United States (Hopp and Spearman, 2001). Moreover the Japanese had a disadvantageous position compared to European and American countries because it lacked natural resources (Sugimori et al., 1977). Therefore, prices of natural resources in Japan were higher (Sugimori et al., 1977). For this reason Toyoda, founder of Toyota, demanded rapid performance improvements in his company in order to compete with US car manufacturers (Liker, 2004). Taiichi Ohno was hired to perform the improvement program. Because mass production was impossible, Ohno saw that the only way to improve productivity was to eliminate waste (Liker, 2004). Waste is defined as activities that consume resources, but do not create value for the end user of a product (Sugimori et al., 1977). Toyota used many techniques and tools to eliminate waste, such as Kaizen, cellular manufacturing, synchronous manufacturing, Poka-Yoke, standardized working and work place organization (Herron and Hicks, 2008). The system developed by Ohno is known as the Toyota Production System (TPS) (Spears and Bowen, 1999; Liker, 2004). The results of the program were enormous. Toyota grew from a small unimportant car manufacturer in the fifties to one of the biggest market players in the early nineties. The outcomes included significant reduction of inventory and lead-times, improvement of delivery performance, efficient space and resource utilization, and enhanced productivity and quality (Herron and Hicks, 2008). Later, the TPS became well known in the Western world as lean manufacturing (Womack, Jones and Roos, 1991; Womack and Jones, 1996).

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tacit knowledge. Tacit knowledge is difficult to transfer to others by means of documentation or verbalization. These tools are, therefore, difficult to implement without support (Herron and Braiden, 2006).

Some western companies successfully adopted lean principles and practices. One of these companies is Nissan Motor Manufacturing UK (NMUK) situated in the North East of England. NMUK is known to be one of the most productive plants in Europe (Herron, 2006). Although NMUK was highly productive, the productivity of other manufacturing companies in the region was 25% lower than the national average (Herron and Hicks, 2008). To stimulate improvement the North Eastern Productivity Alliance (NEPA) developed a program in which change agents were used to aid manufacturers in implementing lean tools. These change agents were trained by NMUK engineers. In master classes, NEPA engineers learned to asses companies and to train them in the use of lean tools. By transferring knowledge from NMUK companies were able to adopt lean principles and practices successfully (Herron and Hicks, 2008).

A methodology was developed which NEPA engineers and change agents used in order to analyze manufacturers needs (Herron and Braiden, 2006). The methodology consists of three phases. In the first step a productivity needs analysis (PNA) is performed to provide a company with a manufacturing overview by identifying key performance measures, main areas of focus and key problems. Suitable lean tools are then identified that can aid the company in solving its problems. The PNA is a basis of a detailed study of production efficiency. The second step concerns a manufacturing needs analysis (MNA), which identifies the current degree of adoption of lean tools in a company. The final element, a training needs analysis (TNA), assesses the level of understanding and application of the lean tools by the workforce. The output of the PNA, MNA and TNA is an improvement plan for the first year. This improvement plan is based on the implementation of lean tools identified in the PNA and the gaps found in the MNA and TNA. The three-stage process was designed to match appropriate tools and measures with companies diagnosed manufacturing problems.

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in which various European countries participate. Although the method has proved itself in UK manufacturers, success in SMEs in the Netherlands is not necessarily guaranteed. Therefore, the NOM wishes to test the NEPA tool (PNA, MNA and TNA) in a number of small medium enterprises (SMEs) before the methodologies are adopted. The aim of this research is to test the applicability of a part of this tool in SMEs in the Netherlands, namely the PNA. In this research applicability concerns the scope of the PNA and the suitability of the PNA methodology.

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2. Productivity Needs Analysis

The PNA is based on the Quality Function Deployment approach (QFD) and is shown in figure 1 (Herron and Braiden, 2006). This chapter is based on the article of Herron and Braiden (2006). The letters in the figure are used for explanations which are provided hereafter.

A number of relations are depicted in the matrix. The first relationship between processes and measures allows key performance measures to be established. The second relationship between measures and problems in the process checks what measures are related to a problem. These measures should be checked after interventions took place in order to determine the success of the intervention. The third relationship between problems and improvement tools is considered to be most critical and identifies the tools that can be used to solve problems. The effectiveness of the interventions is determined by this relationship, therefore a strong correlation is required. The fourth relationship between improvement tools and processes shows if tools are applicable and in what processes they can be applied. The assessment tool allows relationships to be quantified. After the matrix is completed and the totals are entered, the main interactions can be identified.

The matrix is completed in a clockwise manner and is started by determining the key processes in the production facility. The key processes are written in part A of the matrix.

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Second, the problems encountered in the manufacturing company are written in part B of the matrix. Problems are identified by interviewing senior managers and analyzing performance measures in the PNA.

Part D of the matrix shows the measures used in the matrix. The measures were developed by the UK Department of Trade and Industry (DTI) in an attempt to establish an industry standard to record actual manufacturing performance. Staff absenteeism was added as a measure for morale. Also, labor, material and overhead content were added to identify potential areas of main focus. All measures are shown in appendix 2. Current conditions (C) for each performance measure are identified in section C. The performance measures are obtained from the management and must be questioned by triangulation to ensure data accuracy.

The lean manufacturing tools in the matrix (part E) are selected from Nissan Sunderland. The tools have proven to be very efficient for Nissan. The selected tools are kaizen (Nicholas, 1995; Brunet et al., 2003), problem solving (Nicholas, 1998; Lillrank, 1995), skill control (Herron, 2006; Amelsvoort and Benders, 1996), standard operations (Nicholas, 1998; Herron 2006), 5S (Imai, 1997), SMED (Shingo, 1985), Value Stream Mapping (VSM) (Hines and Rich, 1997; Rother and Shook, 2003), Failure Mode and Effects Analysis (FMEA) (Chin et al., 2009), work measurement (Taylor, 1911; Suzaki, 1993; Herron, 2006), Productive Lead Maintenance (Nicholas, 1998; Herron, 2006; Herron and Braiden, 2006) and process flow (Nicholas, 1998).The tools used in the matrix are described in appendix 3.

