Key Factors in Price Estimation Process Performance

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Mikko Rajamäki

KEY FACTORS IN PRICE ESTIMATION PROCESS PERFORMANCE

Faculty of Engineering and Natural Sciences

Master’s thesis

July 2020

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ABSTRACT

Mikko Rajamäki: Key Factors in Price Estimation Process Performance Master of Science Thesis

Tampere University

Master’s Degree Programme in Mechanical Engineering July 2020

This thesis focuses on finding out the root causes of increased workload in a global price estimation team. The price estimation team is working with spare parts and wear parts sales in the aftermarket field. The team focuses on giving the price and lead time estimations when data is already available in the system.

Since last fall, the workload has increased significantly, and the main goal of this thesis is to find the root causes by analysing the team’s and team’s process’s current state. The goal is to create cause and effect charts to find out the relationships between different actions in the process.

This thesis has two different sections, the theoretical part, and the empirical part. The theoretical part of this thesis focuses on supply chain management, and more deeply to Lean ideology.

Lean is used in the manufacturing industry to define and eliminate waste(s) from processes. When studying more deeply Lean theory, it was found out, that it’s possible to implement Lean also to service processes. Different Lean and quality tools are introduced after some basics of Lean theory.

The empirical part of this thesis focuses on modelling the current state in the price estimation team and its process. After the process is modelled, it’s possible to find the root causes for increased workload by creating different kinds of cause and effect charts: fishbone diagrams and flowcharts. With these tools, it’s possible to find answers to research questions that are set at the beginning of the thesis.

Finally, after analysing the charts, some key issues and root causes are found. After analysing the root causes, action proposals are brought up to improve the process and with them, it’s possible to eliminate some problems that are causing an increase in workload.

Keywords: Cause and effect, current state analysis, Lean, flowchart, fishbone diagram, The originality of this thesis has been checked using the Turnitin OriginalityCheck service.

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TIIVISTELMÄ

Mikko Rajamäki: Myyntihinnoitteluprosessin suorituskyvyn avaintekijät Diplomityö

Tampereen yliopisto

Konetekniikan diplomi-insinöörin tutkinto-ohjelma Heinäkuu 2020

Tässä diplomityössä pyritään etsimään juurisyitä, jotka aiheuttivat työkuorman kasvun globaalissa myyntihinnoittelutiimissä. Tiimin työ perustuu vara- ja kuluosien hinnoitteluun. Tiimin tavoitteena on antaa myyntihinta- ja toimitusaika-arvioita, kun systeemissä on valmiina hyödynnettävää dataa.

Viime syksystä lähtien tiimin työkuorma on kasvanut merkittävästi, ja tämän diplomityön päätavoitteena on löytää juurisyyt kasvun takana analysoimalla tiimin, ja sen prosessin nykytilaa.

Tavoitteena on luoda syy-seurauskaavioita, joiden avulla voidaan löytää seuraussuhteita eri prosessin toimintojen välillä.

Diplomityö on jaettu kahteen eri osaan: teoriaosaan ja empiiriseen osaan. Teoriaosa keskittyy toimitusketjun hallintaan ja vielä syvemmin Lean-ideologiaan. Leania käytetään valmistavassa teollisuudessa tunnistamaan ja eliminoimaan hukkaa prosessesissa. Kun Leanin teoriaa tutkittiin enemmän, huomattiin, että Leania voidaan hyödyntää myös palveluprosesseissa. Erilaisia Lean- ja laatutyökaluja esitellään perusteiden jälkeen.

Empiirinen osuus keskittyy hinnoittelutiimin, ja sen prosessin nykytilan mallintamiseen.

Prosessin mallintamisen jälkeen, juurisyyt oli mahdollista löytää luomalla eriliaisia syy- seurauskaavioita, kuten esimerkiksi kalanruotoakaavioita ja virtauskaavioita. Näiden työkalujen avulla on mahdollista löytää vastaukset diplomityön alussa esitettyihin tutkimuskysymyksiin.

Lopuksi kaavioita analysoimalla pää- ja juurisyyt löydettiin. Tämän jälkeen syitä analysoimalla kehitettiin erilaisia toimenpide-ehdotuksia, joiden avulla prosessin ongelmat voidaan poistaa ja näin ollen parantaa prosessia.

Avainsanat: syy-seuraus, nykytila-analyysi, Lean, virtauskaavio, kalanruotokaavio Tämän julkaisun alkuperäisyys on tarkastettu Turnitin OriginalityCheck –ohjelmalla.

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PREFACE

First, I would like to thank Metso Minerals Oy and especially Saija who gave me a chance to write this thesis. I would also like to thank all team members in Receiving team for helping and supporting me in this process. After this thesis is done, my studies are completed, and I wish to thank the examiners Tero Juuti and Eeva Järvenpää for guidance.

After studying five years in Tampere, and in two universities, my studies are finally coming to an end. I have learned and experienced so many new things and the journey has been truly special. I have learned that owning a cottage in Pellinki makes you a player and a true ladies man, I have learned that if you go to Lapua you can get a haircut with a knife and I have also learned that watching ice hockey with friends can lead to an early Independence Day celebration.

Iso kiitos vanhemmilleni, jotka ovat aina kannustaneet ja tukeneet minua läpi vuosien.

Iso kiitos Kuhan pojille, tädeille sekä Jyväskylän Vappuradiolle vertaistuesta ja kaikesta hauskanpidosta! Ja lopuksi kiitos Minna, että olet jaksanut tukea, kannustaa ja kuunnella minua koko tämän show’n ajan.

Minkä tähden?

Yhden tähden

Tampere, 30.07.2020

Mikko Rajamäki

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LIST OF FIGURES

Figure 1. Structure of this thesis ... 5

Figure 2. The research onion (adapted from Saunders et al. (2019, p. 130) ... 7

Figure 3. Fishbone chart, Ishikawa diagram (adapted from Andersen 2007, pp. 128)... 12

Figure 4. Typical supply chain and material flows (adapted from Gill & Ishaq Bhatti 2010) ... 17

Figure 5. 5 principles of Lean (adapted from Hines et al. 2008, pp. 4)... 20

Figure 6. Connection of 3 M’s of Lean. (adapted from Hines et al. 2008, pp. 7) ... 25

Figure 7. TPS house diagram (adapted from Liker 2004) ... 26

Figure 8. 4P model, the Toyota Way (adapted from Liker 2004) ... 28

Figure 9. Illustration of PDCA-cycle (adapted from Hines et al. 2008) ... 32

Figure 10. Opened and completed requests in GQS since last autumn ... 37

Figure 11. GQS process (Metso, 2020) ... 38

Figure 12. GQS process presenting the flow between different GQS teams and stakeholders outside the organization, management’s view (Metso 2020, internal communication) ... 39

