THE RELATIONSHIP BETWEEN LEAN MANUFACTURING & CUSTOMER’S DEMAND UNCERTAINTY The Relationship between Lean Manufacturing & Customer’s Demand Uncertainty Muhammad Abid Senol Özkan THESIS WORK 2009 Production Development & Management 1 THE RELATIONSHIP BETWEEN LEAN MANUFACTURING & CUSTOMER’S DEMAND UNCERTAINTY The Relationship between Lean Manufacturing & Customer’s Demand Uncertainty Muhammad Abid Senol Özkan This thesis work is performed at Jönköping Institute of Technology within the subject area Production Development & Management. The work is part of the university‟s two-year master‟s degree within the field of industrial engineering. The authors are responsible for the given opinions, conclusions and results. Supervisor: Christer Johansson Credit points: 30 ECTS Date: September 24, 2009 Archive number: 2 THE RELATIONSHIP BETWEEN LEAN MANUFACTURING & CUSTOMER’S DEMAND UNCERTAINTY ABSTRACT Customer Demand Uncertainty is a big obstacle for companies to sustain their competitiveness in the market that responding customer requirements becomes essential. Besides companies need to consider also their cost structures which should have in high consistency to survive as well. Lean and Agile terminologies have been investigated so far in cost and responsiveness to customer manner within internal system perspective i.e. product volume and variety. This thesis aims to link lean manufacturing steps with customer demand uncertainty condition following information systems, marketing issues and human factor for management level in framework that firm‟s (manufacturer) current condition can be tested according to answers from questionnaires and implementation of assessment tables since it is used as guideline and provides on which level firms are in demand uncertainty, lean and agile manufacturing. This support enables to firms to create their own flexible leagile decoupling point according to their interior characteristics and capabilities in the market. 3 THE RELATIONSHIP BETWEEN LEAN MANUFACTURING & CUSTOMER’S DEMAND UNCERTAINTY SUMMARY In highly competitive environment, the companies need to try some responsibilities to continue their sustainability in the market. Satisfaction of customer requirements within agreed time, high quality and service levels are essential point to keep firms positions. On the other hand reduction of cost in the system is another perspective to survive hence those characteristics; customer responsiveness following cost reduction in the system conducts the firms to take some decisions and responsibilities in the changeable market conditions. Many literature studies have been discussed that lean terminology provides elimination of waste and cost reduction in low variety and low demand uncertainty while agile terminology is important to provide quick customer responsiveness in high variety and high demand uncertainty. Nevertheless external integration between supply chain members would be determinant since it facilitates to overcome for uncertainty. The purpose of this thesis is to link lean manufacturing steps with customer demand uncertainty including marketing issues with integration of agile manufacturing since agile enables to gain quick responsiveness in highly demand uncertainty while lean conducts cost reduction. This aim is carried out of development of framework which depends on four categories; lean and agile concepts in manufacturers, support of information system, suppliers contracts and marketing issues. This framework helps organizations in customer demand uncertainty situation that provides to make decisions. Besides the recommended framework questionnaire and assessment tables are developed to describe company‟s condition on which level it has lean, agile and demand uncertainty since it helps to follow this framework. Leagile systems are used in manufacturer part in this framework that consisted of three parts; system, strategies and people to deal uncertainty thereby flexible decoupling point is placed accordingly. By doing so, the sections under each part can be determined according to company‟s own system and characteristics with combination of supplier contracts, marketing issues and information strategies. In order to identify company‟s characteristic, questionnaire and assessment tables are implemented to managers and answers clarifies the companies situation how far they are in demand uncertainty, lean and agile manufacturing where the questions can be either explicitly or implicitly related with them. Therefore results and conclusions for this report are a framework that supports to deal with uncertainty with placing leagile flexible decoupling point where the determinants are obtained from answers of questionnaires and assessment tables. These conclusions can provide to gain adaptability in highly competitive environment and possible cost reductions are acquired that can be considered in terms of efficiency and effectiveness points in the system. 4 THE RELATIONSHIP BETWEEN LEAN MANUFACTURING & CUSTOMER’S DEMAND UNCERTAINTY KEY WORDS Demand Uncertainty, Marketing, Lean Manufacturing, Agile Manufacturing, Decoupling point 5 THE RELATIONSHIP BETWEEN LEAN MANUFACTURING & CUSTOMER’S DEMAND UNCERTAINTY TABLE OF CONTENTS 1 INTRODUCTION ........................................................................ 12 1.1 BACKGROUND .................................................................................................................... 12 1.2 PURPOSE AND AIMS ............................................................................................................ 13 1.3 DELIMITS ............................................................................................................................ 13 1.4 OUTLINE ............................................................................................................................ 13 2 RESEARCH METHODOLOGY ...................................................... 16 2.1 METHODOLOGY APPROACH ............................................................................................... 16 2.1.1 Qualitative Approach (Inductive approach for analysis) ............................................. 16 2.2 RESEARCH TECHNIQUES ..................................................................................................... 18 2.2.1 Collection of Secondary Data ..................................................................................... 19 2.2.2 Literature Review ...................................................................................................... 19 2.3 RESEARCH PROCESS ........................................................................................................... 19 3 LITERATURE REVIEW ................................................................. 21 3.1 MARKETING ....................................................................................................................... 21 3.1.1 Marketing Strategy .................................................................................................... 21 3.1.2 Competing Challenges ............................................................................................... 23 3.1.3 Knowledge Based Marketing ...................................................................................... 23 3.2 DEMAND UNCERTAINTY .................................................................................................... 24 3.2.1 Uncertainty ............................................................................................................... 24 3.2.2 Make to order............................................................................................................. 26 3.2.3 Quick Response ......................................................................................................... 26 3.2.4 Managing Uncertainty .............................................................................................. 26 3.3 LEAN MANUFACTURING .................................................................................................... 28 3.3.1 Waste Issues .............................................................................................................. 29 3.3.2 Just In Time ............................................................................................................... 30 3.3.3 Pull Systems .............................................................................................................. 31 3.3.4 Kanban Systems ........................................................................................................ 31 3.3.5 Continuous Flow ....................................................................................................... 33 3.3.6 Continuous Improvement .......................................................................................... 33 3.3.7 Takt Time .................................................................................................................. 34 3.3.8 Production Leveling ................................................................................................... 34 3.3.9 Level of Automation ................................................................................................... 35 3.4 LEAN SUPPLY CHAIN ......................................................................................................... 36 3.4.1 Partnerships and Alliances with Supplier ................................................................... 36 3.4.2 Standardization ........................................................................................................