When the current condition (C), main processes (A) and problems (B) are identified scores are assigned to each area of the matrix. Scores are based on the degree of relationship: strong relationship (9 points), medium relationship (3 points) and weak relationship (1 point). The scores are then summed up in specific parts of the matrix which show:

H: The importance of measures for the company.

J: The degree of interaction of processes with measures.

K: The degree of interaction of tools with the current processes.

L: The degree of interaction of processes with tools.

M: The degree of alignment of the process problems with tools.

S: The degree of suitability of lean tools to solve problems.

T: The degree of interaction of the measures with the process problems.

N: The degree of interaction of the process problems with the measures.

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R: The scores in part L and part J are summed up. This will reveal which processes have the highest interaction with both lean tools and measures.

P: Scores in part M and part N are summed up to determine the interaction of process problems to both lean tools and measures.

X: The degree of interaction of the improvement tool to both processes and process problems.

W: The degree of relevance of the measures to both processes and process problems.

Finally, the relationships between processes and problems must be established. This is done with the same numerical approach as described previously. An example of relationships between problems and processes is illustrated in the figure below. This scoring system allows the interventions to be focused in a certain area of the process in need of attention. The scores in area Z and R are then added as is shown in table 1. This table identifies the processes that need interventions the most in order to get the greatest benefits.

Figure 2: Final part of NEPA assessment matrix (adapted from Herron and Braiden (2006): p.148)

Table 1: Outcome NEPA assessment matrix (adapted from Herron and Braiden (2006): p. 148)

Process R Z Total

Warehouse and distribution 82 24 106

Packing 55 36 91

Painting 80 34 114

Water test 93 34 127

Resistance weld 93 51 144

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3. Research design

This chapter begins with the formulation of a problem statement, main research question and sub-questions. After that, a methodology is proposed.

3.1 Problem statement

The introduction mentioned that the NOM wishes to test the NEPA tool (PNA, MNA and TNA) in a number of SMEs before the methodology is adopted in the Netherlands. This is due to the fact that the NOM lacks insight into the applicability of the NEPA tool. Based on this information the following problem statement is formulated:

The lack of insight the NOM has into the applicability of the NEPA tool (PNA, MNA and TNA) in SMEs.

The PNA is used to identify problems and link them with performance measures and lean tools. Most important problems, tools and measures are then identified. The applicability of the PNA depends on the degree to which the scope of the PNA covers problems. If important problems cannot be addressed, the applicability of the PNA is reduced. Furthermore, Herron and Braiden (2006) stated that the PNA is based on another methodology, namely Quality Function Deployment (QFD). The suitability of the PNA and QFD methodologies is evaluated in this paper. Suitability is defined as the degree to which the principles of the PNA and QFD hold. If these principles do not hold, the applicability of the PNA is decreased. With this information available, applicability can be defined as: (1) The extent to which the scope of the PNA covers problems, and; (2) The extent to which the methodology of the PNA is suitable. The scope of the research is limited to the use of the PNA. The applicability of this tool is tested in a number of SMEs. Hence, the main research question is distillated:

Is the Productivity Needs Analyses applicable in SMEs, and if not, what recommendations must be provided in order to increase applicability?

The applicability of the PNA is investigated in this paper. Before the scope of the PNA is examined, however, we must first know what the most important lean production related problems are. Therefore, the first sub-question is formulated as follows:

1. What are the main problems that cause a lean implementation to fail?

Based on the definition of applicability, the second and third sub-questions are formulated:

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3.2 Methodology

3.2.1 Research model

In order to guide the research the following research model was created:

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As can be seen, the applicability of the PNA is determined by: (1) the extent to which the scope of the PNA covers problems, and; (2) the suitability of the PNA methodology. A literature study and case study research are performed in order to answer the main research question and sub-questions.

3.2.2 Literature study

The research model shows that a literature study is performed for two reasons. First, an extensive literature study is performed in order to answer the first sub-question in chapter 4.1. Main implementation problems are identified that impede a successful lean implementation. Various scientific articles and books in the area of lean production are used for this purpose. A second literature research is performed to solve the third sub-question. As was mentioned earlier the PNA is based on the QFD methodology (Herron and Braiden, 2006). A definition of QFD is provided in chapter 5.1. This definition is used later on in chapter 5.2 to determine which principles of QFD are applied in the PNA.

3.2.3 Case study research

The PNA will be tested at four companies by means of multiple case study research (Eisenhardt, 1998; Yin, 1994; Meredith, 1998). Meredith (1998) points out the following advantages of case study research:

(1) The phenomenon can be studied in its natural setting. Through observing actual practices one can gain understanding of the phenomenon. This understanding can be used to generate relevant theory.

(2) With case research much more understanding of the nature and complexity of the phenomenon can be acquired.

(3) Case research can be used for early, exploratory investigations where variables are still unknown and the phenomenon is not yet understood.

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(1) Case research requires direct observations in the actual settings. The drawbacks of direct observations is that much time is required and that access to required data can be difficult. (2) Triangulation is required.

(3) Case research is associated with lack of controls and complications of context and temporal dynamics.

(4) In the field of research there is a lack of familiarity of case research procedures and its rigidity.

In order to address the first issue every company is studied for several weeks. The second issue is addressed by testing the PNA at four companies. The third point is not addressed in this research and remains a disadvantage. To address the fourth issue, all case studies were performed with the same procedures.

