Lean is a process which is create more values for customers with fewer resources

INTRODUCTION Lean Manufacturing philosophy has been used popular in a number of producing companies in all over the world for decades, especially in Japan. However, Lean Manufacturing is a new concept in Vietnam and it has been implemented for over 20 years. In today''''s highly competitive world, a number of organizations in Vietnam are striving hard to stay competitive and profitable for a long-term period. They have a golden opportunity to downsize their cost, customer lead-time and cycle time through the application of Lean Manufacturing technologies. Some of the hurdles that the country faces, on the other hand, include the lack of scale, and the low investment being made in technology and infrastructure. To safeguard the interest of these manufactures in the long run in the Vietnamese economy, the manufacturers need to be competitive simultaneously maintaining the quality standards which could be possible with implementing lean techniques in their system. Nam An Mechanism and Environment Joint Stock Company experienced 16-year operating and producing. Nam An M&E JSC is a manufacturer in heavy industry. The company focuses on petroleum systems, boiler, compressor, etc. However, Nam An company only a small scale company so there are a number of problem existing in the company such as operations management, logistics management, human resources management and producing process. In order to make Nam An company can develop in the high competitive market, the company need to apply Lean Thinking to eliminate wastes. The reason why this thesis mentioned about elimination wastes according to Lean Manufacturing is Lean theory will help the company solve all above problems. Rationale of Study The purpose of this study is to find several wastes and propose solutions according to Lean Manufacturing to eliminate these wastes at Nam Am Mechanism and Environment Joint Stock Company. Objectives of the study i. To review Lean Manufacturing philosophy and its application ii. To identify wastes at Nam An M&E JSC ii. To propose several recommendations in order to improve company’s performance Structure of the study Chapter 1: Conceptual framework of Lean Manufacturing Chapter 2: Company profile and Methodology Chapter 3: Wastes at Nam An M&E JSC: Findings and Discussion Chapter 4: Conclusion and Recommendations

In this opportunity, I give my special thanks to Assoc Prof Dr Do Thi Dong whoalways took time out to hear and guide me how to do my Bachelor thesis.Furthermore, I send my thanks to other lecturers in National Economics Universitywho help me complete all procedures of my thesis

Without the support and co-operation of the Board of Directors, managers, and mycoworkers at Nam An Company, I cannot finish successfully this thesis about

“Application of Lean Manufacturing at Nam An Mechanism and Environment JointStock Company” And especially, I send my deepest thanks to Mrs Vu HoangNguyet, the Senior Financial Manager at the company, for giving useful decision &necessary advices

Moreover, I am eternally grateful my friend, Mr Tran Thanh Long, who alwaysencourages me and helps me in information technology In addition, I would like tothank to all of my friends who help me in completion of this thesis with their kindencouragement

An obligatory thanks is spent for my classmate in National Economics Universitywho share their knowledge with me, help me and encourage me all time I study inthe university

Finally, I am highly indebted my family who are always in my side and give me themost honest advices

Sincerely,

Nguyen Thu Phuong

Hanoi, May 2017

TABLE OF CONTENTS

TABLE OF CONTENTS ii

LIST OF TABLES AND FIGURES vi

EXECUTIVE SUMMARY x

INTRODUCTION 1

CHAPTER 1 1

CONCEPTUAL FRAMEWORK OF LEAN MANUFACTURING 2

1.1 Definitions of Lean Manufacturing 2

1.4 Application of Lean Manufacturing 10

CHAPTER 2 12

COMPANY PROFILE AND METHODOLOGY 12

2.1 Nam An Mechanism and Environment Joint Stock Company’s profile 12

2.1.1 Overview of the company 12

2.1.2 Organizational structure 14

2.1.3 Manufacturing process 16

2.1.4 Financial results 17

2.2 Methodology 21

2.2.1 Research framework 21

2.2.2 Research design and approach 22

2.2.3 Data collection and processing 23

CHAPTER 3 25

WASTES AT NAM AN MECHANISM AND ENVIRONMENT JOINT STOCK COMPANY: FINDINGS AND DISCUSSION 25

3.1 Characteristics of the sample 25

3.2 Findings 27

CHAPTER 4 36

CONCLUSION AND RECOMMENDATIONS 36

4.1 Conclusion 36

4.2 Recommendations 37

REFERENCES 39

APPENDICES 40

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted Bachelor’sThesis independently I ensure that the thesis did not plagiarize any outsidedocuments except for the quoted literature and other sources mentioned at the end