Figure 13. Block review, done by the Receiving team ... 42

Figure 14. Pricing process, when the part has GLP ... 46

Figure 15. Receiving team’s price estimation rules ... 48

Figure 16. Fishbone diagram used to find root causes for the increased workload ... 50

Figure 17. Vicious cycle about customer’s effect on the process... 53

Figure 18. Vicious cycles when taking the ticket’s priority in consideration. ... 54

Figure 19. PCM’s effect on Receiving process ... 55

Figure 20. Other issues caused by PCM and poor data maintenance ... 56

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TABLES

Table 1. Keywords for literature review ... 10

Table 2. Different kind of scenarios about vendor information ... 43

Table 3. Information, given on the ticket ... 44

Table 4. Information related to pricing ... 47

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LIST OF SYMBOLS AND ABBREVIATIONS

CSR Customer Sales Representative

e.g. For example

ERP Enterprise resource planning

etc. And so on

GLP Global list price

GQS Global Quotation Support

ICP Inter-Company Price

KPI Key Performance Indicator

LT Lead time

MALP Market Area List Price

NDP Net Dealer Price

PCM Principal Company Model

PDCA Plan, Do, Check, Act

PH Product Hierarchy

SCM Supply Chain Management

TPS Toyota Production System

TQM Total Quality Management

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1. INTRODUCTION

Aftermarkets and aftersales play a significant role in revenue, when talking about manufacturing companies. Aftersales services include different fields e.g. technical support and spare part distribution. According to Holmström et al. (2011, p. 187) manufacturing companies get 25% of their revenue and 40-50% of their profits from after-sales services.

Based on this, it’s quite clear that companies need to have their aftersales service processes working. (Durugbo, 2019)

When the company is operating on a global level, there are multiple locations supporting the customers. It will lead to a situation where different products are supported by different places. Locations in different countries are taking care of e.g. spare part sales and quotations for customers. What happens when there is no valid pricing available? In the case company, customer sales representatives create a ticket for Global Quotation Sup- port (GQS), which will calculate prices and give technical support if needed. As Durugbo (2019) states, these are some of the key activities in aftersales services.

This thesis aims to find and describe different factors affecting the workload in a global price estimation team. It’s also part of this thesis to find out how different factors affect the throughput time in the process. These things will be studied through current state analysis.

The whole study process started by creating a visualization of the pricing process. There were new steps and exceptions added to the pricing process after big organizational changes were implemented last fall. After the process had been visualized then it was compared to the previous way of handling the process by sending a questionnaire to team members.

After the process was clear, the next step was to set the research questions which were pretty much linked to the main problem of increased workload. The questions are introduced more in detail in chapter 2.

This thesis consists of two different sections, theoretical research, and empirical research. Theoretical research which was conducted as a literature review contains such fields as systems thinking, which is used to analyze the process and to understand complex entities. Other fields, Lean and Supply Chain Management give some basic

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knowledge on how to understand the studied process and how to improve it. The empirical part contains the pricing process introduction and current state analysis, in which the process was studied deeply to find out different cause and effect relations that have led to increased workload.

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2. RESEARCH PURPOSE, OBJECTIVES, RE- SEARCH QUESTIONS AND OUTCOMES

This chapter introduces the purpose of this thesis, its objectives, and the research questions. The thesis structure will also be introduced in this chapter.

2.1 Research goals and research questions

The main goal of this thesis is to find and describe different factors affecting the workload.

It’s also studied how and why these factors have increased the ticket throughput time;

this will be studied by current state analysis. GQS is supposed to be a fast-working team, that is completing requests quickly and giving answers to questions set by the ticket creators. Since last autumn, after the workload has been increasing constantly, the re- sponse time of requests has also been increasing at the same time, which is leading to worse customer satisfaction and decreased trust. It’s possible to see if the results are wanted and if the action proposals have a positive effect on the process e.g. by checking the process chart about the Receiving team’s process. For example, if so-called on-hold situations can be eliminated or even minimized with the suggested actions, there have been some good ideas.

The research problem and focus are on the Receiving team’s increased workload and there are several questions, mentioned below, that are related to the problem:

1. Why the workload has increased?

2. How to decrease the number of incoming requests?

3. How to decrease request throughput time in the Receiving team?

The first question is more related to background and the current process will be compared to the process and state before the big organizational changes. The second question focuses on how the request creators can use existing pricing and lead time data or information given on previous requests. Finally, the third question will give us a focus on the team’s process and how to develop that.

The empirical part and literature review on this thesis will try to answer these questions and possibly they will give some concrete solutions to ease the workload. The literature

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review will focus on Dynamic Models, Supply Chain Management, and especially Lean thinking and what kind of ideas of Lean there are for the Receiving team to (possibly) implement on the process. It’s important to remember, that Lean is a manufacturing philosophy, but it can also be used in service functions. When I studied more and more about Lean, it became clear that it’s possible to take ideas from there and implement them to service functions as well.

2.2 Research scope

GQS is part of Metso Minerals’ Services Business Area Functions and different actions are conducted within the GQS organization. This thesis will focus on the Receiving team which is responsible for spare parts and wear parts end-customer pricing. More detailed information about the case company and GQS is provided in chapter 5.

Different teams within GQS are working closely together but the scope is narrowed to the pricing process since the pricing is needed in almost every request that goes through the GQS. Receiving team has been the bottleneck in this whole process so it was clear that something needs to be done so the process flows smoothly.

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2.3 Thesis structure

The structure of this thesis is explained in this sub-chapter. First, in chapter 1 there is a short introduction to the thesis. The whole structure can be seen in figure 1 below.

Figure 1. Structure of this thesis

Chapter 2 will be covering the more about the background of this thesis: there will be an introduction to research purpose, objectives, questions, and outcomes. After the background has been made clear, the next chapter is about research strategies and methods.

In that chapter, there e.g. some keywords that were used to find valid sources and references that were used in the literature study in chapter 4. Chapter 4 contains a theoretical background for this thesis. Lean and quality ideology will be introduced and how they can be (possibly) implemented in the Receiving process. Some ideas from Systems thinking will also be introduced here. In chapters 5 and 6, there will be a more detailed

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introduction to the case company, GQS, and Receiving team, this is the starting point for the empirical part of this study. Chapter 6 also contains cause and effect charts. In chapter 7 the results of the analysis are being brought up and research questions are being answered. The 8^th chapter will be evaluated the reliability, generalizability, and novelty value of this study compared to previous studies. Chapter 9 introduces the action proposals and finally, chapter 10 is the “Conclusions” chapter, that wraps up this thesis.

