The relationship between production, organization, supplier and market characteristics manufacturers and the usage, importance and performance of Lean production in manufacturing

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The relationship between production, organization, supplier and

market characteristics manufacturers and the usage, importance

and performance of Lean production in manufacturing

Rijksuniversiteit Groningen Faculty of Economics and Business

Master Technology Management Author: Torben Pijpers

September 2009

Official 1st supervisor: prof. dr. ir. J Slomp Official 2nd supervisor: dr. in. I. ten Have

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Summary

This thesis researches the relationships between production, organization, supplier and market characteristics and the usage, importance and performance of Lean for manufacturing organizations. It is first proposed that certain production, organizations, supplier and market characteristics have an influence on organizations using Lean or considering Lean important. Also, it is considered if organization characteristics act as a moderator on certain productions characteristics and their relationship to performance. The relationship between the usage of Lean and performance has been investigated as well.

All data has been gathered by researchers of the LORC of the Rijkuniversiteit Groningen, which is based on a survey which was developed by Shah and Ward (2007). The data that was retrieved from this has been tested for being of sufficient quality by the author by performing part of a factor analysis and a reliability analysis. These proved sufficient and thus the different relationships as described above were tested. The population that was available was n = 41.

The results show that 2 production characteristics, the number of production employees and the number of products over time have a positive effect on how important organizations consider Lean to be. However, none of the characteristics turn out to have a significant relationship with the actual usage of Lean.

Furthermore, the usage of Lean does result in a positive effect on the organizations meeting some of their performance goals. As for specific factors of Lean, it appears that HRM has a mediated effect on the performance of an organization through the aspect of Lean JIT, as has been found by Dal Pont, Furlan and Vinelli (2008).

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Preface

Having read many theses, I always liked to read the prefaces. As well as providing an insight into the author, I was always surprised by how well worded they often were. At those times, I never realized that the preface is written lastly and, since the content is of lesser importance to the content of the actual research, is crammed in close before the deadline. That is certainly the case here, with the deadline being one hour from writing this preface. To be fair, it has not been uncommon for me to write until the latest moment, so I guess I‟m finishing in style.

This project could have never gotten this far without the guidance of my 3 supervisors (yes, 3!) prof. dr. ir. J. Slomp, dr. ir. I. ten Have and dr. J.A.C. Bokhorst. The guidance I‟ve received for this project has been very extensive for which I‟m most thankful. Next to guidance during the last 6 months I would like to express my gratitude to Mr. Bokhorst particularly for the help on ANOVA analysis, the often slightly more critical remarks and putting in much of his own time. My gratitude goes as well to Mrs. ten Have for explaining the survey to me, helping me on my way with many excellent articles and also going way over the attributed time. Last but certainly not least, my gratitude goes to Mr. Slomp for having been very supportive and enthusiastic during the whole project, your excitement about the topic has in turn made me excited about it as well.

The help of two of my close friends can‟t be neglected either. Karel van der Lingen and Carsten Treur, thank you both for reading many of my writings. You‟ve both given me valuable feedback on steps to take, adjustments to make and also corrected heaps of spelling mistakes.

Last on my list of thanks is of course my dad, without your emotional (and financial) support I would not have gotten this far through my thesis, or my study.

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perform a properly set up research as well as how to perform many, many, many statistical tests. When this thesis is finished, I will certainly remove Field‟s book on statistics from below my pillow. Also, I‟ve learned that I actually enjoy writing (who knew!).

Looking forward, you could say that I‟m really looking forward to the next five months, since I‟m going to be travelling from Los Angeles to Buenos Aires by motorcycle. I hope I‟ll learn a lot again, even though it will be of a completely different nature.

Enjoy reading,

Torben Pijpers

torbenpijpers@gmail.com

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1. Introduction

1.1 Introduction to the problem area

Toward the end of the 1970‟s, Japanese companies “began to assault world markets with increasing ferocity” in several industries (Hayes and Pisano, 1996). At first their success was accredited to lower wages and government assistance or protection. But as westerners studied their management practices, it became apparent that their success relied primarily on an outstanding manufacturing system and that these Japanese companies were able to produce high quality products at low costs (Voss, 2006). This manufacturing system was developed at Toyota and was called the Toyota Production System (TPS) which has led to one of the greatest corporate success stories in history (Holweg, 2007). Based on TPS the manufacturing system “Lean manufacturing” or “Lean production” (or sometimes just “Lean”) originated which was first described by Womack et al. (1990) in their book “The Machine that Changed the World”. Lean manufacturing went on to become a production system that is linked with superior performance and the ability to provide competitive advantage (Shah and Ward, 2007) and has seen increasing use over the years (Wood et al., 2004).

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Even though the usage of several aspects of Lean has been linked to an increased performance of the company, it is not entirely clear how different production characteristics influence the usage and performance of Lean. For instance, the number of employees working in the production department could be related to varying usage or importance of Lean. Also, other production characteristics could influence the usage or importance of certain aspects of Lean. For instance, one-of-a-kind production may imply a need for different aspects of Lean than continuous flow and maybe some aspects are not important at all. Production characteristics as discussed here, can be seen here as characteristics that are distinguishable for that company‟s production department. These include characteristics that are directly inside the production area, for instance the number of product families that are present in the production department or the number of total products that are produced over a certain time.

Though production characteristics are expected to influence the usage and the importance of (aspects of) Lean, not all differences between the usage and importance of (aspects of) Lean in different organization can be totally explained by just characteristics of the production department. This means that other characteristics also influence the usage and importance of (aspects of) Lean in organizations. Characteristics that are outside of the production department can also have this influence. Examples of these are if the company is part of a multinational or if it is a Small and Medium Enterprise (SME) or if other organizations in the value chain of the organization are also using Lean.