Nam An M&E JSC Nam An Mechanism and Environment Joint Stock Company

LIST OF TABLES AND FIGURES

TABLE OF CONTENTS ii

LIST OF TABLES AND FIGURES vi

EXECUTIVE SUMMARY x

INTRODUCTION 1

CHAPTER 1 1

CONCEPTUAL FRAMEWORK OF LEAN MANUFACTURING 2

1.1 Definitions of Lean Manufacturing 2

Figure 1.1: Five principles of Lean 3

Figure 1.2: Toyota Production System house 8

1.4 Application of Lean Manufacturing 10

Figure 1.3: Application of Lean Manufacturing 10

CHAPTER 2 12

COMPANY PROFILE AND METHODOLOGY 12

2.1 Nam An Mechanism and Environment Joint Stock Company’s profile 12

2.1.1 Overview of the company 12

Figure 2.1: Milestones of Nam An company 12

2.1.2 Organizational structure 14

Figure 2.2: System structure of Nam An company 14

2.1.3 Manufacturing process 16

Figure 2.4: Production process of a gas chamber 16

2.1.4 Financial results 17

Figure 2.5: Nam An M&E JSC, Net Sales in period 2012 - 2016 19

2.2 Methodology 21

2.2.1 Research framework 21

2.2.2 Research design and approach 22

2.2.3 Data collection and processing 23

CHAPTER 3 25

WASTES AT NAM AN MECHANISM AND ENVIRONMENT JOINT STOCK COMPANY: FINDINGS AND DISCUSSION 25

3.1 Characteristics of the sample 25

Table 3.1: Characteristics of the sample 25

Figure 3.1: Sample’s specialization pie chart 26

Figure 3.2: Experience time of the sample 26

3.2 Findings 27

Figure 3.3: Results of the survey 27

Figure 3.4: The Nam An M&E JSC, Overall average score of 8 types of wastes 28

Figure 3.5: The Nam An M&E JSC, The result of the survey 30

Figure 3.6: Nam An M&E JSC, the result of Overproduction 31

Figure 3.7: Nam An M&E JSC, the result of Queues 32

Figure 3.8: Nam An M&E JSC, The result of Transportation 32

Figure 3.9: Nam An M&E JSC, The result of Over-processing 33

Figure 3.10: Nam An M&E JSC, The result of Inventory 33

Figure 3.11: Nam An M&E JSC, The result of Motion 34

Figure 3.12: Nam An M&E JSC, The result of Defective product 34

Figure 3.13: Nam An M&E JSC, The result of Human 35

CHAPTER 4 36

CONCLUSION AND RECOMMENDATIONS 36

4.1 Conclusion 36

4.2 Recommendations 37

REFERENCES 39

APPENDICES 40

TABLE OF CONTENTS ii

LIST OF TABLES AND FIGURES vi

EXECUTIVE SUMMARY x

INTRODUCTION 1

CHAPTER 1 1

CONCEPTUAL FRAMEWORK OF LEAN MANUFACTURING 2

1.1 Definitions of Lean Manufacturing 2

Figure 1.1: Five principles of Lean 3

Figure 1.2: Toyota Production System house 8

1.4 Application of Lean Manufacturing 10

Figure 1.3: Application of Lean Manufacturing 10

CHAPTER 2 12

COMPANY PROFILE AND METHODOLOGY 12

2.1 Nam An Mechanism and Environment Joint Stock Company’s profile 12

2.1.1 Overview of the company 12

Figure 2.1: Milestones of Nam An company 12

2.1.2 Organizational structure 14

Figure 2.2: System structure of Nam An company 14

2.1.3 Manufacturing process 16

Figure 2.4: Production process of a gas chamber 16

2.1.4 Financial results 17

Figure 2.5: Nam An M&E JSC, Net Sales in period 2012 - 2016 19

2.2 Methodology 21

2.2.1 Research framework 21

2.2.2 Research design and approach 22

2.2.3 Data collection and processing 23

CHAPTER 3 25

WASTES AT NAM AN MECHANISM AND ENVIRONMENT JOINT STOCK COMPANY: FINDINGS AND DISCUSSION 25

3.1 Characteristics of the sample 25

Figure 3.1: Sample’s specialization pie chart 26

Figure 3.2: Experience time of the sample 26

3.2 Findings 27

Figure 3.3: Results of the survey 27

Figure 3.4: The Nam An M&E JSC, Overall average score of 8 types of wastes 28

Figure 3.5: The Nam An M&E JSC, The result of the survey 30

Figure 3.6: Nam An M&E JSC, the result of Overproduction 31

Figure 3.7: Nam An M&E JSC, the result of Queues 32

Figure 3.8: Nam An M&E JSC, The result of Transportation 32

Figure 3.9: Nam An M&E JSC, The result of Over-processing 33

Figure 3.10: Nam An M&E JSC, The result of Inventory 33

Figure 3.11: Nam An M&E JSC, The result of Motion 34

Figure 3.12: Nam An M&E JSC, The result of Defective product 34

Figure 3.13: Nam An M&E JSC, The result of Human 35

CHAPTER 4 36

CONCLUSION AND RECOMMENDATIONS 36

4.1 Conclusion 36

4.2 Recommendations 37

REFERENCES 39

APPENDICES 40

EXECUTIVE SUMMARY

Lean Manufacturing philosophy was applied in academic literature in 1988 andpopularized by the book ‘The machine that change the world’(Womack et al.,1990) Later on, the Lean implementation technology (Lean) has its root inmanufacturing and especially the automotive sector through Toyota ProductionSystems Lean Manufacturing theory has been used widely in a lot ofmanufacturing companies in all over the world for decades, especially in Japan.However, Lean Manufacturing is a new concept in Vietnam and it has beenimplemented for over 20 years Lean theory includes a number of issues such as 5principles (Identify customers and what they value, Map the value stream, CreateFlow to the customers, Establish pull based on customer demand and SeekContinuous improvement), 4 Objectives (Improve quality, Eliminate wastes, Reducetime, and Reduce total costs), 8 types of wastes (Overproduction, Queues,Transportation, Over-processing, Inventory, Motion, Defective product, andHuman) and a number of tools established by Toyota Production Systems The LeanManufacturing approach refers to transform non-value added activity into valueadded activity Lean Manufacturing technology has its impetus and focus on wholeoperation Lean Manufacturing methods are inclusive of all employees and involve

a major change in the embedded attitudes of the individuals that make up theorganizations