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3. RESEARCH STRATEGY AND METHODS

Selecting a research strategy and method determines how to approach the research problems. The research aims to test and confirm already known facts and possibly finding new things (Krishnaswami and Satyaprasad, 2010). This chapter introduces more about research strategy and methods.

3.1 Methodology

According to Hirsijärvi et al. (2014, p. 183) methodology is used to identify and understand different methods that are used in research. Saunders et al. (2019, pp. 128-130) introduce an idea of research onion that can be used to understand the term methodology better, and how it can be used to identify different steps of research. The research onion can be seen in figure 2 below.

Figure 2. The research onion (adapted from Saunders et al. (2019, p. 130) As seen above, there are multiple different layers in the research onion. On the outer ring is the research philosophy which in this study is pragmatism philosophy. Pragmatism philosophy underlines the research questions and their meaning. Pragmatism provides some valid approaches to this study since it has a vast range of methods and it provides practical solutions and outcomes. (Saunders et al. 2019, pp 144-145)

The next layer on the onion is about the approaches. Since pragmatism offers different perspectives, it’s possible to use two different research approaches inductive and deductive. An inductive approach is used to build or generate new theories and creating

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new ones. A deductive approach is used to test already existing theories. An inductive approach is used in this thesis since collected data is used to explore a certain phenomenon, in this case Receiving process. (Saunders et al. 2019, pp. 152-155)

After the approaches layer comes layer for methodological choices. First, it must be chosen if the choice is qualitative, quantitative or so-called mixed, including both. Qualitative methods are data collection methods which generate or use non-numerical data, e.g.

interviews and data categorizing, whereas quantitative methods generate or use numerical data, e.g. questionnaire, graphs, statistics. (Saunders et al. 2019 pp. 173-175) There is also another choice to be done within this layer, and that is if the method is also:

 Mono method: only one technique or method is used to collect and analyze data

 Multi-method: more than one technique or method is used to collect and analyze data. (Saunders et al. 2019, p. 178)

In this thesis there is used multi-method qualitative choice since there are multiple different methods used to collect data, and qualitative research “studies participants’ mean- ings and the relationships between them, using a variety of data collection techniques and analytical procedures, to develop a conceptual framework and theoretical contribu- tion”. (Saunders et al. 2019, p. 179)

Moving on with the layers, closer to the core, the next layer concentrates on research strategies. According to Saunders et al. (2019, pp. 190), there is a total of 8 different research strategies. Some sources state that the most common or traditional strategies are case study, experiment research, and survey research (Hirsijärvi et al. 2014, p. 134).

In this thesis, the chosen strategy is case study. A case study examines a single event, finite entity, or an individual using collected data. The case study tries to explain cases through questions starting with “how” and “why” (Saaranen-Kauppinen & Puusniekka, 2006). This will help to find answers to the research question since they are starting with those exact words.

Case study is an empirical investigation of a current phenomenon within its realistic context and environment. It’s used especially in situations where the borderline between phenomenon and context are not clear. (Simons 2009, p. 19)

The next layer in the research onion is called a time horizon layer. It includes two different options which are called cross-sectional, which means that a specific phenomenon (or phenomena) is studied at a specific time, and longitudinal which means that it’s possible to study change and development of different processes. This thesis follows the cross-

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sectional time horizon since there is no previous data about the team’s situation, and all information about the previous situation is based on team members’ experiences.

The final layer in the research onion is called data collection and analysis. This contains both parts of the study: theoretical and empirical. The theoretical part of this thesis is was carried out as a literature review, so that there is a good understanding of the phenomena that are studied in the empirical part. More about the literature review and how the correct and valid literature was found will be introduced in the next chapter.

This thesis is aiming to create cause and effect charts based on literature review and data collected from the request tool. These charts and models are then used to identify the root causes of the current problems. There will also be some information gathered with interviews and questionnaires from the time before organizational changes and how the process has changed after that. Tools chosen for defining the root causes are fishbone diagrams, or Ishikawa diagrams, and flowcharts. With these tools, it’s possible to find the correct root causes, that have increased the workload so much.

Other strategies that were under consideration were e.g. quantitative research where the phenomena, that are studied, are categorized and then compared. After that cause-and- effect relationships are then defined. (Saaranen-Kauppinen & Puusniekka 2006; Saun- ders et al. 2019, pp. 173-175). Other tools for defining cause-and-effect relationships and root causes were e.g. 5 Whys and A3 problem-solving. Diagrams and flowchart were chosen, since it’s better to have a visual model to use, and A3 was ruled out since I was working by myself and not in a team.

3.2 Systematic review

Systematic review is used to review the literature and defining valid sources when there is already a specific strategy selected. The systematic review is used to analyze and evaluate literature that is being used and it’s possible to define what is already known and what is not. (Denyer & Tranfield 2009)

Saunders et al. (2019, pp. 110-11) are presenting a 5-step list on how to carry out a systematic review.

1. The first step is to set the research question or questions.

2. Create a list of potential (earlier) studies by using different databases and bibli- ographies. Try also to find unpublished studies.

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3. Analyze the list and eliminate irrelevant or otherwise not wanted literature and studies from the listing. A good way to analyze the studies is to first read the title and the abstract and after that take a better look at the test.

4. Search the studies deeper by checking the introduction which should include the research problem and research questions. After that, it’s possible to scan more deeply the study itself and find the correct parts that answer the questions, etc.

5. Report the results to your work by explaining how the process was done and how the selected sources and studies were chosen.

Finding different sources was carried out by using Tampere University’s library services, e.g. Andor and Trepo, also Google Scholar was found useful. Andor and Google Scholar were used to find literature about different theories and phenomena that were studied in this thesis, some of the keywords can be seen in the table below.

Systems thinking Dynamic models Supply chain management

Supply chain Lean Just-In-Time

Cause and effect Process mapping Flowchart

Search results were then evaluated first by checking if the references were already cited, this approach was not always possible to use since some references had very few or no citations at all. References were studied more deeply by reading the abstract and/or introduction, if it seemed that the reference had valid information, it was accepted as a source.

Tampere University’s Trepo system was used to find previous thesis works. Some thesis works were used to find references if those had studied the same kind of topic as on this thesis.