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1.2 Background of this research

In order to provide insight into how much Lean is currently used and how important it is seen among companies in the north of the Netherlands, the NOM asked researchers of the Rijksuniversiteit Groningen to research this topic. The researchers took on this task and have held a survey among around 275 organizations. So far 43 have been returned. The survey contained both questions to determine how much Lean is currently used and how important it is seen (to answer to the question of the NOM) as well as questions about the different characteristics of the organizations. This could provide insight into the relationship of production characteristics and these “other” characteristics of organizations and the usage, importance and performance of Lean production. The “other” characteristics were described as “context characteristics” because they provide the context of the production department. Many of the questions were based on the article of Shah and Ward (2007) in which they developed a way of measuring the extent to which Lean production is used in an organization.

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Usage of Lean Production Characteristics Importance of Lean Performance of the Organization Influences Influences Moderates Influences Gap Influences Influences Context Characteristics

Figure 1: Initial model showing the relationships among the initial elements of the study

1.3 Conceptual model of this research

This model depicted in Figure 1 represents the views of the researchers of the Lean Operations Research Centre (LORC) on how production and context characteristics influence the usage and importance of Lean and that the usage of Lean influences the performance of the company. This model is also used as a starting point for this thesis, but has to be looked at closer to verify if it is suitable to be the conceptual model of this research. Therefore a brief literature research will be given below on which the conceptual research of this study will be formed. Production characteristics and context characteristics will be discussed and it will be explained why context characteristics will be split into smaller but more distinguishable concept for this study.

1.3.1 Production characteristics

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number of possible classifications exceeds 20 and notes the following as most important: job-to-continuous, make to stock vs. make/assemble to order, complexity and uncertainty and product sector (for instance pharmaceuticals). There are several other classification systems for the production of an organization to be found as well (see Hill, 1991; Lind, 2001; White and Prybutok, 2001). However, none of these classification systems can be readily used in this research. Since all of the classification systems include characteristics that are heavily affected by the implementation of Lean, it is not useful to research if those characteristics influence the usage of Lean. Therefore a new classification for production characteristics must be created in this study. This will be done at a later point. For now it is sufficient to note that production characteristics are a notion of which the aspects are identifiable. To be able to do this later, a definition for production characteristics will be given here. Production characteristics in this study are:

Production characteristics are defined as characteristics that give information about the production department specifically. Some examples of production characteristics are the number of employees working in the production department, the number of product families and the number of products that are produced over a certain time.

It has to be noted that the production characteristics that will be selected will be production characteristics that are not changed by the implementation of Lean. If they would be, then they cannot be the predictor variable of the outcome variable usage of Lean. For instance, setup times would not be suited as a production characteristic in this study (contrary to the article of Hyer and Wemmerlöv, 2002). When an organization has implemented Lean then the setup times will be reduced. Thus setup times would be an outcome variable and not indicative of in what kind of organization Lean is used or is important.

1.3.2 Context characteristics into supplier, organization and market characteristics

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Shah and Ward (2003) see the plant size (in terms of the number of employees), the age of the plant and the percentage of employees in a union as context characteristics. Cua, McKone and Schroeder (2001) on the other hand, perceive plant size, process type and capacity utilization as context characteristics. Although there is some overlap (plant size), both articles do not provide close to an extensive list of the different context characteristics that can be identified. They do mention that the three context characteristics that both their study focus on are just a few but they do not give an indication what other characteristics might be.

Since it is unclear how context characteristics can be classified into different characteristics, it is important that first is determined how context characteristics can be defined. The context of the production department is what has an influence on the extent in which Lean can be used or implemented. A production department can be influenced by the organization around it, but also by the suppliers and the market. Suppliers deliver the input for the production department and therefore certain characteristics of them can influence the delivery process. For instance if suppliers are using Lean as well could have an influence on the production department. Markets for the product that the production department produces also could have an influence on the production department as well.

Because the context of the production department can be seen as the influence of the organization, suppliers and the market, it is proposed that “context characteristics” from the former model is replaced with “organization characteristics”, “supplier characteristics” and “market characteristics”. By doing this, it will be possible to test if the organization, supplier and market separately have an influence on the usage and importance of Lean and/or moderate the relationship of production characteristics with the usage and importance of Lean. Also, the terms organization, supplier and market are clearer; when talking about organization, supplier or market it is easier to understand which characteristics can be part of those terms than when talking about context. A definition of the three new characteristics will be given below.

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Organization characteristics are defined as characteristics that the organization possesses and that are broader than just the production department but do not cross the borders of the organization. Examples of these are the age of the organization, the number of employees in total in the organization and the location of the headquarters of the organization.

Supplier characteristics in this study are:

Supplier characteristics are defined as characteristics that give information about the supplier. In this research the supplier characteristics are only evaluated if it can be argued that they can have an influence on the usage of importance of Lean by the organization and/or influence the organization’s production characteristics. Examples of supplier characteristics are the number of potential suppliers for the organization and if the supplier is active with Lean as well.

Market characteristics in this study are:

Market characteristics are defined as characteristics that give information about the market of the organization. This includes both general market characteristics as well as characteristics related to individual customers. Examples of market characteristics include what the market values in the product (KPI’s) and what the level of competition is in the market.

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1.3.3 The conceptual model

The purpose of the conceptual model is to show which relationships have to be researched. The conceptual model below is based on the previous model shown in Figure 1. The context characteristics have been replaced by the supplier, organization and market characteristics for the reasons stated earlier.

Usage of Lean Production Characteristics Supplier Characteristics Importance of Lean Performance of the Organization Influences Influences Organization Characteristics Market Characteristics Moderates Influences Gap Influences Influences

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1.4 Research Goal

The aim of this research is to gain an understanding of links between production characteristics and contextual characteristics of manufacturing companies and their usage and perceived importance of Lean and the performance of the organization. In particular, the relationships as shown in the conceptual model are the subject of this research. Based on this research goal the following main research question is proposed.