Nam An Mechanism and Environment Joint Stock Company is a company producingheavy industrial products which was founded in 2000 In fact, Nam An company is a smallscale business with a number of problem during operations management such as inventorymanagement, standardized process, human resources management In order to make Nam

An company can develop in the high competitive market, the company need to apply LeanThinking to eliminate wastes The reason why the wastes should be controlled is thesewastes are the biggest problem creating higher cost for the company

In this study, both secondary and primary data was used Secondary data can becollected from books, newspapers, articles and several business reviews Besidesthat, to make arguments in the thesis more clear, Financial statements, Inventoryreports and Transportation reports of Nam An M&E JSC were used About primarydata, a questionnaire about the company operations situation was conducted by theauthor The survey uses Likert scale with 5-point to assess the questionnaire Thereare 22 questions in the questionnaire which includes 21 multiple choice questions

and an open question Based on Lean theory about elimination of wastes, thesemultiple choice questions were divided into 8 types of wastes Normally each parthas 3 questions, however, Overproduction, Motion and Defective product parts haveless than 3 questions and Human part includes 4 questions

The questionnaire was proposed as a form of personal interview with 13 respondents.Besides 22 questions in the questionnaire, personal interview could reveal many otherpoints out of issue mentioned in the questionnaire This is a semi structured interviewbecause the interview was based on fix questions in the questionnaire However,interviewer may ask some more questions to explore detail information

After doing the survey, several wastes existing in the company would be pointed out.Based on the Likert scale point, the higher score wastes should be focused on in short-time period The thesis only analyzes based on the score of questionnaire’s result.The survey’s results reveal that Overall average score of the questionnaire is 2.22per 5 point which means that there are not too many wastes existing in the company.Meanwhile, 4 types of wastes which point is over average score are Overproduction,Transportation, Human and Queues Moreover, the highest score belongs toOverproduction part with 3.46 per 5.The results of the questionnaire show that there aretoo many wastes in the company and they need to be eliminated as soon as possible Thesetypes of wastes should be controlled by the company no more than 3 years because thesewastes in long term will affect to the benefit of Nam An company

Meanwhile, 4 other types of wastes are Inventory, Defective product, Motion andOver-processing which do not exist too many in the company with the right scoreorder are 2, 2, 1.73 and 1.46 For these wastes, Nam An company should maintainand improve in the long period

Based on the result of the questionnaire and several tools mentioned in theConceptual Framework, the study proposes several recommendations to apply Leanfor the company such as build Pull system, Just-in-time model and Value streammapping Furthermore, the company can build an exactly KPI and feedbackchannels for their employees

The thesis is about application of Lean Manufacturing at Nam An M&E JSC.However, there are several limitation of the thesis that have not resolved At first,the sample of the thesis is small (only 13), however, it is the total number ofrespondents can be interviewed for this thesis Secondly, there are many issuesaccording to Lean manufacturing theory, however, this study only mentioned aboutelimination of wastes And finally, the range of conceptual framework is broad, the

research cannot review all literature of Lean manufacturing.

Lean Manufacturing philosophy has been used popular in a number of producingcompanies in all over the world for decades, especially in Japan However, LeanManufacturing is a new concept in Vietnam and it has been implemented for over 20years In today's highly competitive world, a number of organizations in Vietnam arestriving hard to stay competitive and profitable for a long-term period They have agolden opportunity to downsize their cost, customer lead-time and cycle time throughthe application of Lean Manufacturing technologies Some of the hurdles that thecountry faces, on the other hand, include the lack of scale, and the low investmentbeing made in technology and infrastructure To safeguard the interest of thesemanufactures in the long run in the Vietnamese economy, the manufacturers need to becompetitive simultaneously maintaining the quality standards which could be possiblewith implementing lean techniques in their system

Nam An Mechanism and Environment Joint Stock Company experienced 16-yearoperating and producing Nam An M&E JSC is a manufacturer in heavy industry Thecompany focuses on petroleum systems, boiler, compressor, etc However, Nam Ancompany only a small scale company so there are a number of problem existing in thecompany such as operations management, logistics management, human resourcesmanagement and producing process In order to make Nam An company can develop inthe high competitive market, the company need to apply Lean Thinking to eliminatewastes The reason why this thesis mentioned about elimination wastes according toLean Manufacturing is Lean theory will help the company solve all above problems

Rationale of Study

The purpose of this study is to find several wastes and propose solutions according

to Lean Manufacturing to eliminate these wastes at Nam Am Mechanism andEnvironment Joint Stock Company

Objectives of the study

i To review Lean Manufacturing philosophy and its application

ii To identify wastes at Nam An M&E JSC

ii To propose several recommendations in order to improve company’s performance

Structure of the study

Chapter 1: Conceptual framework of Lean Manufacturing

Chapter 2: Company profile and Methodology

Chapter 3: Wastes at Nam An M&E JSC: Findings and Discussion

Chapter 4: Conclusion and Recommendations

CHAPTER 1

CONCEPTUAL FRAMEWORK OF LEAN

MANUFACTURING1.1 Definitions of Lean Manufacturing

The process of Lean Manufacturing has been the main concerns and issues of manymanufacturing companies throughout the world Many processes leading up to leanmanufacturing have influenced this greatly such as Interchangeable parts, Just inTime Production, the Ford Assembly line, and the Toyota Production Systems.This specific process of Lean Production has been implemented and spread out byall types of leading manufacturing companies Lean means "manufacturing withoutwaste." Waste ("muda" in Japanese) has many forms Material, time, idleequipment, and inventory are examples Most companies waste 70%-90% of theiravailable resources Even the best Lean Manufacturers probably waste 30%(Strategosinc, 2008) 'LEAN' has always been important to manufacturers Whenyou reduce inventories, assets, overhead, wait times and out-of-specs, you generallyincrease profits Simply put, lean manufacturing is a key contributor to highperformance - the ability to consistently outpace competitors across economiccycles, industry cycles and generations of leadership (Russell, 2006) Overall, “thisprocess improves the manufacturing time, reduces costs and the reduction of wastesand defects.”