The research model shows that case studies are performed for three reasons. First, chapter 4.2 verifies if implementation problems appear in practice. This is depicted by the arrow between chapter 4.1 and 4.2. Other implementation problems, that were not encountered in literature, are added to the list. These problems are taken into consideration because the author wishes to test the extent to which the scope of the PNA covers problems. This also concerns problems that are not identified by literature. All problems from chapter 4.1 and 4.2 are summarized in chapter 4.3. This answers the first sub-question. Second, the PNA is tested in four SMEs in order to determine the extent to which problems are covered by the PNA. The list of problems from chapter 4.3 is compared with the PNA in chapter 4.4. A discussion is provided that determines which problems are addressed by the PNA and which not. Third, the suitability of the PNA methodology is evaluated in chapter 5.2. Both methodologies are compared in order to examine which principles of QFD are applied in the PNA. The PNA is then tested in the selected SMEs with the aim to investigate if these principles hold. This verifies the suitability of the PNA methodology and solves the third sub-question.

3.2.4 Participating companies

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3.2.5 Performing case studies

The same procedure was used at each SME. First, the author attempted to identify as many problems as possible. The list of lean implementation problems, obtained from literature (chapter 4.1), was checked at each SME. In order to identify these problems senior managers and supervisors were interviewed. Moreover, interviewees were asked if there were other problems that hampered the lean implementation. This prevented the author from focusing on the PNA only. Next to identifying lean implementation problems, the author also attempted to identify Quality Cost Delivery (QCD) related issues (i.e. long throughput time, high amount of inventory, poor product quality). This was done by interviewing senior managers and supervisors, walking the shop floor and analyzing performance measures. All encountered problems were discussed with senior managers and supervisors during meetings. This allowed problems to be validated.

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4. Lean implementation problems

This chapter first presents the implementation problems that were found in literature. Implementation problems are pointed out as postulates (Meredith, 1987). In what follows, these problems are reviewed at companies during case studies. The author wishes to determine if the problems from literature occur at Dutch SMEs. As was mentioned earlier, other encountered implementation problems are added to the list as well. Next, an overview of all problems is provided and the first sub-question is answered. Finally, it is investigated which of these problems are addressed by the PNA. This answers the second sub-question.

4.1 Implementation problems from literature

Various articles and books were studied in order to complete a list of important lean implementation problems. Articles were obtained through the electronic databases of ISI Web of Knowledge and Emerald. Search terms such as ‘SME’, ‘lean’, ‘implementation’ and ‘problems’ were used. By checking references in obtained articles and books, various other literature was found. All articles that concerned lean implementation and implementation problems were selected and used for this research. The author used expert based literature (i.e. Fisher, 1997; Nicholas, 1998; Liker, 2004; Emiliani and Stec, 2005) and empirical studies (i.e. Crawford et al., 1988; Groebner en Merz, 1994; Storhagen, 1995; Wafa en Yasin, 1998; Frohlich and Westbrook, 2001; Corsten and Felde, 2005; Worley and Doolen, 2006).

This section first discusses lean implementation problems that might occur at every company. Second, some problems are cited that concern SMEs specifically. Problems with similarities are grouped.

4.1.1 General implementation problems

Postulate 1: Lack of management commitment causes a lean implementation to fail

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and implementing lean practices. Companies with high management support were also more successful after the NEPA interventions (Herron and Hicks, 2008)

Furthermore, undergoing a lean implementation is a long term process (Bhasin and Burcher, 2006; Emiliani and Stec, 2005; Nicholas, 1996). Bhasin and Burcher (2006) stress that it can take about three years to build up competencies in order to apply tools such as setup reduction, standard operations and cell building successfully and five years to really believe in the tools applied. Therefore, it is important to view the implementation of lean principles and practices as a long term process (Liker, 2004). Crawford et al. (1988) argue that managers lose commitment over this time. Moreover, in the short run it might appear only as a cost (Nicholas, 1996). Lean, therefore, appears to be very risky, because much effort must be put into training and developing programs as well as improvement and waste-reduction projects. Many managers do not subscribe to these long term efforts that have to be made. Instead, they prefer large capital expenditures in order to solve their problems. When implementing lean managers must focus on long term results (Emiliani and Stec, 2004; Liker, 2004). While most managers say they care about the future of the company, they still support activities and behavior that do not increase competitiveness over time (Emiliani and Stec, 2004). Managers should focus on the long term without losing sight of important short- and mid-term goals (Emiliani and Stec, 2004).

Furthermore, Emiliani and Stec (2005) argue that:

Leadership behaviors remain deeply rooted in traditional batch and queue thinking. This is in conflict with efforts to implement lean principles and practices. By not changing attitudes managers often exhibit wasteful behaviors. At the same time they are telling their employees that they should eliminate waste. People notice this inconsistency and then question the commitment of their managers. Without this management support employees are unlikely to change themselves.

Most managers say they support lean. In reality, however, they think they should be doing other things or claim that they do not have time to get involved in continious improvement activities either as team leader or team member. This lack of participation implies that lean implementation is the job of lower level employees and not of senior managers. Managers will miss important opportunities that allow them to create deep understanding of lean principles and practices. Employees will again question management commitment.

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lean principles and practices. Lean implementation is most successful in companies with long-term stability in senior management.

Postulate 2: Lean does not increase overall performance when not implemented companywide

Problems will emerge when lean is implemented only in isolated parts of the plant (Crawford, 1988; Emiliani and Stec, 2005; Bhasin and Burcher, 2006). In order to fully benefit from lean principles and practices a company must focus on applying lean in the entire value stream. When lean is randomly implemented in small parts of the company the effect on the overall process performance will be minimal. To become lean one must involve the entire company in the process. Lean does not only apply for production, but also for other departments where waste can be found, such as sales and purchase.