3.3 The theory behind cause and effect analysis

In Cause and Effect Analysis many tools can be used. The cause-and-effect chart is efficient, and quite an easy tool to use. The main point in the chart is to find the possible cause of an effect. There are different types of charts, and here are two possibilities introduced by Andersen (2008, pp. 128):

Table 1. Keywords for literature review

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- Fishbone chart, or Ishikawa diagram - Process chart

No matter which type of chart to use, there are some basic things, that need to be taken in to account. First, the problem, or the effect, needs to be identified. When the effect has been identified, next thing is to identify what is causing the problems. There are several ways to identify the cause(s), e.g. studies or brainstorming. After the cause or causes have been identified, they need to be categorized. (Sahay 2017, pp. 78-79) In traditional, physical processes, the common categories according to Andersen (2007, pp. 129) are:

- People

- Machines and equipment - Materials

- Methods - Measures

- Environment (including things like culture, organization, etc)

When working with service processes, cause(s) are categorized as follows:

- People - Processes

- Framework conditions - Work environment

Since this thesis is carried out to service processes, it’s needed to focus on the latter listing mentioned above. Fishbone diagram about the real-life situation will be introduced later on this thesis, in chapter 6.

Once the problem, or the effect, and the cause(s) have been recognized and categorized, it’s possible to start working on how to get rid of the causes.

Fishbone chart, or Ishikawa diagram, has got its name from its shape, the typical fishbone diagram can be seen in figure 3 below. The tool is named after Japanese Professor Kaoru Ishikawa (Dawson 2019). Creating a fishbone chart is simple, you need to draw a horizontal line, and add an arrow to the other end. At the end of the line and arrow, the effect is added and then adding branches for causes. (Andersen 2007, pp. 128; Sahay 2017, pp. 78)

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Figure 3. Fishbone chart, Ishikawa diagram (adapted from Andersen 2007, pp.

128)

The diagram in figure 3 can be used in physical processes, such as manufacturing, to find root causes for the problem. Fishbone charts can be used for individual problems and more complex processes, by adding and combining more charts to create a complete process chart. (Andersen 2007, pp. 130-131)

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4. LITERATURE STUDY

In the fourth chapter, the aim is to introduce the theoretical background of this thesis.

Systems thinking and dynamic models their subchapter to help to process current state analysis and how to find problems in the Receiving process. In the second sub-chapter, there is a short introduction to Supply Chain Management or SCM, and after that, there is an introduction to Lean and customer value

This chapter also introduces some quality tools and ideas about how to implement Lean in practice. The main point in this chapter is an introduction to Key Performance Indica- tors, or KPIs, and flowchart. When carrying out current state analysis, it’s important to know what and how the process is measured and how to make the process easily ap- proachable: simple way is to make process visual.

4.1 Systems thinking as part of current state analysis

Systems thinking is a tool that can be used to examine complex processes and situations. It can be used to spot out problematics in the process so that those can be eliminated, and the process will be less complex. Also, systems thinking can be used to improve and make thinking more efficient, help to improve communication and it will increase predictability. (Mella 2012, pp. 1-2)

When carrying out a current state analysis about a business organization or process, it’s important and required to have a clear and complete vision about the everyday process.

It might be difficult to include all small and constantly changing details to the analysis since all processes that include human, and human error are not completed in exactly the same way twice. (Checkland & Poulter 2010, pp. 201-202)

4.1.1 Systems thinking

As already mentioned above, according to Mella (2012) systems thinking can be used to examine complex situations. There are also other definitions for systems thinking. Ac- cording to Aronson (1996) systems thinking is used to understand and improve social systems better. Other sources say that it’s not easy or even necessary trying to define the term since it’s used as “a general name for a wide range of phenomena rather than a specific concept” (Forrester 1994; Frank 2016, pp. xi).

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The basic idea of systems thinking is that it’s better to recognize the different parts of the complex process in their own context rather than individually categorize them. This can be considered as seeing things from other person’s perspective so that the whole picture can be seen, More traditional way of facing the problems is to break down the whole process to smaller pieces won’t show the relationships between different parts of the process and therefore it’s harder to improve the system as a whole. (Senge 1994, pp.

68; Reynolds & Holwell 2010, pp. 7-8)

4.1.2 Complex systems and system dynamics

Complex systems share a common characteristic of multiple relationships between different parts of them, constant change, and continuous uncertainty caused by the change.

Also, people working with the process might have a different view or perspective on the matter, which causes more confusion and complexity. (Reynolds & Holwell 2010, pp. 8- 18)

It might be that sometimes when facing a complex system, some attempts to improve the whole situation may change it to even worse. The improvements might be successful, but these are usually only effective in the short term. Relationships within the system itself are affecting the environment around the system, and vice versa. This will make it difficult to find a solution to a complex issue. (Aronson 1996)

Systems thinking should guide people and organizations to see things from another point of view. Relationships and connections between different elements are not seen and that will make it difficult to make changes in the situation. When trying to find only one root cause for the whole complex issue, it might lead to a situation where an individual gets blamed for their actions even though it was a “correct way” of doing things. Normally, systems themselves cause their own issues and complexity. (Senge 1994, pp. 35-46;

Reynolds & Howell 2010, pp. 8)

According to Morecroft (2010, pp. 25) system dynamics is part of systems thinking when observing a complex situation or even an organization. Systems dynamics try to solve and point out relationships and effects within the system. All this can be achieved by visualizing the process or situation,

The whole picture, and all the factors that influence the system, can sometimes be difficult to see and recognize (Morecroft 2010, pp. 25-26). Point is, that people are eager to see only one part of the system, and not the whole picture, which will lead to a situation in which concentrating only on one aspect, the whole structure is affected (Senge 1994,

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pp. 77). Based on this, one can think that different actions within the system are happening just randomly, but they are really caused by another factor in the system. System dynamics is trying to point out and visualize relationships between different factors in the system. This needs people to change their view of the situation and they need to change their mindset. It’s required to forget the traditional and practical event-oriented mindset (Morecroft 2010, pp. 26-27). An event-oriented mindset means that actions are typically seen as individual events that are caused by other events within the system. According to Carvalho and Mazzon (2019, pp. 61) event-oriented mindset “typically leads to decisions that make sense superficially but bring about negative consequences in the long term.”

4.1.3 Feedback loops and system archetypes

As already mentioned, the main goal of systems thinking is to help people change their mindset to see the whole system. Senge (1994, pp. 73-78) states that if changing the view and seeing the whole system the system and its inner relationships can be seen loops that will eventually lead back to the starting point. This is called a feedback loop.

A good example of a feedback loop is a situation, where someone is fixing an issue in a complex situation with multiple actions linked to each other. When one issue is fixed, it might lead to a situation where the other person on another part of the system faces a new issue. This person will fix their issue which might lead back to the first person etc.