The popular definition of Lean which is supposed in Lean Manufacturing and the ToyotaProduction System (SAE) usually consists of the following: “It is a comprehensive set oftechniques that, when combined and matured, will allow you to reduce and theneliminate the seven wastes.” This system not only will make your company leaner, butsubsequently more flexible and more responsive by reducing waste

According to Fundamental of Lean (Deborah Nightingale, 2005), “Lean is a process

of eliminating wastes with the goal of creating value for enterprise stakeholders.”Meanwhile, there is a more simple definition of Lean in www.Lean.org “which iscreating more values for customers with fewer resources.” A lean organizationunderstands customer value and focuses its key processes to continuously increase

it The ultimate goal is to provide perfect value to the customer through a perfectvalue creation process that has zero waste

Eliminating waste along entire value streams, instead of at isolated points, creates

processes that need less human effort, less space, less capital, and less time to makeproducts and services at far less costs and with much fewer defects, compared withtraditional business systems Companies are able to respond to changing customerdesires with high variety, high quality, low cost, and with very fast throughputtimes Also, information management becomes much simpler and more accurate.

In conclusion, the most comprehensive and popular definition of Lean Manufacturing is supposed by Lean.org: “Lean is a process which is create more values for customers with fewer resources.”

1.2 Principles and Objectives of Lean

Lean Thinking was written by James J Womack and Daniel T Jones (2003) Whilethere is a little in this book is new, the authors have presented the concepts of leanmanufacturing in a persuasive way The ideas of lean production are based withinthe Toyota Production System (TPS) approach to the elimination of wastes in everyaspect of an operation

1.2.1 Five principles of Lean

Lean principles are a framework to guide an organization while implementing LeanThinking (Womack and Jones, 2003) Although these principles are commonlyassociated with manufacturing, they are just as valid for processes in other disciplines.There are five basic principles of lean thinking highlighted by Womack and Jones

Source: Lean Thinking (Womack and Jones,1990)

Figure 1.1: Five principles of Lean

Identify your customers and what they value

Every organization needs to understand which value the customer requires for theirproducts or services It is this value that determines how much money the customer

is willing to pay for the product or services This results in a top-down target costingapproach that has been used by Toyota and others for many years Target costingfocuses on what the customer is willing to pay for certain products, features, andservices From this the required cost of these products and services can bedetermined It is the company’s job to eliminate waste and cost from the businessprocesses so that the customers price can be achieved at great profit to the company

Map the Value Stream

The value stream is the entire flow of a product’s life-cycle from the origin of theraw materials used to make the product through the cost of customers’ utilizationand ultimately disposing of the product Only by a study and clear understanding ofthe value stream and its value-add and wastes can a company truly understand thewaste associated with the manufacture and delivery of a product and/or service.Lean thinking advocates supplier and customer partnership and radical supply chainmanagement to eliminate waste from the entire value stream

Create Flow to the customer

One very significant key to the elimination of waste is flow If the value chain stopsmoving forward for any reason, then waste will be occurring The trick is to create avalue-stream where the product (or its raw materials, components, sub-assemblies)never stop in the production process Each aspect of production and delivery is fullysynchronized with the other elements Carefully designed flow across the entirevalue chain will tend to minimize waste and increase value to the customer

Establish Pull based on customer demand

The way to ensure that nothing is made ahead of time and builds up process inventory that stops the synchronized flow is to use a pull approach Atraditional western manufacturer will use an MRPII or ERP style of productionplanning and control whereby production is "pushed" through the factory based on aforecast and a schedule Pull approach states that we do not make anything until thecustomer orders it To achieve this requires great flexibility and very short cycletimes of design, production, and delivery of the products and services It alsorequires a mechanism for informing each step in the value chain what is required ofthem today, based upon meeting the customer’s needs

work-in-Seek continuous improvement

Lean manufacturers set their targets for perfection The idea of total qualitymanagement is to systematically and continuously remove the root causes of poorquality from the production processes so that the plant and its products are movingtowards perfection This relentless pursuit of the perfect is key attitude of anorganization that is "going for lean".

1.2.2 Four objectives of Lean manufacturing

There are four objectives of Lean Production such as Improve quality, Eliminate

wastes, Reduce time, and Reduce total costs Firstly, it is to improve quality.