Moreover Emiliani and Stec (2005) stress that managers often forget to link activities with their corporate wide strategy and goals. As a result, lean principles and practices are applied in small parts of the company. This way, improvements made provide local benefits only and no value is added to the company as a whole.

Postulate 3: Companies that fail to configure their supply chain (e.g. suppliers and customers) are unable to apply flow production successfully

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In order for a pull system to function properly variation in inputs, internal processes, and customer demand must be reduced (Nicholas, 1996; Liker, 2004). A smooth production flow is less wasteful, easier to schedule and less costly than unbalanced production. Variation is reduced through preventive maintenance, production leveling, and small-lot and pull production. By improving relationships with customers and improving forecasts demand can be smoothened. In many companies, especially in a custom-produced and job-shop environment, demands, lead times, and production rates are highly variable. It is difficult or nearly impossible for many companies to reduce this variety. Lean principles such as pull production and small-lot production are not easily implemented. Nevertheless, many other lean principles remain applicable for these companies.

Postulate 4a: Companies that view lean as a set of tools or techniques instead of a direction will not produce sustainable benefits

The lean management system must be considered as a direction which a company should take and not as a certain state which must be perceived in a given amount of time (Karlsson and Ahlstrom, 1996). The lean management system must be seen as a philosophy instead of a tool or technique (Bhasin and Burcher, 2006). If the principles of lean are viewed as a tool or technique it insinuates that the system is adopted only with the goal to reach a certain end state. This is in conflict with the principles formulated by Womack and Jones (1996) and Liker (2004), which stress that the process of becoming lean never stops. Results will most likely not be sustainable (Liker, 2004).

Postulate 4b: If only a small selection of tools is implemented, production performance will not increase

Lean does not work when isolated tools are implemented only (Liker, 2004). For example, many companies think lean can be implemented simply by implementing pull production with a kanban system or 5S (Nicholas, 1998; Liker, 2004). While these principles are an important feature of JIT, they are not necessarily required. A company that tries to implement a pull production without considering other equally important tools will almost certainly fail.

Postulate 5: Cultural resistance towards change prevents a company from implementing lean principles and practices

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Overcoming cultural resistance is a major barrier. During the NEPA interventions companies which were willing to change were more successful (Herron and Hicks, 2008).

According to Dahlgaard and Dahlgaard-Park (2006) a lean transformation can only succeed when the right company culture is settled: a culture where people’s basic needs are both understood and respected. Quality must be built into people by balancing the development of people’s core competencies with people’s core values (such as genuine trust and respect). Too often core values are ignored and management only focuses on training people in lean tools and techniques. All employees in a company should be educated in order for them to understand the lean management system at company level, group level and individual level. A company must strive for a culture where all employees work on the elimination of waste and focus on helping each other. Every employee must understand that his or her contribution is essential for the company as a whole.

Storhagen (1995) performed research into the importance of human aspects during lean transformation. In order to find an answer to the question why European companies are less successful with regard to lean implementation than Japanese companies. Storhagen (1995) examined and compared several Swedish companies to Japanese companies. Companies were compared using four different factors namely process factors, interaction factors, structural factors and effect factors. The process factors cover the human element with regard to changes and development in an organization. Examples of process factors are job rotation, responsibility of employees, long term vision of the company and management involvement. Interaction factors refer to supply chain orientation, such as creating cooperation with suppliers and focusing on customer needs. Structural factors are techniques and tools of the lean management system, for example kanban, SMED, small batch sizes and 5S. Effect factors are measures which represent the results of the application of the other three factors. Storhagen (1995) found that Japanese companies are more developed in all four aspects compared with Swedish companies. While Swedish companies showed marginal results with regard to process factors, Japanese companies performed best. Swedish companies score best on structural factors. Thus, Storhagen (1995) concludes that Swedish companies do not put enough emphasis on human resource management (process factors) which leads to an unsuccessful lean transformation. During the transformation Swedish companies focus too much on the application of lean tools and techniques.

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lean management system as an excuse to lay off employees after productivity improvement took place (Emiliani and Stec (2005). Employees will then not be willing to participate in any future improvement activities. This will slow down the pace of improvement and can even cause a backslide to the old way of working. Second, much attention was given to employees by the person that was appointed as lean champion.

Postulate 6: Companies often lack resources required for training and changes to take place

Crawford et al. (1988) stress that lack of resources is a frequent problem during a lean transformation. Especially lack of training or education was specified during their research. Companies were not able to reserve resources needed for training and changes. The problem was that the management of the companies demanded estimates of potential benefits of the lean transformation in order to justify the costs associated with the transformation. Wafa and Yasin (1998) showed that companies which arranged formal training programs for employees had more satisfactory experiences during the transformation. Some companies tried to implement too many changes at one time which caused depletion of resources available.

4.1.2 Implementation problems SMEs

Two articles were found concerning lean implementation in SMEs specifically (Achanga et al., 2006; Kumar et al., 2008). Achanga et al. (2006) provide some indications why implementing lean is difficult especially for SMEs. Due to the small amount of references found, these postulates should be accepted with caution. Further research is required in order to verify them. The following critical success factors were found which are necessary for lean to succeed in SMEs.

Postulate 5b. SMEs are unable to implement lean because it is difficult for them to establish a supportive culture

A factor for successful lean implementation for SMEs is the creation of a supportive organizational culture (Kumar et al., 2008). Establishing such a culture is difficult, even more so for SMEs. Many SMEs reflect in their culture the personality of the owner or managers (Achanga et al., 2006). This might constrain SMEs in terms of their ability to make changes required to become lean. In order to create a supportive organizational culture, owners/ managers must have the ability to operate in a diverse environment, accept changes easily , and focus on long term results (Achanga et

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Postulate 6b: SMEs are unable to implement lean because they lack financial resources

Achanga et al. (2006) stress that SMEs might lack financial resources. Financial capacity is critical for a lean project to succeed as a company must cover important expenses such as consulting and training (i.e. training operators in tools). Many SMEs are afraid of the investments they should make in order to become lean. Some SMEs must even stop their production temporarily in order to provide such training. SMEs might view this as an unnecessary loss of resources, even more because no returns are realized in the short run.