1.4.1 Main research question The main question of this research is:

What is the relationship between production characteristics and organization, supplier and market characteristics of manufacturers and the usage, importance and performance of Lean production in manufacturing?

1.4.2 Sub research questions:

In order to answer the main research question, six sub research questions have been formulated. The first three sub research questions will provide the theoretical framework for this thesis. Because Lean production is central to this thesis and there have been differences between what authors exactly consider to be Lean production, the first sub question will give insight to Lean and provide clarity on this topic. Also, the different aspects of Lean will be researched when.

1) What is Lean production and which aspects can be distinguished?

The main research question introduces production characteristics which are defined as well, but it is not entirely clear which aspects can be differentiated in this notion. The second sub question will clarify this. Once this has been done the conceptual model can be permeated with the aspects of production characteristics hypotheses can be formed based on how individual characteristics influence the usage and importance of Lean.

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Having identified the production characteristics, the different organization, supplier and market characteristics will be identified. Based on the individual characteristics hypotheses will be formed on how they can influence the usage and importance of Lean.

3) Which organization, supplier and market characteristics can be distinguished and can they influence the usage and importance of (aspects of) Lean?

Once it has been tested if the different characteristics have an influence on the usage and importance of Lean. It is time to test if the organization, supplier and market characteristics have an influence on the relationship of production characteristics and the usage and importance of Lean. In other words, it will be tested if they are a moderator of the relationship.

4) Are organization characteristics moderators for the relationship of independent variable production characteristics and dependent variable performance?

Based on the right part of the conceptual model, the extent to which Lean is used in organizations will be researched. Also if there is a difference between how much organizations have implemented Lean and how much high they perceive the importance of it. The size of the gap between these will be researched alongside the performance of the organization.

5) Does the gap between the usage and importance of Lean have an influence on performance?

Lastly, it will be researched if the usage of Lean positively influences the performance of an organization. This has been argued by authors mentioned in the beginning of this thesis. However, it is useful to test if this is true in this study as well. A positive influence would validate both the efforts into researching this topic as well as the existence of the LORC.

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1.5 Research approach and structure of the research

This section will discuss how the answers to the research questions will be obtained. The chosen methodology of the existing research has been survey research. Survey research lends itself well for research where there are many research units with distinct features (Baarda en De Goede, 2001) which is the case in this situation. The survey was taken in the form of a questionnaire and has been held among manufacturers mainly located in the north of the Netherlands. Baarda en De Goede (2001) also note that survey research is often characterized by a low internal validity and high external validity. Internal validity answers the question of how confidently one can conclude that the change in the dependant variable was produced solely by the independent variable and not extraneous ones (Huitt, Hummel and Kaeck, 1999). Research based on surveys has the drawback that it is not clear if an external event influences the dependant variable or if the influence comes from the independent variable (Campbell and Stanley, 1963). Since this thesis will test a lot of hypotheses, it is important that those are accepted or rejected for the right reasons. Internal validity becomes less of a problem when the population that is included in the survey is high. The current number of respondents is 41. This seems to be sufficient to ensure that a low internal validity will not be an issue, therefore the survey data will be used for testing the hypotheses in this thesis.

This thesis will test both hypotheses based on literature from existing research as well as try to explore new relationships between concepts and variables. Therefore this research can both be described as explorative as well as testing existing research (Baarde and De Goede, 2001).

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the different aspects of product, organization, supplier and market characteristics. Thus chapter 2 will provide a theoretical framework for the remainder of the thesis.

From chapter 3 onwards, sub questions 2-6 will be answered following a similar process consisting of four steps:

1. Literature will be presented describing the relationship and aspects in that specific sub question

2. Hypotheses will be formed based on both literature and logical reasoning 3. The hypotheses will be tested (where possible) based on the survey data 4. Discussion of the findings

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2. Theoretical framework

In this chapter the theoretical framework for the remainder of this thesis will be presented. First sub question 1 will be answered which will gave a basic understanding of Lean and present the definition used in this thesis. This will be done in section 2.1. Then the different production characteristics will be defined based on existing literature in section 2.2. Once the production characteristics have been identified, section 2.3 will define the different organization characteristics. Second 2.4 will then present the different supplier characteristics and section 2.5 will present the market characteristics used in this thesis. Finally, an overview of all the different characteristics will be given in the conclusion in section 2.6.

2.1 The origin of Lean

After the Second World War, Toyota and other Japanese organizations suffered from the effects of the war. Resources were strained and Japan needed to rebuild its manufacturing industry. Many of the Japanese companies turned to western industries to acquire ideas and inspiration on building up their industry (Womack et al., 1990). In the United States, the dominant production system was mass production to satisfy the needs of a large population that sacrificed during the war. On the other hand, the Japanese market was much smaller and investment capital was scarce as well. With less resources and smaller production volumes per part, there was a need for a manufacturing system that was both flexible and used fewer resources. The solution was to develop the Lean production system, and the production genius Taiichi Ohno at Toyota is said to be the man behind the development of Lean production (Sohal and Egglestone, 1994).

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Institute of Technology. Their research presented a significant difference between productivity and quality of the Japanese vehicle manufacturer Toyota and the rest of the vehicle assemblers in the world. To describe the Japanese production system that was being used the term “Lean production” was invented (Sohal and Egglestone, 1994). As stated earlier in this thesis, Lean production went on to become a very successful production system. However, Shah and Ward (2007) argued that among different authors the definition of Lean production varies. Several different definitions could be given and examined but because the survey that was created by the researchers of the Rijksuniversiteit Groningen is based on the research of Shah and Ward, their definition for Lean will be selected. This is:

“Lean production is an integrated socio-technical system whose main objective is to eliminate waste by concurrently reducing or minimizing supplier, customer, and internal variability.”

