Lean Manufacturing

Lean manufacturing is a way of organizing factory production that tries to make exactly what customers want, when they want it, with as little waste as possible. Waste here means anything that uses time, materials or effort without adding value the customer would pay for, such as excess stock, waiting, defects and unnecessary movement. It grew out of the Toyota Production System built in Japan after the Second World War.

The word "lean" was popularized by researchers at the Massachusetts Institute of Technology: John Krafcik used it in a 1988 article contrasting "lean" with "buffered" plants, and the 1990 book The Machine That Changed the World by James Womack, Daniel Jones and Daniel Roos made it famous. Lean is closely tied to just-in-time production and is usually presented as the successor to mass production.

Think of a busy restaurant kitchen. A badly run kitchen pre-cooks huge trays of food that go cold, keeps cooks waiting for ingredients and sends back plates with mistakes. A well-run one prepares just enough, keeps every tool within reach, and has cooks fix problems the moment they spot them.

Lean manufacturing is the factory version of the well-run kitchen. Instead of making big piles of parts "just in case", work flows steadily, each step makes only what the next step needs, and everyone is expected to look for small improvements every day.

After 1945, Toyota was small, short of capital and selling to a domestic market whose demand was for many models in small numbers. It could not copy American plants built for huge runs of one model. Engineer Taiichi Ohno and others developed a different system over the 1950s to 1970s, drawing on ideas from Toyota's founding family: produce in small lots, switch quickly between models, pull parts only when needed, and stop the line whenever a defect appears so the cause can be fixed.

The system drew international attention when Japanese carmakers gained market share in the 1970s and 1980s with cars that were both cheaper to build and more reliable. American and European manufacturers then studied and adopted its methods.

Lean is usually described through a set of principles: define value from the customer's point of view, map every step that delivers it, make work flow without interruption, let customer demand "pull" production, and pursue perfection through continuous improvement. Toyota's own tradition lists seven forms of waste (in Japanese, muda):

• Overproduction, making more than is needed or earlier than needed.
• Waiting, when people or machines sit idle.
• Transport, moving materials more than necessary.
• Over-processing, doing more work than the customer values.
• Inventory, holding stock beyond what flow requires, which carries an opportunity cost because the money could be used elsewhere.
• Motion, unnecessary movement by workers.
• Defects, which cause scrap and rework.

Common tools include kanban cards that signal when to replenish parts, quick changeover methods, visual management, error-proofing devices, and kaizen, the practice of small, frequent improvements suggested by front-line staff.

For economists, lean is mainly about cutting the hidden costs of mass production. Large stocks of parts and finished goods tie up working capital and warehouse space, and they hide quality problems until many units are affected. Lean plants also need fewer capital goods sitting idle, because machines are sized to the pace of demand rather than to maximum batch output. Smaller batches reduce those costs and shorten the time between spending cash on materials and receiving cash from customers, improving cash flow.

Lean also changes how productivity is gained. In the language of growth accounting, it raises total factor productivity: more output from the same labor and equipment. Instead of relying only on bigger machines and economies of scale, it seeks steady gains from better organization and the knowledge of workers, a form of human capital. Studies of the car industry in the 1980s found large differences in labor hours and defects per vehicle between lean and traditional plants, which helped persuade Western firms to change.

Lean ideas spread from cars to electronics, aerospace and then to services: hospitals, banks, payment processors, software development and government offices use lean methods to cut waiting times and errors. "Lean Six Sigma" combines lean with statistical quality control, and the "lean startup" movement borrowed the language for building a minimum viable product and testing it quickly.

The approach has critics. Some labor researchers argue that constant improvement can intensify work and raise stress. Others point out that many firms copied the tools without the culture of trust, long-term employment and supplier relationships that made Toyota's system work. The sharpest criticism came during the COVID-19 pandemic and the 2021 to 2022 shortage of semiconductors, when a supply shock hit plants holding very low inventories and left some manufacturers unable to keep their lines running. That revived interest in "just-in-case" buffers and in balancing efficiency with resilience across globalized supply chains, a trade-off visible in the Global Supply Chain Stress Index.

• Toyota: Toyota Production System
• Lean Enterprise Institute