Manufacturing companies today must focus on producing, and delivering, quality products to survive in the competitive market While there are dozens ofdifferent ways to improve the quality of manufactured products, lean manufacturing

high-is one of the best choice By reducing unnecessary wastes, many companies canshift their focus towards the product, investing additional time and resources intomaking the products better

A second goal of lean manufacturing, and arguably the most important, is to

eliminate waste Manufacturing companies tend to produce a number types of

wastes, more than companies operating in other industries; it is only the nature ofthe manufacturing industry However, manufacturing companies can reduce theirwastes by focusing on the principles of lean manufacturing Cutting unimportantmotion, reduce defective products and transportation cost, opting for recycledmaterials, eliminate unused inventory and embracing other green, Eco-friendlypractices are just a few ways that companies can achieve this

A third objective of lean is to reduce time Companies that use lean manufacturing

will naturally benefit from faster production times It shows that there is less wasteand greater overall efficiency in the workplace Obviously, faster production timeswill benefit a manufacturing company in several different ways: producing productsfaster means lower overhead and more revenue, making lean manufacturing wellworth it in the long run

The fourth and final objective of lean manufacturing is to reduce total costs It may

be quite similar to reducing production time, because when products are producedfaster, it results in reduced total costs Lowering costs allows companies to staycompetitive, which is important for success in the manufacturing industry

To conclude, the objectives of lean manufacturing are to improve the quality of

products, eliminate unnecessary waste, reduce production times and reduce totalcosts Optimistically, this will give a better understanding of lean manufacturing and

1.2.3 Eight types of wastes

According to Lean production, the elimination of wastes may seem like a simpleand clear understanding It is obvious these wastes are often identified This thenhugely reduces the potential of such an aim The elimination of waste is one of Lean

noted that for many lean implementations this list shrinks to the first waste typeonly with reduced corresponding benefits

To connect these 3 concepts is simple in Toyota Production Systems and thus lean Atfirst, ‘muri’ focuses on the preparation and planning of the process, or what work can beavoided proactively by design Next, ‘mura’ then focuses on how the work design isimplemented and the elimination of fluctuation at the scheduling or operations level, such asquality and volume In addition, ‘Muda’ is discovered after the process is in place and isdealt with reactively It is seen through variation in output It is the role of management toexamine the ‘muda’, in the processes and eliminate the deeper reasons by considering thelinks to the ‘muri’ and ‘mura’ of the system The ‘muda’ and ‘mura’ inconsistencies must

be fed back to the muri, or planning, stage for the next project

Therefore, the original seven ‘muda’ includes:

− Transport (moving products that are not actually required to theprocessing performance)

− Inventory (all components, work in process, and finished product notbeing processed)

perform the processing)

during shift change)

− Over Processing (resulting from poor tool or product design creating activity)

Taking the first letter of each waste, the acronym "TIMWOOD" is formed This is a

common way to remember the 7 ‘muda’ Many others have added the "waste of

sigma includes the waste of Skills, referred to as "under-utilizing capabilities anddelegating tasks with inadequate training" Other additional wastes added were forexample "space" These wastes were not originally a part of the seven deadly wastesdefined by Taiichi Ohno in TPS, but were found to be useful additions in practice

1.3 Tools of Lean Manufacturing according to Toyota Production System

There are many tools of Lean Manufacturing However, TPS is the first systemwhich created and applied successfully in their production process Therefore, thisthesis will mention about Lean’s tools following TPS

1.3.1 Toyota Production Systems

The Toyota Production System (TPS) came up with a necessity in response to thesituations surrounding the company Many of the foundational concepts are old andunique to Toyota while others have their roots in more traditional sources

The oldest part of the production system is the concept of Jidoka which was created

in 1902 by Toyoda founder Sakichi Toyoda This concept refers to notion ofbuilding in quality at the producing process as well as enabling separation of manand machine for multi-process handling The origins of this concept began in theToyoda Spinning and Weaving company which was founded by Sakichi Toyoda.Sakichi Toyoda invented a loom that automatically stopped whenever it detectedthat a thread was broken This loom stopped the process from created defectivematerial Later in 1924 he created an automatic loom that allowed a person tooperate multiple machines The rights to manufacture the loom outside of Japan forwere finally sold to the Platt Brothers Ltd in England This money was thenpartially used to start an automotive division that was later spun off in 1937 as aseparate business and company under Kiichiro Toyoda the son of Sakichi

After World War II Taiichi Ohno a promising engineer in the Toyoda Spinning andWeaving Corporation was brought over to the automotive side of the business Hewas given the task of improving operational productivity and driving in theconcepts of Just-In-Time and Jidoka He was appointed machine manager of anengine plant and experimented with many concepts in production between the years

of 1945-1955 His work and effort is largely what com resulted in the formulation

of what is now acknowledged as the Toyota Production System There arenumerous other people inside the company that contributed to the overall

development of the company and the production system

1.3.2 Tools of Lean Manufacturing

There are also many other tools and techniques that were developed in Toyota such

as 8 types of Wastes, Standardized Work, SMED, 5S, Error Proofing, VisualControl, as well as many others

Source: Toyota Motor Corporation

Figure 1.2: Toyota Production System house

There are two primary pillars of the system such as Just-in-Time and Jidoka Thefirst and most famous one is Just In Time (JIT) The JIT concepts focus on produceand deliver the right parts, in the right amount, at the right time using the minimumnecessary resources This system reduces inventory, and strives to prevents bothearly and over production Producing following a JIT model reveals a lot ofproblems quickly With less inventory in a system the “rocks” are quickly exposed

in production that are disrupting flow Most companies avoid problems, avoidpotential disruptions and use inventory to hide these problems However, in TPS theopposite side of logic is applied By reducing inventory you expose the realproblems in a producing process quickly and focus on improvement Thisconception of surfacing problems and abnormalities is a critical concept in TPS.Undoubtedly, unless you can solve the problem that you expose there is a danger to

this approach

The most important factor of the TPS is obvious the Just in Time model of the

production system The phrase Just in Time was created by Kiichiro Toyota in 1937after the start of Toyota Motor Corporation The company was poor and not able towaste money on excess equipments or materials in production Everything wasexpected to be procured just in time and not too early or too late Later elementsdeveloped in the 1950’s including takt time, kanban, standardized work, andsupermarkets added to the basis for JIT