2.1.1 The aspects of Lean

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# Aspect Description

1 Supplier feedback Provide regular feedback to suppliers about their performance.

2 JIT delivery by suppliers Ensures that suppliers deliver the right quantity at the right time in the right place.

3 Supplier development Develop suppliers so they can be more involved in the production process of the focal firm.

4 Customer involvement Focus on a firm‟s customers and their needs.

5 Pull Facilitate JIT production including kanban cards which serves as a signal to start or stop production.

6 Continuous flow Establish mechanisms that enable and ease the continuous flow. 7 Set up time reduction Reduce process downtime between product changeovers. 8 Total

productive/preventive maintenance

Address equipment downtime through total productive maintenance and thus achieve a high level of equipment availability.

9 Statistical process control

Ensure each process will supply defect free units to subsequent process.

10 Employee involvement Employees‟ role in problem solving, and their cross functional character. Table 1: Overview of the aspects of Lean (Source: Shah and Ward, 2007)

2.2 Classification of characteristics

In section 1.3.1 it was already discussed that production characteristics of organizations can be classified in different manners. The same can be said for organization, supplier and market characteristics. None of them are concepts that are commonly agreed upon. Therefore this section will discuss the different classifications and select the characteristics that will be used in chapter 3 to form hypotheses with.

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Consequently, only production characteristics are chosen that are unaffected after Lean has been implemented.

Secondly, the characteristics that are selected are expected to have an influence on the usage or the importance of Lean. The selection will be either based on literature or on logical reasoning if literature is unavailable.

2.2.1 Classification of production characteristics

Production characteristics are characteristics that give specific information about the nature of the production department. Some classifications that have already been presented in section 1.3.1 are made by Hyer and Wemmerlöv (2002) and Porter et al. (1999). Three others have been mentioned as well (Hill, 1991; Lind, 2001; White and Prybutok, 2001). However, none of them present a classification that can be used here, because each of them contains characteristics that are influenced by the implementation of Lean. Consequently, these characteristics cannot be used because it would not be clear if those characteristics would have an effect on the usage or importance of Lean. Therefore this section will produce its own set of production characteristics that will be used for the remainder of this study.

Since it is not possible to connect with an existing model of production characteristics, some direction is needed as to which production characteristics will be included in this study. Firstly the production characteristics should not be altered by the implementation of Lean. This will ensure that when measuring the usage of Lean in respect to the production characteristic, it can be concluded that the usage of Lean is a result of the production characteristic and not the other way around.

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characteristic (5 and 6). The production characteristics that have been selected are given in Table x below:

# Characteristic Description if necessary 1 Number of employees

working in the production department

2 Average age of production employees

3 Type of production (1): MtS, MtO, etc.

There are six types of production that are distinguished (Amaro, Hendry and Kingsman, 1999): design-to-order, engineer-to-order, make-to-order, assemble-to-order, make-to-stock and make-to-print. 4 Type of production (2):

component, subassembly, etc.

The are seven other types of production that are also distinguished: component production, subassembly, final assembly, maintenance, repair, process industry and service.

5 Repetitiveness of production 6 The number of products over

time

Table x: Overview of production characteristics

2.2.2 Classification of organization characteristics

“Organization characteristics” is a construct that is defined by many authors. Many of them consider characteristics as “size” and “age of the organization” part of organizational characteristics. But many also include different characteristics, such as “union presence” (Jackson, Schuler and Rivero, 1989), “external integration” (Kimberley and Evanisko, 1981), “formalization” and “stratification” (both Hage, 1965). With these divergent permeations of the construct of organization characteristics, it is necessary to be clear on what is meant with organization characteristics in this study. Hence the different organization characteristics that are selected will be given in this section.

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Examples of formal structuring characteristics are centralization, specialization and formalization. Lastly, emergent organizational structures refer to the evolving patterns and networks through which information flows. In these three dimensions from Jablin organizational characteristics will be selected for this study. However the second dimension, formal structuring characteristics of organizations, is largely left out, since characteristics like centralization and specialization are influenced when Lean is implemented and formalization is not expected to influence the usage or importance of Lean. Therefore, only the other two dimensions are used and only organization characteristics are selected that are expected to influence the usage or importance of Lean. The characteristics that are identified of the formal structural characteristics of organizations are number 2, 3, 4 and 5. For the emergent structures within organizations dimension characteristics number 1 and 6 have been identified. The overview is given in Table x below:

# Characteristic Description if necessary 1 Culture of the organization

2 Number of employees working in the organization 3 Age of the organization

4 Type of organizations There are four types of organizations that are distinguished: independent SME, family run organization, part of a Dutch holding and part of a multinational.

5 Placement in the value chain This characteristic defines what the organization‟s place in the value chain is and how far it is located from the end user.

6 Means of supporting Lean This characteristic defines in which ways Lean is supported by the organization

Table x: Overview of organization characteristics

2.2.3 Classification of supplier characteristics

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Firstly, suppliers using Lean in their production could have a positive effect on the organization using Lean or perceiving it as more important. Organizations will come into contact with Lean relatively quickly when their suppliers are using it, because of the nature of some aspects of Lean. For JIT delivery the suppliers need more information from customers, which increases contact, and obviously employee involvement also increases contact.

Secondly, the distance of suppliers to the organization could have an effect on the organization‟s usage importance of Lean. A further distance could have a negative effect on Lean. According to Levy (1997) “lean production requires frequent, rapid flows of information and goods along the value chain, which is costly and difficult when value chain activities are geographically dispersed.” This statement underlines the assumption that Lean implementation is difficult when the supplier is located further away.

An overview of the two supplier characteristics are given in the table below:

# Characteristic Description if necessary 1 Activity with Lean

2 Distance of the supplier(s)

Table x: Overview of supplier characteristics

2.2.4 Classification of market characteristics

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Again similar to supplier characteristics, activity with Lean by customers could also have an effect on the usage or importance of Lean by the organization. Aspects of Lean like supplier feedback and supplier development stimulate the customers to get into contact with the organization. The organization‟s increased exposure to Lean (and quite possibly even seeing better performance of the organization due to Lean implementation) could have an effect on the usage or perceived importance of Lean for the organization.