(Morecroft 2010, pp. 29-31)

Feedback loops are visualized by using causal loop diagrams. Causal loop diagrams show the cause and effect relationships between different parts of processes and they also indicate the feedback itself. These diagrams contain some basic parts, e.g. words or phrases and links and loops. The feedback can be positive or negative. If the feedback is positive, it means that if the variable A, cause, increases, then the variable B, effect, also increases. If the feedback is negative, then variable B decreases while A increases.

(Morecroft 2010, pp. 32)

There are 2 different kinds of feedback loops: reinforcing and balancing (Senge 1994, pp. 79) Reinforcing, or amplifying, feedback loop means that the system or the process grows or declines in the current direction that it’s going (snowball effect). Even the small- est actions can grow to a huge scale if there is a reinforcing feedback loop involved.

Some reinforcing activities are called vicious cycles. Vicious cycles harm the whole process and they just keep on making the situation worse. There can also be these so-called virtuous cycles that are leading to the wanted outcome and even further in the right direction. (Senge 1994, pp. 80-83)

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Balancing, or stabilizing, feedback loops are trying to stay in a stable condition, and they are resisting changes. The system itself is trying to maintain the specific goal that is set, even if the goal itself is unknown and people don’t recognize the ongoing balancing process. (Senge 1994, pp. 84-88)

Delay is an interference in the system between different variables (causes and effects) makes recognizing the relationships harder. Delays make it harder to see how people’s actions affect the process since the changes can’t be seen immediately. According to Sterman (2006, pp. 508) delays in feedback processes are frequent and they can cause some issues to the process, make the process unstable and make it harder for people to learn about the process itself. Delay can also cause “overshooting”, meaning that when there is no quick feedback, people tend to change the process with more and more, which will eventually lead to “going further” as it is needed. (Senge 1994, pp. 89-92) When different kinds of feedback loops and delays are connected in a certain way, on multiple different occasions they are called systems archetypes. Systems archetypes represent certain patterns that can be found in many different places and processes.

When these archetypes are recognized it’s easier to make changes to processes and systems when the whole picture is seen. (Senge 1994, pp. 93-113)

Senge introduces multiple system archetypes in his book The Fifth Discipline (1994) and one of them seems to fit very well for the topic of this thesis. Eroding goals is a system archetype where the organization lets the long-term goal decline so that the short-term goal can be achieved. An example provided by the author about this archetype is from the technology business world. A company is losing its share on the market, even though it has an excellent product because the lead times are too long since the company couldn’t match the previous lead times. When facing this type of situation, the best thing would be holding on to the previous goal and vision. (Senge 1994, pp. 383-384)

4.2 Supply Chain Management

In this sub-chapter, Supply Chain Management will be introduced. To understand what SCM is, it’s also needed to define the term supply chain and why one should be aware of SCM.

4.2.1 Supply chain

There are many different definitions for the supply chain, but many of them are very much alike. The supply chain shows how the ordered product is delivered from supplier to customer. According to Beamon (1999, pp. 275) “supply chain is an integrated process

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wherein raw materials are manufactured into final products, then delivered to customers (via distribution, retail, or both)”. This so-called typical supply chain contains 4 different steps in the process: Supply, Manufacturing, Distribution, and Consumer. As mentioned above, there might also be “Retail” added to the process with Distribution.

There might also be different kinds of variations of the supply chain, some other parties might be affected and sometimes some steps might be reduced to a minimum, e.g. the supply chain might only be as short as Supplier  Consumer. No matter the steps in the supply chain, the main goal is still delivering product or material to the customer in time (Gill & Ishaq Bhatti 2010)

While discussing basic supply chains there are terms Downstream and Upstream used when explaining the flow of material and information. Downstream means the flow of materials from suppliers towards the customer and upstream means the flow of demand and information from the customer towards the supplier. It’s also important to remember that information should flow in both directions. (Gill & Ishaq Bhatti 2010; Drake 2011) It’s important to understand the different steps in the supply chain and different flows.

The typical supply chain and its different flows can be seen below, in figure 4.

Figure 4. Typical supply chain and material flows (adapted from Gill & Ishaq Bhatti 2010)

There’s also this so-called internal supply chain that includes different factions inside the company. The internal supply chain includes different operations that take care of warehousing, and different actions included in it, transport, and delivery. These mentioned actions need to be planned and completed under certain values and goals set by the company. (Prater & Whitehead 2005)

It’s important to optimize the supply chains and processes, since especially material flow, or downstream flow, is causing costs. When optimizing supply chains, it’s possible to reduce costs and boost the company’s competitiveness. (Childerhouse & Towill 2003)

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4.2.2 Basics of SCM

According to Drake (2011) and The Council of Supply Chain Management Professionals, the definition of SCM is management of needed actions that are included in processes like sourcing and procurement and all logistics management actions.

SCM aims to create transparency and integrate all parties of the process so that they share the common goal: delivering goods and satisfying customer needs. Different parties, e.g. supplier, manufacturer, retailer, etc. in the supply chain have their business models and goals, which might lead to issues that the overall costs in the chain might get higher, even if one the single step the costs are lower. (Cho & Kim 2010; Liang et al.

2013)

Another definition of SCM has been divided into two different categories:

1. All the companies or parties that are connected to the process of creating the final product from raw materials

2. Functions inside and outside the company that add value to chain and processes and that make sure that customer gets the needed product or service in time.

These two categories were introduced by Fredendall & Hill (2000).

Like already mentioned above SMC consists of procurement and sourcing management.

When implementing SCM to processes, according to Hutchins (2008, pp. 118) there are some positive trends to be seen, e.g. reduced number of suppliers, long-term relationships with suppliers, suppliers are seen as an essential part of business and suppliers might be included to development processes in the future. These supplier-related activities are also in a big role, when talking about Just-In-Time, later on this thesis.

According to Prater and Whitehead (2013, pp. 9-11) the main idea of SCM is to focus on business processes, instead of functions, and how to integrate them. These processes or activities are product design, planning, or forecasting, order management, inventory management, order fulfillment, return management. The functions are for example pur- chasing, production, etc.

SCM aims to make the processes flow through the whole supply chain, this required integration, that’s mentioned already, and coordination. Coordination means that materials, information, and finances should flow easily through the whole supply chain. (Prater

& Whitehead 2013, pp. 12-13)

If integration and coordination are left aside, the company might face some serious issues. According to Prater and Whitehead (2013, pp. 14), these issues are:

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- Inaccurate forecasts: If different companies in the supply chain create forecasts without taking each other into account, it will lead to unreliability in the whole process. This might lead to big changes and fluctuations in inventories.