Secondly, Jidoka (Build in quality) is another pillar of the system There are two

parts of Jidoka They are “Building in quality at the process” and “Enablingseparation of man from machine in work environments” Jidoka is a Japanese wordthat ordinarily mean automatic or automation However Toyota puts a specific twist

on this word by adding a what is known as a “radical” in depicting kanji characters.The radical added to the left of one of the kanji characters in Jidoka means

“human” In other words Toyota Production Systems aspires for processes whichare capable of making intelligent decisions and shutting down automatically at thefirst sign of an abnormal condition such as a defect, or other problem The goal isnot to run continuously but in other words to stop running automatically whentrouble happens This automatical stop function helps stop defects from escapingdownstream, prevents injury, limits machine damage, and enables a better look atthe current condition whenever there is a problem

Much like the logic of JIT this concept of Jidoka is counterintuitive In other words

it is better to stop a machine at the first sign of trouble than to keep on producingthe problem which only generates more waste

Another component of Jidoka is the separation of man from machine Whenmachines possess the ability to stop in the event of a problem then there is no needfor humans to stand and watch a machines Jidoka frees people being tied tomachines and monitoring them and puts people to use in a more value addedfashion This ability to separate man from machine reflects Toyota’s respect for theemployee and is an important enabler for Standardized Work to flourish

There are several important components to TPS: takt time, leveling (heijunka),

pull via kanban, and flow production.

The foundation of TPS is Level Production By smoothing or leveling customer

requirements over time, we can better utilize our resources and ensure continuousproduction Averaging volumes and model mix requires smaller lots and in the bestcases “batch of one” capability from raw materials to finished goods

The bedrock of this system is Equipment Reliability Without reliable equipment,

we must build inventories (just in case), or invest in more equipment (due tounexpected downtime) Proper maintenance of equipment will ensure that it isavailable when we need it

In contrast to the conventional production system, in which systematic batchproduction with large lots is believed to have a maximum effect on cost reduction,the Toyota manufacturing philosophy is to make the smallest lot possible, and do so

by setting up dies and machines in the shortest time possible

The production system philosophy of Toyota shows a manufacturing culture ofcontinuous improvement (Kaizen) based on setting standards aimed at eliminatingwaste through participation of all employees The goal of the system is to reduce thetimeline from the time an order is received until the time it is delivered to the actual

customer Ideally the system strives to produce the highest possible quality, at the

lowest possible cost, with the shortest lead-time possible

1.4 Application of Lean Manufacturing

Among a number of Lean manufacturing applied methods, the thesis concluded andgave an appropriate process of application of Lean Production for elimination wastes purpose

Figure 1.3: Application of Lean Manufacturing

Stage 1 – Identify Wastes

According to the Lean Manufacturing philosophy, waste always exists in allproducing process, and no matter how good your process is, it can always be better

This commitment to continuous improvement is known as Kaizen.

One of the key tools used to identify this waste is a Value Stream Map This

illustrates how materials and production processes flow through your organization

to bring your product or service to the customer It focuses on how actions anddepartments are connected, and it highlights the waste If you analyze the ValueStream Map, you will see the processes that add value and those that do not Youcan then create a "future state" Value Stream Map that includes as few non-value-adding activities as possible

Stage 2 – Analyze the Wastes, and Find the Root Causes

For each waste you identified in the first stage, point out what is causing it by

using Root Cause Analysis If a machine is constantly breaking down, you may

think the problem is mechanical and decide to purchase a new machine But RootCause Analysis could reveal that the real problems are poorly trained operators who

do not use the machine properly Other effective tools for finding a root cause

include Brainstorming and Cause and Effect Diagrams.

Stage 3 – Solve the Root Cause, and Repeat the Cycle

Using an appropriate problem-solving process, decide what you must do to fix the

issue to create more efficiency And repeat the Cycle if you find any wastes in yourcompany

CHAPTER 2 COMPANY PROFILE AND METHODOLOGY

2.1 Nam An Mechanism and Environment Joint Stock Company’s profile 2.1.1 Overview of the company

Nam An Mechanism and Environment Joint Stock Company experienced 16-yearoperating and producing The timeline below illustrates the process of formationand development of the company

Figure 2.1: Milestones of Nam An company

(Source: The company regulation)

In 2000, Nam An Mechanism and Environment Limited Liability Company wasfounded However, there were three persons decided to invest in the company in

2004 so Nam An’s Board of Directors changed their name into Nam An Mechanismand Environment Joint Stock Company Five years later, the company spread theirbusiness by building a new factory in Hai Duong province which produced forcustomers in Quang Ninh and Hai Duong region Recently, Director of the companyhas pointed out life standard of employees would effect to productivity, therefore,

he decided to expand the factory in Bac Ninh province in double size

Nam An M&E JSC is a manufacturer in heavy industry The company focuses on petroleumsystems, boiler, compressor, etc The list below is the main business of the company:

− Design and manufacture pressure equipment and industrial fans

equipment

− Construct stations of petroleum and petroleum products (gas, asphalt,chemicals)

chemicals and other petroleum products

The products and the constructions made by the company not only ensure technicaland quality standards, progress and art, but also lower the products’ cost Thecompany is trusted by all domestic and foreign investors

For many years Nam An has executed many constructions, designed and

manufactured a lot of line of process for various fields of industrial equipment systems such as:

Main products of Nam An M&E JSC are divided into 4 groups: Compressed air

systems, Oil and petroleum tanks, Industrial water, Waste and Dust treatment and Coal gasification furnace system.