Lack of financial capabilities was also cited by Kumar et al. (2008) as one of the main reasons why SMEs could not implement initiatives such as Total Quality Management, six sigma or lean. Moreover, management does not commit to invest in the required resources for successful implementation.

Postulate 7a: SMEs are unable to implement lean because managers lack leadership and management skills

Achanga et al. (2006) argue that the capabilities of managers is the most important success factor when implementing lean in SMEs. Managers should harbor strong leadership behavior capable of executing excellent project management styles. Strong managers allow a company to establish clear visions and goals while maintaining a flexible organizational structure. Also, strong leadership enhances skill and knowledge of workers more effectively. Without strong management and leadership companies will fail to overcome other critical success factors. Many SMEs are owner managed. These owners might not always have the tactful management know-how needed for a lean implementation to succeed (Achanga et al., 2006). It is possible that SMEs are already hampered strategically before the implementation even begins. Moreover, managers in SMEs too often focus on short term results (Achanga et al., 2006). As was stated earlier, becoming lean is a journey and little benefits are gained in the short run (Nicholas, 1996; Liker, 2004; Emiliani and Stec, 2005; Bhasin and Burcher, 2006). If a lean implementation should succeed, owners/managers must have a clear vision and goals, a good level of education and the willingness to commit to the improvement initiative (Achanga et al., 2006).

Postulate 7b: SMEs are unable to implement lean because employees lack skill and expertise

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needed in order to apply lean techniques and practices (Achanga et al., 2006). SMEs must create expertise by recruiting and enhancing a capable workforce and by providing training for employees. Kumar et al. (2008) add that SMEs often lack knowledge about what lean really is. SMEs view this lack of knowledge as a major barrier for successful lean implementation.

4.1.3 Summary

A total of 11 postulates were cited in the previous section. All postulates are summarized in table 2.

Table 2: Implementation problems from literature

Postulates1

1. Lack of management commitment causes a lean implementation to fail

(Crawford et al., 1988; Ramarapu et al., 1995; Storhagen, 1995; Wafa and Yasin, 1998; Nicholas, 1996; Liker, 2004; Emiliani and Stec, 2005; Bhasin and Burcher, 2006; Worley and Doolen, 2006; Herron and Hicks, 2008)

2. Lean does not increase overall performance when not implemented companywide (Crawford, 1988; Emiliani and Stec, 2005; Bhasin and Burcher, 2006)

3. Companies that fail to configure their supply chain (e.g. suppliers and customers) are unable to apply flow production successfully

(Nicholas, 1996; Wafa and Yasin, 1998; Emiliani and Stec, 2005; Bhasin and Burcher, 2006; Ramarapu et al., 1995; Fisher, 1997; Frolich and Westbrook, 2001; Corsten and Felde, 2005)

4. (a) Companies that view lean as a set of tools or techniques instead of a direction will not produce sustainable benefits

(Karlsson and Ahlstrom, 1996; Liker, 2004; Bhasin and Burcher, 2006)

(b) If only a small selection of tools is implemented, production performance will not increase

(Nicholas, 1998; Liker, 2004)

5. (a) Cultural resistance towards change prevents a company from implementing lean principles and practices

(Crawford et al., 1988 Groebner and Merz, 1994; Storhagen, 1995; Emiliani and Stec, 2005; Herron and Hicks, 2008; Dahlgaard and Dahlgaard-Park, 2006)

(b) SMEs are unable to implement lean because it is difficult for them to establish a supportive culture SMEs

(Achanga et al., 2006; Kumar et al., 2008)

6. (a) Companies often lack resources required for training and changes to take place (Crawford et al., 1988; Wafa and Yasin, 1998)

(b) SMEs are unable to implement lean because they lack financial resources (Achanga et al., 2006; Kumar et al., 2008)

7. (a) SMEs are unable to implement lean because managers lack leadership and management skills

(Achanga et al., 2006)

(b) SMEs are unable to implement lean because employees lack skill and expertise (Achanga et al., 2006; Kumar et al., 2008)

1

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4.2 Lean implementation problems from practice

As was mentioned in the previous chapter the PNA is tested at four companies. During the case studies the author tried to identify as many problems as possible. In order to do so, senior managers and supervisors were interviewed. The author verified whether lean implementation problems occurred at the selected companies. Issues that were found were discussed with senior managers and supervisors in order to validate them. Due to lack of practical experience the author was not able to address all implementation problems. Postulate 4 and 7 were excluded for that reason. In this section postulates are checked sequentially in tables. A ‘minus’ symbol means that the problem did not occur at a company. A ‘plus’ symbol means that it did. Other problems that were encountered at the selected companies are formulated as postulates and added to the list. Finally, an overview of all postulates is provided.

A short introduction of the companies was provided in chapter 2. It was mentioned that the companies differ in size and industry. One of the companies is a manufacturer of printed circuit boards, two produce metal products, and one assembles machines used in potato farming. All companies produce a high variety of products. Hereafter the companies are referred to as firm L, firm G, firm K, and firm N. This paper does not mention which firm operates in which industry.

4.2.1 Theory versus practice

Table 3: Postulate 1

Postulate 1: Lack of management commitment causes a lean implementation to fail Firm L

Firm G Firm N

- The lean implementations at L, G and N were initiated by the company directors. Implementations at L, G and N were managed by lean steering groups. This steering group consisted of managers from every department. Senior managers were found to be supportive with regard to lean production. Managers believed that lean was really necessary in order to remain competitive. Because the directors and senior managers supported lean principles and practices the author concludes that management commitment was high.