Another characteristic of individual customers is how they choose to measure their suppliers. This is shown by the KPI‟s that customers set up to measure the performance of their suppliers. It is expected that the prevalence of certain KPI‟s among customers can have a different effect on the usage or importance of Lean in the organization.

Two other market characteristics that refer to the market as a whole are the size of the market and the level of competition in it. The size of the market is expected to have an influence on the usage or importance of Lean since larger markets are expected to be more mature. Therefore they could have a higher level of implementation of innovations. The level of competition could also have an effect on the usage or perceived importance of Lean. Since Lean is beneficial to the competitiveness of organizations, different levels of competitiveness could have different levels of Lean implementation.

An overview of the four market characteristics are given in the table below:

# Characteristic Description if necessary 1 Activity with Lean

2 Important KPI‟s of customers 3 Size of the market 4 Level of competitiveness

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2.3 Overview of all characteristics

For clarity, an overview of all the different characteristics is given below. These characteristics will be the foundation for the formation of hypotheses in chapter 4. How the characteristics are measured will be detailed in the next chapter.

Overview of characteristics

# Production Organization Supplier Market

1 Number of employees working in the production department Culture of the organization

Activity with Lean Activity with Lean

2 Average age of production employees Number of employees working in the organization Distance of the supplier(s) Important KPI‟s of customers 3 Type of production (1): MtS, MtO, etc.

Age of the organization Size of the market

4

Type of production (2): component,

subassembly, etc.

Type of organization Level of competitiveness

5

Repetitiveness of production

Placement in the value chain

6

The number of products over time

Means of supporting Lean

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3. Description of the survey and measures

This chapter will provide insight into the survey that was used by the researchers of the LORC to gather data. Also, it will be discussed how the characteristics found in the previous chapter will be measured from the data in the survey. Section 3.1 will give basic information about the survey as well as verify its reliability. Section 3.2 will discuss how parts of the conceptual model are measured using the survey data. For some parts this will be broken down into the smaller characteristics. For instance, for production characteristics it will be discussed how each of the characteristics is measured using the data.

3.1 Survey

3.1.1 Survey development

The survey was composed by researchers of the LORC of the Faculty of Economics and Business of the University of Groningen. The survey consists of four parts. The first three parts are questions about the organization in general, about characteristics of their production and questions about what the organizations is doing to implement Lean. The last part contains questions about how important the organization thinks Lean is and how much the organization has implemented Lean. This last part is based on the research of Shah and Ward (2007) as stated earlier. Shah and Ward standardized the measurement of the level of implementation of Lean by asking 41 questions that measure the 10 aspects of Lean as shown in 2.1.1.

3.1.2 Sample selection

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make adjustments to the survey. Also, the first 14 surveys have been filled out more fully on average than later surveys.

The second round consisted of surveys that were sent out to approximately 275 organizations that were selected using a list of the Netherlands Chamber of Commerce. They manage the trade register. Only production companies were identified and selected as organizations to receive a survey. Also, only organizations based in the north of the Netherlands were in included in the survey. The organizations that were selected had BIK codes of 01, 11, 15, 17-22, 24-36, 45, 50-52, 61, 63, 71, 74, 85, 92 and 93. Only organization that had over 40 employees were selected of these.

The survey was sent out by mail to approximately 275 individuals who held the job of operations manager or similar. All respondents were assured that their information would be kept confidential and were also given the option to fill out the survey anonymously. Of the 275 sent surveys, 43 have been returned. However 2 were left out of the analysis since they contained too many missing values, so the total population is 41. No follow up was performed to organizations that did not respond.

After having received surveys from the first round, a few changes were made to the survey in the second round. This is not a big issue, since the variables measured and questions asked in the two rounds are identical for the most part. However, a few questions were added in the second round that are not asked in the first round of surveys. Therefore these variables will have a smaller population to draw conclusions from. It will be noted where this is the case.

3.2 Measurement of variables with data from the survey

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or the performance of an organization. This section will discuss both the characteristics as the other parts of the conceptual model: the usage and importance of Lean and the performance of the organization.

3.2.1 Measurement of production characteristics

1. Number of employees working in the production department

The number of employees working in the production department is measured in the survey by measuring regular employees, temporary employees and employees from an agency. Also, a field for “other employees” was given where for instance interns could be given. All of these produce results of the ratio level of measurement.

2. Average age of production employees

The average age of production employees was asked in a single field. This produces results on the ratio level of measurement.

3. Type of production (1): MtS, MtO, etc.

The type of production (1) has been measured by a check box question in which four options were present. It was only possible to select one. The four options were: Make to stock, Make to order, Engineer to order and “other, …”. This is not conforming to the six types of production that Amaro and Kingsman (1999) distinguish. However, none of the participants checked the box “other, …”, thus the current four options are deemed sufficient.

4. Type of production (2): component, subassembly, etc.

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5. Repetitiveness of production

Repetitiveness is a characteristic that is not very easy to measure. It depends on a few different properties of production. For instance, an organization that produces a lot of products of time would indicate a high level of repetitiveness. If however the organization also produces a lot of different product types, the level of repetitiveness would still be low. In this study an organization is said to have a high level of repetition if the following terms are met:

- the organization has a low number of product families (set at less than 8)

- the organization has a high number of products over time (set at a minimum of 750 per year)

- the organization has the type of production of Make-to-Stock or Make-to-Order

If these terms are met, then the organization is considered to have a high level of repetition, if one of these terms is broken, than it considered having a low level of repetition.

6. The number of products over time

The amount an organization produces has been asked in a single field in the survey. However, due to the different natures of products organizations produce, different results come forth from this question. For instance, some organization production output is given in tonnes, other in cubic meters and others in units. The data currently collected does not make it worthwhile to code certain production outputs, since few of them are present in the data (tonnes and cubic metres both have 2 cases). Therefore the number of products over time is just measured by cases giving their output in units.