Compressed air system is a type the system that contains air in thicker shape Forexample, Oxygen tank is a compressed air system It is easy to find in some

hospital, doctors use oxygen tanks when their patients get trouble in breath (An

example of product see Figure 5.1 in Appendices).

The oil and petroleum tanks are used by petroleum retailers, they need these tank to

store their oil and petroleum These tanks are required some special quality becausethey are under high withstand pressure.

System of industrial water, waste and dust treatment is a kind of machine that willhelp many companies filter their wastes before discharging into the environment.Coal gasification furnace is a machine using for heating coal to make industrialproducts As oil and petroleum tanks, coal gasification furnace system is requiredhigher standard as well because it need to resistant to high temperature

Nam An’s products have appeared in all over the country, however, their market isfocused on North and Centre region The company customers include corporations,organizations, hospitals and petroleum retailers in many fields For instance, thereare many long-term customers of Nam An M&E JSC such as Viglacera JSC, HondaVietnam Joint Venture, 108 military central hospital, National Convention Center,etc Moreover, the company did some projects in different countries such as Laos,Cambodia and Korea

2.1.2 Organizational structure

Nam An Joint Stock Company applied a popular corporate structure that most companies are utilizing The model below will show the company system structure

Figure 2.2: System structure of Nam An company

(Source: The company regulation)

Nam An M&E JSC has 3 main branches in all over the country which are Nam An

BN, Nam An HD and Nam An HN Nam An BN is located in industrial zone of BacNinh province and this factory is also main manufacturing of the company Nam An

BN produces almost products from the north to the central of Vietnam On the otherhand, Nam An HD only create products in Hai Duong province, Quang Ninhprovince and Hai Phong province

Although the company has three branches in many other provinces, they only set upheadquarter in the main factory: Nam An BN It is the only factory where hasofficers are despite the fact that workers are working in all three branches There isthe corporate structure of the company.

Figure 2.3: The Nam An company structure

(Source: The company regulation)

The corporate structure of Nam An follows a popular and simple model The Board

of Director of the company has 5 members who are Director, CEO, 2 VicePresidents and another outside of the company There are two Vice Presidents whoare responsible in Sales and Technique The technique Vice President managesTechnique Department which has more than 10 engineers and technicians Thisdepartment will design products and control product quality Besides TechniqueDepartment, there are two more ones which are Human Resources Department who

are in charge employee activities and Accounting Department (Figure 5.2 and 5.3

in Appendices shows qualification certificate that HR department manages).

The lower level of Technique Department is manager Nam An has two manager they are inthe same responsibility These two managers will control their Operating Team who makesproducts directly and Project Team who will work in the customer company.

2.1.3 Manufacturing process

Nam An Mechanism and Environment Joint Stock Company manufacturesindustrial products, therefore, process of making product is more complicated Theflow chart below will illustrate how to make a gas chamber which is a featuredproduct of the company

Figure 2.4: Production process of a gas chamber

(Source: The company working process)

The process includes 11 steps which starts from checking raw material standard.The raw materials, components, accessories will be checked about certificate,number and outside In next step, those materials will be measured and cut followthe original design After that, they will move to some special machines to bend andshape the inputs In this step, they need to check again the materials about size andshape Next, the technicians will assemble all the materials as a sample of finalproducts and the workers will solder ones In order to ensure quality of products,they need to check the solders whether it opens or not In the ninth step, the workerswill clean product by sand and water, it could be a special detergent After Cleaning,the product will be applied on an anti-rust paint For ending process, the worker willcheck overall of the product follow ASME and API standard.

2.1.4 Financial results

Nam An Mechanism and Environment Joint Stock Company have been founded for

16 years However, the company usually develops all the time

Firstly, as can be seen in the Balance sheet from 2012 to 2016, the company has many

decisions regarding to their business’s capacity (Full version see Table 5.1 in Appendices).

Table 2.1: Nam An M&E JSC, Assets, Liabilities and Equity in 2012 - 2016

(Source: Conducted by author)

The Balance Sheet shows a fluctuation in Assets, Liabilities and Equity The currentassets percentage was always higher than 60%, especially, nearly 89% in 2012 Thehighest number of current assets was 50,311 million VND in 2015 In 2016 thefixed assets increased to 22,922 million VND because Nam An M&E JSC expandedtheir space by purchasing a land next to Nam An BN in order to improve theirworker lives and the company capacity The relationship between Equity andLiabilities was unstainable during 5 years, liabilities number was often higher thanEquity However, in 2 middle years of the period, the owner’s equity was higher

than liabilities because the company decided to increase their capital (See Figure

5.6 and 5.7 in Appendices for more analysis).