- Low capacity utilization. Optimizing the correct amount of equipment and work- force is important. For example, if the company forecasts that there is a very high demand, and the company invests in machinery and equipment to answer that high demand, what happens when forecasts are wrong, and demand is not so high. In those situations, the company has lots of capital tied to machinery that’s not in use.

- Excess inventory. This issue is almost the same as the one mentioned above. If the company is producing large amounts of products, and customer demand is not as high as forecasted, the company has lots of capital tied to these excess products. Another issue included in this is where to store all the extra products and it will cause warehousing costs.

- Obsolete inventory: If the company has big quantities of extra inventory it might lead to a situation, where products will become outdated. In these cases, the products might become defective or the customer no longer has demand for them.

- Insufficient customer service: When forecasting is not correct, and stocks are low when the customer indicates a need, and the company is not able to provide the needed product or service, it might lead to loss of sales and decreased customer loyalty.

4.3 Lean ideology

Lean has evolved from Toyota Production System, TPS, which was developed by Taiichi Ohno and Eiji Toyoda. TPS aims to do things “in a lean way”, meaning that the goal is to get the best possible quality with fewer resources and eliminating all unnecessary processes, or wastes. (Liker, 2004)

Roots of Lean go back to the 1950s, when people at Toyota went to the United States to see, how to boost their manufacturing and how to keep up with other manufacturers since Japan’s economy was facing hard times after World War II. On their trips to the United States, people at Toyota realized that e.g. Ford’s mass production wasn’t so efficient as it seemed. There were lots of different equipment used in the manufacturing process and lots of different materials laying around, so that sometimes “factories looked more like warehouses”. Ford tried to drive the policy of eliminating waste through the

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whole process, but that was not happening in the production line. Toyota didn’t have a chance to create as much waste as Ford did, and it had smaller facilities than Ford, so they decided to reduce all this waste. Ford wanted to produce similar cars with mass production so that it would be cost-efficient, but Toyota wanted to offer a variety of different models. One of the most important ideas borrowed from the United States was this so-called pull system, which means that parts are replenished as the need comes up. This leads to smaller inventories. TPS has evolved during the years, and now there are different aspects added to TPS such as just-in-time and jidoka, which means this so- called built-in quality. (Liker, 2004)

After the history has been explained briefly there will be a short description of Lean’s 5 principles, introduced by Womack and Jones (1996). The easiest way to explain Lean is to use these 5 principles and how to use them to reduce waste in processes (Hines et al. 2008, pp. 4). Lean was first used only in manufacturing, but nowadays it’s possible to use Lean and its principles in other business areas also, e.g. distribution, logistics, and services (Lean Enterprise Institute, 2020). 5 principles of Lean can be seen in figure 5.

Figure 5. 5 principles of Lean (adapted from Hines et al. 2008, pp. 4)

As seen above, the first, and possibly most important, principle is to identify what brings value to the customer. The second step is to identify the value stream, so that the waste, which is not adding any value to the product, can be recognized. The third step is to make sure that the company keeps focusing on processes and products that bring value

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to the customer. The fourth step is very close to the third step since it’s important to make sure that the “flow” keeps on moving towards the customer, the customer is “pulling”.

Fifth, and final step is to improve the processes and products continuously so that the waste can be removed. (Hines et al. 2008, pp. 4).

Identifying what brings value to the customer is the first step in Lean thinking. There are different ways of creating value to the customer, e.g. products or services, but it’s the customer itself, that decides what brings value to them. It’s very important to think value questions from customer’s point of view and not to focus on defining value based on current resources or technology. (Womack & Jones 2003, pp. 16, 18-19)

It’s not always easy to identify, what brings value to the customer, since the customer and the company don’t necessarily share the same idea of value, and sometimes it might be needed to challenge old definitions of value. According to Womack and Jones (2003, pp. 31), these old values are e.g. lower cost, customized products, and faster deliveries.

By discussing with the customer, it’s possible to find what they need and what creates value to them. This might sometimes mean, that all the previous solutions and ideas need to be forgotten (Womack & Jones 2003, pp. 32).

Identifying value stream should be done to every product or service, or sometimes even to whole product families, separately. Value stream means all those actions needed to get the product or service to the customer, all the way from first designs to finished product to be delivered to end customer. Analysing value streams will reveal huge amounts of waste in the whole process. The value stream is not only tied to the company that’s manufacturing product or offering services, it will cover the whole supplying network. To complete this, it’s needed to add transparency and more cooperation between all individual companies and organizations that are participating in the process. (Womack &

Jones 2003, pp. 19-21)

After the value has been defined from the customer’s point of view, the value stream for the product or service has been identified and waste has been minimized in the process, the next step is to make the process flow. Working in batches is an efficient way, and by making batches smaller, it’s possible to make products flow through the process easier and it shortens the time spent waiting. One important thing also is to eliminate all unnecessary movements. Smaller batches will also lead to a smaller inventory. (Womack &

Jones 2003, pp. 21-24)

When continuous flow has been achieved in the value-adding process, the throughput times and inventory in the process can be reduced as much as 90 percent. As the throughput times are reduced, processes can be started when the customer indicates a

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need. In these cases, the customer is giving a pull, when they are needing a product or service. These actions will lead to smaller inventory when you are not manufacturing or producing anything beforehand. (Womack & Jones 2003, pp. 24-25, 27)

Supply chain and the different flows in it were introduced in chapter 2.1.2. Knowing these different steps and especially the flows are important when discussing pull. A simple example about pull is, that no products will be manufactured before the customer in downstream indicates a need. The manufacturing process can be considered as a chain of customers: meaning that processes in downstream are acting as customers to processes on upstream (Womack & Jones 2003, pp. 58). This idea is used in JIT production.

More about JIT production can be read in chapter 2.2.2.

The final step and the final Lean principle is to seek perfection and keep on improving continuously. After the waste from processes have been minimized and the value streams faster, it’s possible to recognize more waste and move processes even closer to perfection. The company shouldn’t compete with other companies, but perfection itself. (Womack & Jones 2003, pp. 25-26)

As seen in figure 4, the Lean principles create a circle that leads to a situation, where the principles cause the need of seeking perfection all the time. By adding flow to process, it’s easier to spot waste in the value stream, and when the customer is pulling, it will expose more factors, that are disturbing flow. And like already mentioned earlier, communication and dialogue with the customer will make it easier to identify, what is bringing value to the customer. (Womack & Jones 2003, pp. 25-26)

When seeking perfection, it’s important to understand that there are different approaches to make improvements to processes, kaikaku, and kaizen. These Japanese words are used when talking about radical improvement (kaikaku) and continuous improvement with smaller steps (kaizen). More about continuous improvement and kaizen can be read in chapter 2.2.3. Kaizen is easier to use and implement on daily processes, but sometimes more dramatic actions are needed in form of kaikaku. (Womack & Jones pp. 23)

4.3.1 Waste

Like it has already been stated, Lean’s basic idea is to eliminate waste from manufacturing or other kinds of processes. Waste, or muda in Japanese, is something that doesn’t add value to the process, but it consumes resources (Womack & Jones 2003, pp. 15).