3.2.2 Measurement of organization characteristics

1. Culture of the organization

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of. Hofstede (1994) defines several cultural dimensions which are often used. The fact that these cultural dimensions are available in his research are not of interest for this study, but Hofstede also found that different nations score differently on this dimensions. Therefore the location of the headquarters of the organization will be used as the measurement of the culture of the organization. It has to be taken into account that this location might not exactly measure the culture organization, but it probably gives a good indication. There options that could be chosen by the participants were: N.A. (for organization that didn‟t have a headquarters elsewhere), the Netherlands, Europe, USA-Canada, Japan, Asia and “other, …”.

2. The number of employees working in the organization.

The number of employees working in the whole organization was asked in a single field. This produces results on the ratio level of measurement.

3. Age of the organization

The age of the organization was asked in a single field. This produces results on the ratio level of measurement.

4. Type of organization

The type of organization has been measured by a check box question in which five options were present. It was only possible to select one. The five options were: independent SME, family run organization, part of a Dutch holding, part of a multinational and “other, …”.

5. Placement in the value chain

The placement in the value chain is measured by check box question. There were four possible options: delivers to end user, delivers to brokers, there are 2 organizations between the end user and the organization and lastly there are more than 2 organizations between the end user and the organization.

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The placement in the value chain is measured by another check box question which had 8 possible options. Since the options are lengthy, see the appendix for the options. This question was different in that several boxes could be checked.

3.2.3 Measurement of supplier characteristics

1. Activity with Lean

Section 2.2.3 and 2.2.4 stated that from both the supplier and the market activity with Lean could have an effect on the usage or importance of Lean of the organization. However, the survey only measures if value chain partners are using Lean and not specifically suppliers or the market. Since the supplier or market activity with Lean can not be taken into account separately, Lean activity in the value chain will be considered. Future studies could focus on the supplier and market specifically.

Value chain activity was measured by a check box question with three options: yes, no and don‟t know.

2. Distance of the supplier(s)

The distance that the organization has from its supplier or main suppliers is not a characteristic that has been included in the survey. Thus there is no data on this characteristic. It could be taken into account in future studies.

3.2.4 Measurement of market characteristics

1. Activity with Lean

Activity with Lean for the market specifically is not measured in the survey. This is taken together with activity of Lean of the supplier, see the previous section for details.

2. Important KPI’s of customers

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were mentioned the most, several groups of KPI‟s were created. There are seven groups: Quality, Price, Reliability, Delivery times, Flexibility, Service and Relationship. In some cases, choices had to be made if a entered KPI did or did not fall into a certain group. Below are some of the choices made (translated from Dutch):

- Costs have been considered as Price

- Speed has been considered as Delivery times

- Delivery reliability has been considered as reliability - Advise has been considered as Service

- After sales has been considered as Service

3. Size of the market

The size of the market is not a characteristic that has been included in the survey. Thus there is no data on this characteristic. It could be taken into account in future studies.

4. Level of competitiveness

The level of competitiveness has been measured by a check box question with 3 options: low level of competition, medium level of competition and high level of competition.

3.2.5 Measurement of the usage and importance of Lean

Both the usage and the importance of Lean are measured on 5-point Likert scales. There are 41 questions that make up Lean, divided over the 10 aspects of Lean. The 41 questions are based on the research of Shah and Ward (2007) who attempted to operationalize Lean. Measuring both the usage as well as the importance that organizations place on Lean is a sensible choice, because in some cases Lean may not be implemented yet (because of various reasons) but if the organization indicates that it is important to them, it still shows that Lean would be useful in certain situations. However, there are a few issues with the Likert scales used in the current survey that have to be addressed.

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Secondly, to be able to determine if there are relations between characteristics and the usage and importance of Lean, certain statistical tests have to be performed (also known as parametric tests). These parametric tests assume that the data is also parametric which means that it meets these requirements (Field, 2005):

- It is normally distributed - The variance is homogeneous - Data is at least of interval level

- The data from different participants are independent

The requirement that data is at least of interval level is a topic of discussion. Interval level indicates that the distances between points of the scale are equal at all parts along the scale. This can hardly be said about a scale using values as “totally unimportant”, “unimportant” and “neutral”. It is tough to persist that the distances between those values are equidistant. However, exactly this (assuming that Likert categories constitute interval-level measurement) is common practice in literature (Jamieson, 2004). It is a controversial topic among statisticians if this is illegitimate. Some (Baker, Hardyk and Petrinovich, 1966) argue that it hardly matters if an ordinal scale is treated as an interval scale, others (Marcus-Roberts and Roberts, 1987) argue that this does not lead to meaningful results. This study‟s aim is not to resolve this discussion (even though it has to be addressed) and will join the viewpoint of Stevens (1996): “[…] on the other hand, for this “illegal statisticizing” there can be invoked a kind of pragmatic sanction: in numerous instances it leads to fruitful results.” This means that it cannot be said that conclusions drawn are backed by all statisticians, however home statisticians believe that by carrying out this kind of research, results are gathered that are still of very high significance. Thus the Likert scale will be treated as if being of interval level.

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concluded with certainty that some aspects of Lean are not important for that organization, even thought the person filling out the survey is of the opinion that it is not. This makes it hard to determine if all questions should be taken into account, or just the ones with a sufficient score on importance of Lean. Testing out both options reveals that for the total score of usage or importance of Lean there is only a very limited change in scores. Therefore for measuring Lean as a whole, all questions are taken into account, regardless of the score on importance of Lean.

When looking at the aspects of Lean, the scores fluctuate much more heavily. Since the aspects of Lean are on average measured by a few questions each, leaving out certain question can lead to bigger changes in their scores. Therefore when considering the aspects of Lean, for the usage of Lean questions that are not seen as important for that organization are not taken into account.