Table 2.2: Nam An M&E JSC, Income statement in period 2012 - 2016

Cost of Goods Sold

Gross Profit (Loss) 1,770 3,119 3,948 6,254 6,872

Expenses

Other

Operating Income (Loss) 395 548 514 1,237 1,459

Income From Continuing Operations 124 193 308 827 712

Net Income 124 193 308 827 712

(Source: Nam An M&E JSC’s Finance Statement in 2012, 2013, 2014, 2015 and 2016)

Net Income of the company was always in a low rate from 0.2% to 0.5% of Sales.Cost of Goods sold accounted for 95% of Sales because Nam An is in heavyindustry, however, the company should apply some policies in order to reduce Cost

of materials and components

Figure 2.5: Nam An M&E JSC, Net Sales in period 2012 - 2016

Unit: Million VND

(Source: Annual report in 2016)

Figure 2.6: Nam An M&E JSC, Net Income in period 2012 - 2016

Unit: Million VND

(Source: Annual report in 2016)

Revenue of the company went up in the 2012 – 2015 period In the 2015, revenueincreased a double of that in 2014 to 177,049 million VND and it has been a highest

growth rate of the company so far However, in the latest year, there was a decrease

to 144,230 million VND in the number of revenure and to 712 million VND in theprofit Besides that, the profit of the company still grew minimally

Table 2.3: Nam An M&E JSC, Cash Flow Statement in period 2012 - 2016

(Source: Conducted by author)

The cash flow from operations occupied a high proportion (>80%) and experienced

a highest number in 2015 (371,648 million VND) This number shows that thecompany did not focus on Financing and Investment activities It could lead to ahigher risk Meanwhile, the cash flow of the company usually increasedsignificantly, however it saw a slight decline in the latest year to 300,658 million

VND(Full version see Table 5.2 in Appendices).

The liquidity ratio of the company was a little higher than industry average Itshows that the company did manage Debt well, it is an advantage of the company

In addition, Asset management was better The ratios in this part is clearly higher,the company was promoting their capacity from assets

In Profitability ratios, the company illustrates it was good at Earning Power andReturn on Equity but the opposite side belonged to Operating margin, Profit margin

and ROA The company should manage their income and asset better (See Table

5.3 in Appendices for the exactly ratios)

2.1.5 Objectives in the near future

Firstly, the company attends to build a specialized factory This factory will focus

on a special and high technology group of products It will be applied by modernmachines that are going to be imported from developed countries such as Germany,America, etc

Secondly, the managers of Nam An Mechanism and Environment Joint StockCompany would like to change their employees attitude The workers areperforming their capacity well, however, regarding to saving material problems,they did not pay attention The company still has too many waste materials whenproducing It may lead to a high cost of goods sold that could be reduced.

Thirdly, currently, the company is not using the most modern machines andtechnology Therefore, they cannot maximize their productivity So in the nearfuture, Nam An would like to apply the highest technology to meet all requirements

from their customers (See Table 5.4 in Appendices for the exactly objectives)

2.2 Methodology

This is a qualitative research In this study, both primary and secondary datacollecting method were used Primary data collecting method was conducted byinterviewing and meeting experienced employees and later created a questionnairefor the company Secondary data was collected by reviewing of current literature,collect data from books, Internet and observation during my working time at thecompany

2.2.1 Research framework

Lean manufacturing includes a number of problems, however, this study onlymentioned the elimination of wastes The study used questionnaire to find outwastes in Nam An Mechanism and Environment JSC It was responded to by thesampled employees of the organization The questions were designed to make thepurpose of the study successful after the results have been ascertained Thisinstrument would give expected information about the operations of the company.According to definition of wastes by Lean Manufacturing, there are 8 kinds of

wastes mentioned in the questionnaire They are: Overproduction, Queues,

Transportation, Over-processing, Inventory, Motion, Defective product and Human.

In the Overproduction part, wastes are defined by the number of useless products

that the company produces without orders from customers These products are theinventory of the company in order to prepare for the future However, it leads a lot

of cost and space for storing these products

Queues is another kind of wastes It shows wastes occur during the idle time when

the company arranges orders, workers, etc At that time, the factory and themachines do not work as full capacity

According to Lean, in the Transportation process, there are some wastes that can

affect the company In this part of the questionnaire, convenience of the warehouseslocation, layout and delivery truck will be presented Based on that information,waste in Nam An M&E JSC is going to ve revealed

Over-processing is obviously a type of wastes In this part, the operation of the

company will be focuses such as their process of quality control, organizationmanagement structure and general and administrative costs

One of the most important part in order to find out waste in the company is

Inventory Waste in inventory occurs when the number of inventory is huge or there

are no spaces in the warehouses Besides that, storing outdated inventory could lead

a high cost for the company

Action of employees during production time will be researched in the Motion part.

Are there any redundant movements in the producing process or arrangement ofmaterials?

Obviously, Defective product could result in many waste When the company hasdefective product they need time to correct it or even produce again and they needmoney to buy materials and pay for workers

Finally, Human is the last type of wastes according to Lean, however, it could be the

most serious waste that affect the company In this part, the questionnaire focuses

on worker’s ability and behavior In addition, the waste happens when the managersdid not know clearly and allocate effective their employees

After the questionnaire was conducted (See Figure 5.4 and 5.5 in Appendices for

the full version), the assessment is a 5-point scale where:

Each section of the questionnaire represents a waste of the operation according toLean Manufacturing Each waste has been ascribed a value based on its importance

in the process

2.2.2 Research design and approach