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Postulate 2: Lean does not increase overall performance when not implemented companywide

Firm L Firm G Firm N

- L G and N adopted lean principles and practices across the entire company. Departments such as sales, work preparation, R&D and purchasing were all involved in the project. For example, the sales department at G was requested to reduce variety in demand. G’s purchasing department was busy with identifying several key suppliers with high delivery performance. R&D designed products that were easier to manufacture.

Firm K + K lacked companywide implementation. As was mentioned earlier the project was seen to be the responsibility of the production department. Departments such as sales and engineering were not involved in a sufficient manner. Moreover, part of the production process was excluded from the project. The production manager believed that lean was not important for that section. The effects of a companywide implementation on production performance was not measured in the individual companies, thus, making it impossible to conclude whether or not there was a significant difference between them.

Postulate 3: Companies that fail to configure their supply chain (e.g. suppliers and customers) are unable to apply flow production successfully

Firm L Firm N

- No problems were found related to suppliers or customers.

Firm K + K suffered from poor supplier delivery performance. This hampered efforts to become lean. Components arrived either too late, in wrong quantity or in poor quality. These problems disrupted the production flow. Products were put on hold until components arrived, causing WIP to stack up on the shop floor.

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Postulate 5a: Cultural resistance towards change prevents a company from implementing lean principles and practices

Postulate 5b: SMEs are unable to implement lean because it is difficult for them to establish a supportive culture

All firms

+ Cultural resistance towards change was a problem for every company. Companies cited that employees fell back to old practices after changes were implemented on the production floor. Employees did not understand why changes took place and, therefore, preferred the old way of working. Some of the employees were found to be skeptical with regard to lean transformations, stating that ‘lean would never work for their organization’. Due to resistance towards change companies found it difficult to implement new practices.

Postulate 6a: Companies lack resources required for training and changes to take place Postulate 6b: SMEs are unable to implement lean because they lack financial resources

Firm G - Lack of resources was not found to be a problem for G. Sufficient finances were available to allow an implementation to take place. Lack of time and people was not a problem either. G engaged a full time employee who was in charge of implementing various lean tools such as process flow, kanban, standard operating procedures, work measurement and 5S. This person also trained company employees in the use of these tools.

Firm L Firm K Firm N

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Table 8: Other postulates

Postulate 4a: Companies that view lean as a set of tools or techniques instead of a direction will not produce sustainable benefits

Postulate 4b: If a small selection of tools is implemented only, production performance will not increase

Postulate 7a: SMEs are unable to implement lean because managers lack leadership and management skills

Postulate 7b: SMEs are unable to implement lean because employees lack skill and expertise

The author was not able to identify postulate 4a, 4b, 7a and 7b due to lack of time and practical experience. The author was unable to assess management skills and expertise. Postulate 4b could not be verified due to lack of time. The author can confirm that most of the companies applied a small amount of tools only. For example, K created a flow process. Other tools that support a flow process (i.e. 5S, SMED, standardization, problems solving and kaizen) were not implemented. Because of the limited amount of time the author was not able to measure the effects tools had on production performance. Hence, postulate 4b was not be addressed.

4.2.2 Other lean implementation problems

During the case studies three other problems surfaced that hampered a lean transformation. These problems are cited as postulates in this section.

Postulate 8: Unsuitable planning systems prevent a company from implementing a flow production successfully

Firm K Firm N

+ Both K and N mentioned that they had problems with their planning systems. These planning systems prevented K and N in implementing a smooth production flow. The planning system used by K allowed a number of orders to be released on the production floor. It did not take into account that production orders varied significantly in quantity and processing time. This resulted in an unbalanced workload causing high variety of available capacity which disrupted the process flow.

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Firm G

- No problems were identified.

Postulate 9: A high variety in the skills of individual employees prevents a company from standardizing processes and establishing a flow production

Firm L Firm G Firm N

+ L, G and N stated that they found it difficult to set standards for new products. This was caused by high skill variety between employees. Not all employees were able to process every product that was released on the production floor. Furthermore, processing time differed per employee. Therefore, companies were not able to set accurate standards. Often, more capacity was required than calculated beforehand. This caused unbalanced workloads and, hence, prevented companies in implementing a flow production. Moreover, the problem caused unreliable cost price calculations.

Firm K - No problems were identified.

Postulate 10: The absence of performance measures prevents a company from quantifying productivity related problems, setting priorities and measuring improvements

Firm G + No single performance indicator was measured by G. This prevented G from quantifying productivity related problems, setting priorities and measuring improvements. The author was able to identify problems without necessarily using these performance measures. For example, G knew they had quality associated issues. Because they did not measure their performance, G was unable to quantify and determine the severity of the problem. Moreover, they did not know where most of the problems lie. Therefore, it was particularly difficult to establish priorities. G was unable to measure the effect of the productivity improvement activities that were performed recently. Senior managers at G agreed that performance measures had to be established in order to guide the lean implementation.

Firm L Firm K Firm N

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Productivity related problems

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4.3 Overview of problems

Chapter 4.1 presented a list of lean implementation problems found in literature. These problems were checked during four case studies in chapter 4.2. Various other problems were encountered during these case studies. This section answers the first sub-question by providing an overview of the previous two sections. This overview is shown in table 12. A ‘plus’ symbol shows that a problem was signaled at a company. A ‘minus’ symbol shows that this was not the case. The next section checks which of these problems are addressed by the PNA.