The last issue that has to be addressed considers the distribution of both the usage and the importance of Lean. Since these are dependent variables, they have to fit one of the requirements of parametric data: their distribution must be normal. The Kolmogorov-Smirnov test from SPSS shows that both variables do not differ significantly from a normal distribution.

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to perform a complete factor analysis based on this data because there are no other potential factors to take into account. What can be done however, is to repeat a part of the factor analysis (namely the calculation of the factor loadings on Lean) to check whether or not the factors of Lean all load sufficiently on Lean in this research. Additionally, this is a check on the statistical part of the work of Shah and Ward (2007) which might be wise, since they refer to the cf-varimax extraction method as being an oblique rotation, while the cf-varimax method can be carried out using either oblique or orthogonal rotation (Browne, 2001).

After parts of the factor analysis have been checked, a reliability analysis is performed on the 10 factors of Lean to check if those factors measure Lean reliably. Reliability means “that a scale should consistently reflect the construct it is measuring” (Field, 2005). The purpose of this to verify that the survey is reliable; the results would be the same if the survey was taken at a different point in time.

The factor analysis – loadings of questions on factors

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possible if there are enough decent factors. The minimum loading of 0,4 as proposed by Raubenheimer (2004) will be selected for this study to compensate for stronger fluctuations in the loadings because our sample size is relatively small (n=41).

Additionally, since we have both the measurement of the importance and the usage of Lean, a question has to score lower than 0,4 on both these measurements of Lean.

Below the communalities for the 10 different factors (aspects of Lean) are given for each of the questions of the survey. This is first given for the importance of Lean and then the usage of Lean. Loadings that are below 0,4 are given in bold.

The loadings of communalities of survey question on factors for the importance of Lean Communalities # Aspect of Lean _Q1 _Q2 _Q3 _Q4 _Q5 _Q6 1 Supplier feedback _0,741 _0,737 _0,513 2 JIT delivery by suppliers 0,431 0,786 0,481 3 Supplier development 0,482 0,716 0,701 0,790 0,684 0,713 4 Customer involvement 0,799 0,821 0,416 0,665 0,568 5 Pull _0,884 _0,856 _0,696 _0,851 6 Continuous flow _0,512 _0,783 _0,637 _0,585 7 Set up time reduction _0,857 _0,778 _0,577

8 Total productive/preventive maintenance 0,787 0,695 0,776 0,373 0,586 9 Statistical process control 0,382 0,691 0,660 0,655 10 Employee involvement 0,682 0,740 0,656 0,667

Table x: Loadings of communalities of survey questions on factors for the importance of Lean

The loadings of communalities of survey question on factors for the usage of Lean

Communalities

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1 Supplier feedback _0,532 _0,720 _0,695 2 JIT delivery by suppliers 0,796 0,793 0,244 3 Supplier development 0,641 0,781 0,556 0,598 0,510 0,545 4 Customer involvement 0,646 0,663 0,763 0,659 0,577 5 Pull _0,292 _0,823 _0,792 _0,633 6 Continuous flow _0,334 _0,710 _0,675 _0,491 7 Set up time reduction _0,847 _0,879 _0,455

8 Total productive/preventive maintenance 0,801 0,854 0,687 0,425 0,533 9 Statistical process control 0,762 0,809 0,745 0,431 10 Employee involvement 0,656 0,558 0,603 0,492

Table x: Loadings of communalities of survey questions on factors for the usage of Lean

As can be seen from the two tables, there are two cases for the importance of Lean and three cases for the usage of Lean where questions do not load sufficiently on their respective factor. However, these are different questions on different factors. Therefore it would not be fair to abstract these questions from the rest of this study, because if they score high enough on either the importance or usage of Lean then clearly they are important. For now, all questions of Shah and Ward‟s study for measuring Lean in organizations will be used in the rest of this study.

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external factors while the importance of Lean is less so. For instance, the actual usage of Lean can be influenced by lack of funds or simple because the organization started their Lean efforts just shortly. Therefore, when testing for relationships between characteristics and Lean, the importance of Lean could give a “truer” image and is likely to correlate more strongly with the different characteristics. This will become apparent in subsequent chapters when characteristics will be tested with both the importance and the usage of Lean.

Reliability analysis

For validating the Lean construct it is useful to perform a reliability analysis that measures if the 10 factors of Lean consistently reflect the construct of Lean that is being measured (Field, 2005). This is measured by Cronbach‟s alpha. The minimum value for Cronbach‟s alpha is again somewhat open to debate, although to a lesser extent than the minimum value of factor loadings. Kline (1999) supports an accepted value of 0,8, however Field (2005) mentions that a minimum value of 0,7 is acceptable as well. Shah and Ward (2007) use a value of 0,70 as a minimum and state this indicates internal consistency. Because of this, a minimum value of 0,70 will be considered sufficient in this study as well. Reliability analysis has been performed using “scale if item deleted”, which means that it is possible to see what Cronbach‟s alpha would be without that factor. This makes it possible to see if any of the factors are affecting Cronbach‟s alpha greatly (which would be bad).

For the importance of Lean the Cronbach alpha is 0,833. Also, deleting any of the factors would not significantly increase the Cronbach alpha (only deleting setup time reduction would lead to an increase, namely 0,845, so it is minimal). So it can be concluded that the 10 factors are reliable.

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3.2.6 Measurement of the performance of the organization

Measuring the performance of an organization is not clear-cut. First of all, what exactly is performance? Is it measured in profit? Meeting service levels? Employee satisfaction? What exactly the performance is depends largely on the viewpoint. The survey sensibly asks the participants if their production department met their goals for 2008. This leaves it up to the organization to fill in performance, but still manages to provide a measure for how well they are performing. A drawback could be that a production department had over-ambitious goals and did not meet those, but still performed relatively well. How well they met their goals was measured on a 5-point Likert scale.