After the value stream has been identified, according to Carreira (2005) 3 different activities affect the customer value:

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1. Value-added 2. Non-value-added

3. Required non-value-added

The first activity speaks for itself: it adds value to the process. Important thing is to remember that customer defines, what brings value. The second activity means, that these activities bring no value to the process and therefore they are waste. Different types of waste will be introduced later in this sub-chapter. The third activity is required, but non- value-adding activity. It means that there are some steps in the process, that need to be completed, but they don’t add value to the customer. These activities might be caused by a lack of needed technology etc. (Carreira 2005, pp. 67-71)

Customer value is something that’s defined by the customer. The customer can decide if the product or service satisfies the need. It might sometimes be difficult to find the correct way to satisfy the customer’s needs since the customer’s view of value is not necessarily the same as the company’s view. Dialogue between company and customer is needed to define the value. (Kotler 2017)

Different kind of non-value-adding activities are called waste, or muda. There can be 7 or 8 different kinds of waste in the process, depending on the source. According to Hines et. al (2008, pp. 5-6) these wastes are:

- Overproduction - Defects

- Unnecessary inventory - Inappropriate processing - Excessive transportation - Waiting

- Unnecessary motion

Some sources state that there is a total of 8 different wastes. Some people add the work itself to the list. (Carreira 2005, pp. 53-54)

Overproduction is probably the worst of all wastes since it harms flow and even quality.

Overproduction also increases throughput times, which means that it’s harder to spot defects in production. Overproduction will lead to an increase in incomplete production.

(Hines & Rich 1997 47-48; Carreira 2005, pp. 54-55)

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Defects mean products that are not manufactured properly or fixing the defects. These will always cause more waste, including more costs, extra processing, or work. In some cases, e.g. in TPS, defects should be seen as an opportunity to learn and develop the processes. (Hines & Rich 1997, pp. 48; Carreira 2005, pp. 62-63)

Unnecessary inventory is inventory, that is not needed e.g. unnecessary materials and work-in-process. Unnecessary inventories increase lead time, and they might also hide the problems in the mass. Inventories also create storage costs, since more space is needed. (Hines & Rich 1997, pp. 48; Carreira 2005, pp. 57-59)

Inappropriate processing means non-value adding or unnecessary processing of the product. It might also mean that the finished product’s quality is better than it’s required.

Inappropriate processing might also mean, in some cases, inefficient processing. This might be caused by poor design or tools and machines, that are not suitable for the process. (Hines & Rich 1997, pp. 48; Carreira 2005, pp. 61-62)

Excessive transportation means unnecessary movement of work-in-process, materials between different processes, or inventories. Another example would be inefficient transportation solutions. In some cases, all movement in the manufacturing environment is seen as waste. Usually, the aim is to minimize transportation, and not eliminate it. (Hines

& Rich 1997, pp. 48; Carreira 2005, pp. 59-61)

Ineffective time is called waiting. You might need to wait for part or material from the previous process, or sometimes you need to wait for a machine to process the part.

Waiting occurs when products or materials are not processed or moved. (Hines & Rich 1997, pp. 48; Carreira 2005, pp. 60)

Unnecessary motion is related to people working. Unnecessary motion is some movement, that doesn’t add any value to the product or process. Unnecessary motion might harm work-well-being and most importantly, to quality of work. Unnecessary motion means all kinds of stretching, searching, and moving of people or tools. (Hines & Rich 1997, pp. 48; Carreira 2005, pp. 64-65)

Most companies focus only on muda, and they forget to concentrate on other areas as well. These other areas are:

- Mura, unevenness - Muri, overburden

Mura, unevenness, or variability, means, that production is uneven, and it might be caused e.g. by a too large selection of products or too large production quantity. Mura

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will usually lead to muda, so it’s important to focus also on mura, so that muda can be reduced. (Liker, 2004; Hines et al. 2008, pp. 6)

Muri means overburden of people and machines. Overburden is usually caused by variability in the process. Overburden of people might affect the quality and work safety, while overburden of machines might cause defects and machine breakdowns. (Liker, 2004; Hines et al. 2008, pp 6-7).

As said already earlier all three M’s affect each other. The figure below shows how mura, muri, and muda are connected.

Figure 6. Connection of 3 M’s of Lean. (adapted from Hines et al. 2008, pp. 7)

Figure 6 above shows that unevenness and variability will lead to overburden and overburden will finally lead to waste. The figure shows that it’s not the best way to concentrate only on muda, since it’s caused by previous steps.

4.3.2 Toyota Production System and its principles

Toyota Production System, or TPS, is an approach to manufacturing, developed in Ja- pan, at Toyota Motor Company after World War II. Nowadays, TPS is usually introduced through the term Lean, and TPS is also simple to present with the so-called TPS house diagram, which was developed by Fujio Cho, a successor of Taiichi Ohno. House is a very descriptive way to present TPS, since “the house is strong only if the roof, the pillars, and the foundations are strong”. (Liker 2004)

There are different aspects of TPS presented in the TPS house diagram. All aspects have been illustrated as different parts of the house, roof, pillars, etc. The TPS house diagram can be seen in figure 7 below.

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Figure 7. TPS house diagram (adapted from Liker 2004)

As seen above, the house has different parts in it: roof, pillars, and foundation and they all create this complete structure. The roof consists of the goals that the company is trying to reach: the best quality, shortest lead time, best safety, and high morale. These goals can be reached by eliminating waste. The roof, and the goals, are being supported by 2 pillars: Just-in-time, JIT, and jidoka. JIT will be introduced more in detail in the next chapter, 4.3.3. (Liker 2004)

According to Liker (2004), Jidoka means this so-called in-station quality, meaning no defects should be moved from one workstation to another. Jidoka means autonomation and built-in quality of the product. When discussing machinery, it means that there are different kinds of devices or sensors installed to machines, so that in case of exceptions or defects, the machines stop automatically. The main idea of jidoka is to find defects and exceptions and stop the process before defects are carried forward in the process.