Table 12: Overview of lean implementation problems

Postulates Firm L K G N

1. Lack of management commitment causes a lean implementation to fail - + - - 2. Lean does not increase overall performance when not implemented companywide - + - - 3. Companies that fail to configure their supply chain (e.g. suppliers and customers)

are unable to apply flow production successfully

- + + -

4. (a) Companies that view lean as a set of tools or techniques instead of a direction

will not produce sustainable benefits

(b) If only a small selection of tools is implemented, production performance will

not increase

NA2 NA NA NA

5. (a) Cultural resistance towards change prevents a company from implementing

lean principles and practices

(b) SMEs are unable to implement lean because it is difficult for them to establish

a supportive culture SMEs

+ + + +

6. (a) Companies often lack resources required for training and changes to take place (b) SMEs are unable to implement lean because they lack financial resources

+/- +/- - +/-

7. (a) SMEs are unable to implement lean because managers lack leadership and

management skills

(b) SMEs are unable to implement lean because employees lack skill and expertise

NA NA NA NA

8. Unsuitable planning systems prevent a company in implementing a flow

production successfully

- + + -

9. A high variety in the skills of individual employees prevents a company from

standardizing processes and establishing a flow production

+ - + +

10. The absence of performance measures prevents a company from quantifying

productivity related problems, setting priorities and measuring improvements

+/- +/- + +/-

2

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4.4 Degree of coverage of problems by the PNA

The PNA contains a list of lean tools which can be selected by the assessor to solve problems. This list contains kaizen, problem solving (PDCA), skill control, standard operations, 5S, SMED, value stream mapping (VSM), failure mode effect analysis (FMEA), work measurement, productive lead maintenance (PLM) and process flow. The impact of these tools on production performance is measured by the performance indicators applied in the PNA (Herron and Braiden, 2006). These indicators are suitable to measure QCD performance (Industry Forum, 2009). It is recognized that the PNA does not cover every cultural or organizational aspect that influences the competitiveness of a given company (Herron and Braiden, 2006). Lean tools are indeed essential to create a flow, however, they are not key elements of the Toyota Production System (TPS) (Liker, 2004). Rather, the key of the TPS is to create management commitment to continuously invest in people and promote a culture of continuous improvement. Lean tools only cover the ‘process’ level in Liker’s 4P model (Liker, 2004). This model (figure 4) shows the principles and levels that together make the TPS work. These principles are described briefly in appendix 4. The other three levels that address organizational and cultural issues are not covered by the tools. Without adopting the other 3Ps improvements will most likely not be sustainable throughout the company (Liker, 2004). Many companies are unable to adopt the other 3Ps, therefore, they do not succeed in implementing lean manufacturing (Liker, 2004). Dahlgaard et al. (2006) and Storhagen (1995) confirm that most companies focus too much on applying lean tools, but forget to create the right company culture which is necessary for a successful implementation.

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It appears that lean tools are not the most important aspect of lean manufacturing. In order for these tools to work management commitment must be created and a supportive culture must be promoted. Lean tools do not address such cultural and organizational issues. This means that most of the implementation problems found in the previous sections cannot be addressed by the PNA, since they are of an organizational or cultural nature. Moreover, the PNA performance measures are suitable to identify QCD related problems. Therefore, cultural or organizational issues cannot be identified. Table 13 provides explanations why problems were, or were not addressed by the PNA during the case studies.

Table 13: Degree of coverage of problems

Addressed by PNA

1. Lack of management commitment causes a lean implementation to fail This issue is of an organizational and cultural nature. None of the PNA measures can be used to identify the problem and none of the tools can be implemented to solve it.

2. Lean does not increase overall performance when not implemented companywide / This problem is partly addressed. If all production processes are entered in the PNA, the entire production process is taken under consideration. However, other processes in departments such as sales, purchasing and work preparation are not covered by the PNA.

3. Companies that fail to configure their supply chain (e.g. suppliers and customers) are unable to apply flow production successfully

This problem is not addressed. There are no measures or tools available in the PNA that apply for suppliers or customers. Only internal production processes are taken under consideration.

4(a). Companies that view lean as a set of tools or techniques instead of a direction will not produce sustainable benefits

This issue is not addressed by the PNA. The PNA does not provide indications how senior managers view lean principles and practices.

4(b). If only a small selection of tools is implemented, production performance will not increase This problem is addressed. The PNA is used to link suitable tools to problems and processes. If done correctly, the right configuration of tools can be applied.

5(a). Cultural resistance towards change prevents a company from implementing lean principles and practices

5(b). SMEs are unable to implement lean because it is difficult for them to establish a supportive culture SMEs

As the problem descriptions already mention, these issues are of a cultural nature. They are, therefore, not addressed by the PNA.

6(a). Companies often lack resources required for training and changes to take place 6(b). SMEs are unable to implement lean because they lack financial resources

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Lack of resources are organizational problems, therefore, they are not addressed by the PNA.

7(a). SMEs are unable to implement lean because managers lack leadership and management skills

7(b). SMEs are unable to implement lean because employees lack skill and expertise

The PNA does not provide indications with regard to employee skills. The TNA could be a suitable tool for this purpose, because it measures employees level of understanding of lean tools (Herron and Braiden, 2006). The assessor can use this information to identify which skills and expertise must be enhanced. Further research is necessary to conclude this.

8. Unsuitable planning systems prevent a company in implementing a flow production successfully

The influence of systems such as MRP and their effectiveness and efficiency are not included in the PNA (Herron and Braiden, 2006: p.146).

9. A high variety in the skills of individual employees prevents a company from standardizing processes and establishing a flow production

This problem is addressed by the PNA. The tool ‘skill control’ is a methodology used to ensure that members of a designated work group are able to perform tasks consistently to required levels of QCD (Herron and Braiden, 2006). By applying this tool successfully, skill variety may be reduced.