A second way of measuring the performance of Lean is by using the turnover and the sickness percentage of employees. This is in line with the thought that Lean empowers employees and increases employee satisfaction (Honold, 1997). It can be argued that a higher employee satisfaction has a direct effect on employee turnover and frequency of sickness and thus those two measured are used as additional measures for performance of the organization.

Both the turnover and the sickness of employees are measured in percentages. This produces data on the ratio level of measurement.

Lastly, the length of the fixed horizon of the production schedule is used as a measure of performance. Similar to the study of Cua, McKone and Scroeder (1999) the length of the fixed horizon is considered as a measure of the flexibility of the production process. Flexibility is then an aspect of performance. Cua, McKone and Schroeder use 3 categories: (i) 1 day, (ii) 1 week and (iii) one month. However, in this thesis the length of the fixed horizon has been measured in days, thus producing results on the ratio level of measurement.

3.3 Statistical analyses

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tests is based on the variables that are being tested. There are a few matches of variables that are common. Most relationships will be with the usage and the importance of Lean as outcome variables. These are both continuous variables. Below some common combinations with their respective statistical test are given (this is based on Field, 2005).

Cf-varimax kan zowel met oblique rotation als orthogonal rotation worden gebruikt.

If the predictor variable is a categorical variable with two categories and the assumptions of parametric tests (see 3.2.5) are met, then an independent t-test is used. If the assumptions are not met, a Mann-Whitney Test is used.

If the predictor variable is a categorical variable with more than two categories, then ANOVA is used. Post hoc procedures are carried out to find further results among the categories. The choice for different post hoc procedures will be based on the results. Tukey is the standard post hoc procedure. Tukey‟s test is a conservative test for measuring significant different between the means of categories; it controls Type I errors very well but does not have strong statistical power (Field, 2005). When the results show that certain test assumptions are violated, other post hoc procedures may be chosen. For instance, some post hoc procedures are designed for situation where group sizes are unequal (Hochberg GT2 and Gabriel‟s test). When population variances differ (which is indicated by Levene‟s test) then Tamhane‟s T2 post hoc procedure is used.

If the predictor variable is a continuous variable and the assumptions for parametric tests are met, then Pearson‟s correlation will be used. If the assumptions are not met, then Spearman‟s correlation will be applied.

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focal independent variable into subgroups that establish its domains of maximal effectiveness in regard to a given dependent variable” (Baron and Kenny, 1986) and a mediator variable means that “the mediator function of a third variable, which represents the generative mechanism through which the focal independent variable is able to influence the dependent variable of interest.”

Both these variables have their own tests. For moderator variables will be tested using the steps from Siero (2007) who wrote about moderator effects in his reader “Statistiek III: Gebruik en toepassing van multivariate technieken” (Dutch, translated to English: Statistics III: Use and application of multivariate techniques).

For testing for mediator variables, the method of Preacher and Hays (2004) has been used which can also be found on the following website: http://www.comm.ohio-state.edu/ahayes/sobel.htm. The website also includes data files to use for testing this relationship. Testing for a mediator variable is based on Sobel‟s test.

For some tests, when the hypothesis under research expresses a positive or negative relationship, instead of stating there might be a relationship and testing to see if there is any, the test can be performed “one-tailed” (Field, 2005). This increases the statistical power of the test. It will be noted when this is applicable.

3.4 Conclusion of chapter 3

This chapter has given insight in the survey that was used, how all variables have been measured and which and how statistical tests will be applied in subsequent chapters. It thereby has tried to improve the repeatability of this study. Also, the data that has been gathered by the researchers of the LORC has been tested. It has been tested if the survey questions have sufficient loadings on their respective factors and if the factors are a reliable measurement of the Lean construct.

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however 5 questions that do not load sufficiently on their factor, question number 32 and 34 on the factors “total productive maintenance” and “statistical process control for the importance of Lean and questions 6, 18 and 22 for “JIT delivery by suppliers”, “Pull” and “Continuous flow” for the usage of Lean. It is interesting that all these 5 questions do load sufficiently on their factor for their other measurement of Lean (importance and usage and vice versa). In the light of this and the larger study of Shah and Ward, it has been decided to keep these questions as part of the measurement of the factors. However, when more data has been gathered it would be worthwhile to carry out this test again. If it turns out that these questions continue to load insufficiently on their factors, it could be wise to disregard them from the survey.

Another interesting fact also comes forward from the factor loadings: the loadings on the importance of Lean are higher on average than the loadings on the usage of Lean. This could indicate that the relationship between the production, organization, market and supplier characteristics and the importance of Lean will be stronger than that of the usage of Lean and the characteristics. This will become apparent during the next chapters and will be discussed in the final conclusion.

The reliability analysis for both the importance and the usage of Lean turned out sufficiently high. This means that both the scales used to measure these constructs are reliable, meaning that if the survey was taken at a different point in time, the results would be the same.

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4. The influence of production, organization, supplier

and market characteristics on Lean

Now that the different characteristics of production, the organization, the supplier and the market are selected and discussed, this chapter will form hypotheses based on the influence of those characteristics on the usage or the importance of Lean. Where possible, existing literature will be used to support the hypotheses, in cases where there are no available hypotheses, they will be formed based on logical reasoning. Section 4.1 will both form the hypotheses and test them as well. This is done because of the number of hypotheses. It would be too much to ask of the reader to remember all hypotheses and come back to them later, so this somewhat unusual structure is chosen to circumvent this problem. Lastly, section 4.2 will present the conclusion of this chapter.

4.1 Hypotheses on the characteristics

4.1.1 Production characteristics and their influence on Lean

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Usage of Lean Production Characteristics Importance of Lean Influences Influences

Figure x: Production characteristics influence the usage and importance of Lean.

1. Number of employees working in the production department

The relationship between production, organization, supplier and market characteristics manufacturers and the usage, importance and performance of Lean production in manufacturing