Built-in quality is a crucial element when discussing lean ideology and lean manufacturing since one of the main points in lean is to reduce buffers and stock levels to a minimum. This will lead to a situation, when finding defects or other quality issues, it’s not possible to take another product from buffer or stock, that’s why good quality products

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and production are important. If there are quality issues or other problems on some sta- tions in the process, it will affect the next process, downstream. This will lead to a chain reaction, where all downstream processes are affected or even stopped. When problems appear, it’s needed to give some kind of signal: light, noise, etc. so that the process needs to be stopped, and quality problem, or problems, need to be solved. The signaling is called by the word andon. Andon means signaling for help. (Liker 2004)

Another important jidoka tools or ways of thinking are the 5 Whys and poka-yoke. 5 Whys is a great tool for problem-solving and it’s used to find out root causes. According to Basu (2009, pp. 101-102), the tool should be used as follow:

1. Define the problem for the analysis

2. Set 5 questions, starting with the word why, and ask them one after another 3. Answers should not be defended, and no one should be blamed for the outcome.

4. Define the root cause.

With these 4 steps, it’s possible to find the root cause for the defined problem. It’s important to ask the correct questions, that are close to the subject being observed.

Poka-yoke is not a tool, but more of a way of thinking. It means something that is mistake- proof. Poka-yoke is used to prevent any errors or mistakes in the process, by making it almost impossible (Liker & Meier 2006). In the Toyota Way of thinking, mistakes and errors are considered as mistakes in the process or system, rather than them being human error. The Toyota Way of thinking considers human errors as part of the mistakes and errors in the system since the system is allowing them to happen (Liker & Meier 2006).

Standardized work itself can also be used as one of the tools to reduce quality issues in processes. If some sort of quality issue is found, it’s possible to check the documented work process and find, what is causing the issue, and how to improve the process. (Liker 2004)

The foundation of TPS house is created by Toyota Way Philosophy, Visual Management, Stable and Standardized Processes, and Leveled Production, or heijunka. Heijunka will be introduced later in this thesis. Visual Management means that visualization is used to help processes flow. The standardized processes and work were introduced in the previous paragraph. According to Liker (2004), the Toyota Way Philosophy is a long-term way of thinking, which focuses on creating value to the customer. Toyota Way Philoso- phy is also a foundation for the principles that are guiding TPS and the so-called 4P model, both will be introduced next.

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14 principles are guiding TPS, they are introduced by Liker (2004), after his 20-year- study about Toyota’s way of working. These principles are categorized into 4 different categories, all of them starting with letter P. Categories are Philosophy, Process, People

& Partners, and Problem Solving. The 4 categories complete the 4P model of the Toyota Way, that’s usually presented as a triangle diagram, seen below in figure 8.

Figure 8. 4P model, the Toyota Way (adapted from Liker 2004)

The 4P model and its principles create the foundation for the whole production system.

According to Liker (2004), the 14 principles are as follows:

1. Management should be founded on a long-term philosophy, even if that might harm short-term financial targets. Short-term decision making should not pass the philosophical sense of purpose. The company should be led to a common purpose, which should be bigger than making profit.

Basic point is to create value for the customer, society, and economy.

2. Continuous flow should be achieved so that the problems can be spotted in the processes. Processes should be designed in a way, that they have a continuous, value-adding flow, and all the wastes should be reduced to a minimum. Flow should be a company-wide phenomenon, so that continuous improvement is possible.

3. Waste of overproduction should be avoided by using a pull in the system.

Downstream processes should be provided correct material and amount

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of it, at the correct time. This is the basic idea of JIT. Stocks and work-in- progress should be minimized, but it’s also needed to be able to answer customer demand.

4. Leveling the workload should be done with heijunka. It’s not enough, that only the wastes are eliminated. It’s also important to minimize overloading production and people in the processes and minimize the unevenness in processes.

5. Built-in quality should be the main point of processes and the processes should be stopped and fixed before continuing. The main point is that the quality of the product or service is top-class in the very beginning, and no fixing or improving is needed. There should be a different kind of support systems to help to solve the problems quickly.

6. Standardization of processes is the key element for continuous improvement. Standardized, stable, and repeatable ways of working should be used on all processes, for predictability, systematic timing, and outputs.

Standardization creates a foundation for flow and pull.

7. Problems should be pointed out with the visualization of processes. Sim- ple visual systems and tools should be implemented to support flow and pull in processes. These simple visualizations should help to indicate quickly if there is something wrong in the system or process.

8. In manufacturing, only technology, that has been tested and verified to be efficient for the process and people, should be used. Technology should support the process and people working with the process. Technology shouldn’t replace people working. When implementing new technology to processes, it must be properly tested.

9. Focus on growing leaders from inside the company. Leaders-to-be should understand the company’s processes and philosophy and teach them to others. It’s better to grow these leaders inside the company than source them from outside.

10. Develop extraordinary people and teams, that will work using the company’s philosophy, and the philosophy leads them and their decisions.

There should be a strong culture, in which the company’s values are being clear to everyone. Working as cross-functional teams will lead to a situation, where people and teams are working together to reach the common goal.

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11. Make the partners, suppliers, etc. work efficiently together, challenge them, and help them to improve their processes. When the company can reach the necessary level of respect with other stakeholders the whole network of processes will improve.

12. To understand problems in processes, it’s better to go and see the situation yourself. It’s not always possible to understand the problems by reading data or hearing someone else describe the situation. This problem- solving method is also called genchi genbutsu.

13. No decisions should be done quickly and without consensus. When something is decided, that should be then implemented quickly. The decision process should be done in a very thoughtful way, and all possibilities should be taken into consideration.

14. The company should implement continuous improvement, and it should be constantly learning new things. With continuous improvement, or kaizen, it’s possible to find the root causes or problems and with that, it’s possible to eliminate waste in the processes.

These 14 principles were introduced by Liker (2004), in his book “The Toyota Way”. All these principles are coming from the car industry and manufacturing, but these can also be used in service functions and other businesses to improve the processes.

4.3.3 Just-In-Time, JIT

Just-In-Time, or JIT, is used as a production and inventory control method (Danese et al. 2011). Basis idea of JIT is to reduce waiting, make sure that material keeps flowing, and that everything is working properly. It means that the correct resources are in the right place at the right time. Reducing waste is the basics of Lean, and JIT is a tool that can be used to reduce waste. (Kannan & Tan 2005)

JIT was developed and introduced by Taiichi Ohno and Toyota Motor Company, as part of TPS. JIT was first only used in the automotive industry, but nowadays it can be used in many other industries as well, and not only in the manufacturing industry. (Chen &

Hua Tan 2013)

There are 7 so-called JIT principles, which are very close to those 7 wastes of Lean that were introduced earlier. According to Pheng et al. (2011), the principles are as follows:

- Waste elimination - Pull system

Key Factors in Price Estimation Process Performance

Mikko Rajamäki