10. The absence of performance measures prevents a company from quantifying productivity related problems, setting priorities and measuring improvements

This problem is addressed by the PNA. The PNA links production processes to performance measures. This aids a company in selecting the most important performance measures.

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5. Suitability of the PNA methodology

Herron (2006) stated that a quantifiable methodology was needed in order to diagnose companies and plan improvement interventions. In order to fulfill this need a variety of literature on models of organizational performance were reviewed. Out of this review QFD was selected as a base to develop a new matrix. The intention was to modify QFD to a new situation. By creating a similar scoring system priorities for activities could be identified (Herron, 2006). The author wishes to examine the suitability of this methodology. Therefore, a definition of QFD is provided in chapter 5.1 first. By comparing both methodologies the author can verify which principles of QFD are applied in the PNA. The PNA is then tested at our four companies in order to examine to what extent these principles are true. This determines the suitability of the PNA methodology and solves the third sub-question. The comparison and case study are described in chapter 5.2.

5.1 Definition of QFD

There have been many attempts to define QFD (Zairi and Youssef, 1995). Whatever definition is used, QFD ensures that customer requirements are integrated into new products as early as possible in the design stage. In order to achieve this, customers must be involved in the design of a new product. QFD is responsible for: (1) identifying customer needs, (2) defining priorities, (3) translating these priorities into project specifications and (4) defining the values of specifications to address client needs (Carnevalli et al., 2008). The core principle of this concept is a systematic transformation of customer requirements and expectations into measurable product and process parameters (Herrmann et al., 2006). The QFD matrix is shown in the illustration on the next page. All elements of the matrix are discussed briefly (Nicholas, 1995):

• Customer requirements: These are the ‘whats’ the customer wants from a product. It contains wishes, expectations and requirements of the product. Customer requirements most likely do not make sense to designers of a product. For example, an unclear customer requirement might be that the product is easy to use.

• Importance to customers: When customer requirements are identified, customers must assign numerical ratings to these requirements in terms of importance to the customer. The scale often ranges from 1 to 5, in which number 1 represents the least important and number 5 most important.

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number 1 represents least satisfied and number 5 most satisfied. This comparison might help a company to position their product in the market.

Figure 5: Main elements of QFD (Adapted from Nicholas, 1995: p.431)

• Technical requirements: These are the technical requirements that specify ‘how’ a customer requirement is answered. Technical requirements can be quantified or measured and are used by engineers for design.

• Relationship matrix: In the centre of QFD relationships are established between ‘whats’ and ‘hows’. Mostly, a weigh of 1-3-9 is used, with 1 being a weak relationship and 9 a strong relationship. A relationship exists when a ‘how’ satisfies a ‘what’. All row numbers are summed up for each column. The results are used to guide a company in identifying critical product requirements and help them in the tradeoffs decision making process.

• Correlation matrix: The correlation matrix is the roof of QFD and is used to identify which ‘hows’ support each other and which are in conflict. Positive and negative ratings are assigned often using -2, -1, 1 and 2 ratings. Positive relationships are closely related while negative relationships probably require tradeoffs.

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• Technical evaluation: Target values are compared with values used by competitors in order to determine if the specified values are better or worse than competitors. Again ratings from 1 to 5 are used.

5.2 Suitability of the PNA methodology

5.2.1 Similarities and differences between QFD and PNA

Both methodologies are compared in order to find out which principles of QFD are adopted by the PNA. The PNA is shown again in figure 6.

When comparing both methodologies the following differences can be found:

Customer requirements and technical requirements are replaced by processes, measures, problems and tools in the PNA;

No scale of importance is determined by the PNA;

No competitive evaluation and technical evaluation is performed by the PNA. Rather, the PNA evaluates production performance;

The PNA does not contain a correlation matrix; No target values are specified by the PNA.

It seems that the only thing both methodologies have in common are their relationships matrix and their scoring system. The principle of the relationships matrix of QFD is that priorities can be assigned

C A D B E H J R N P T _W S X M L K

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because relationships exist between customer requirements and technical requirements (Zairi and Youssef, 1995; Nicholas, 1998; Carnevalli et al., 2008). This principle can be translated for the relationships matrix of the PNA as well: “The principle of the relationships matrix of the PNA is that priorities can be assigned because relationships exist between processes, measures, problems and tools”. It is important to know if it is possible that the PNA identifies every relationship between processes, measures, problems and tools indeed. Moreover, it is important to know if relationships can be established objectively. If this is not the case, an assessor will not be able to assign reliable priorities, hence, the applicability of the PNA is reduced.

5.2.2 Identifying relationships

The PNA was tested at the selected companies in order to address the issues above. To complete the PNA senior managers and supervisors were interviewed and plant tours were organized. By interviewing senior managers and chiefs, analyzing performance measures and observing the shop floor, the author attempted to identify problems. These problems were validated during group discussions with senior managers and supervisors. Relationships were established by the author and discussed together with senior managers. The overall outcome of the PNA for each company can be found at appendix 5. Key findings of the case studies are:

1. Relationship between processes & measures and problems & measures are difficult to establish due to the absence of performance measures at companies.

A Literature Research and Multiple Case Study

Faculty of Economics and Business

September 2009

The Applicability of the NEPA

Assessment Tool in SMEs

A Literature Research and Multiple Case Study

By

Jan M. Sosnowy

Abstract

Preface

Table of contents

1. Introduction

2. Productivity Needs Analysis

3. Research design

3.1 Problem statement

3.2 Methodology

4. Lean implementation problems

4.1 Implementation problems from literature

4.2 Lean implementation problems from practice

4.3 Overview of problems

4.4 Degree of coverage of problems by the PNA

5. Suitability of the PNA methodology

5.1 Definition of QFD

5.2 Suitability of the PNA methodology