Management and Production Engineering Review

Volume 8 • Number 2 • June 2017 • pp. 41–48

DOI: 10.1515/mper-2017-0016

LEAN PRODUCTION DEVELOPMENT IN SMEs:

A CASE STUDY
Jukka Majava1, Tiina Ojanperä2
1
University of Oulu, Industrial Engineering and Management Research Unit, Finland
2
Sokeva Ltd., Finland

Corresponding author:
Jukka Majava
Industrial Engineering and Management Research Unit
University of Oulu
P.O. Box 4610, FI-90014, Finland
phone: (+358) 40-754-01-31
e-mail: jukka.majava@oulu.fi

Received: 2 February 2017 Abstract

Accepted: 17 March 2017 The competitiveness of small and medium sized enterprises (SMEs) is vital for the Euro-
pean economy. Also, manufacturing is often the core competence of SMEs. Adopting lean
philosophy is a viable and popular approach for developing production and enabling con-
tinuous improvement. Despite the increased interest in empirical lean research, the body of
knowledge about lean manufacturing development in SMEs is currently insufficient. This
paper describes a study of a lean development project in a Finnish-based manufacturing
SME. A current state analysis and development proposals are presented. The project ap-
plies a framework that other SMEs can utilize in identifying their problem areas and creating
development proposals for their production activities. The results of the study contribute to
the existing body of knowledge in lean manufacturing. In addition, managers in SMEs can
utilize the study results as a reference when designing production development projects.
Keywords
lean manufacturing; operations management; production; small and medium sized enterprise
(SME).

Introduction production flow, continuous improvement, and man-

ufacturing products just-in-time [5–8].
Small and medium sized enterprises (SMEs) are Lean has been a very popular topic in the aca-
vitally important for the European economy [1]. demic research in recent years [9]. Many aspects of
Manufacturing is often a key function and compe- lean have been discussed in the literature. For ex-
tence in these enterprises [2, 3]. SMEs can also be ample, the lean supply chain literature was reviewed
more flexible in their operations compared to large in [10]. However, as stated in [11], a gap between re-
companies. However, the globalization of markets search and practice still exists in lean manufacturing.
has increased cost-consciousness among customers. Thus, more empirical research is required. Empiri-
In addition, large companies often benefit from the cal lean research has been especially popular in US-
economies of scale [4]. Thus, SMEs have to continu- and UK-based companies and in automotive, infor-
ously develop their operations to sustain competive- mation, communication technology, and electronics
ness. (ICTE) industries. Yet, empirical research focusing
A viable and popular approach for developing on lean manufacturing in European SMEs is cur-
production and enabling continuous improvement is rently inadequate, which is a key motivation for this
to adopt the lean philosophy. Lean includes sever- study. These SMEs could also gain benefits through
al methods and ways of thinking that aim at devel- lean implementation, which necessitates the analysis
oping production. These are, for example, improved of practical projects.

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This study focuses on the manufacturing indus- In spite of their manufacturing origin, lean prin-
try. The purpose of this paper is to describe the ciples have also been applied in many other sectors,
analysis of the case company’s development project, including, for example, construction, software, and
which aimed to improve production by using lean healthcare [11, 16, 17]. Over the years, the body
philosophy. The research questions were set as fol- of knowledge on lean manufacturing and related ar-
lows: eas has expanded. According to the review in [11],
1. What is the current state of the case company and the majority of the studies have been conceptual.
its development needs for production? A conceptual review of lean production was present-
2. How can production be improved by using lean ed in [18]. The review covered definitions, the key
manufacturing principles? elements, and criticism of lean manufacturing. Ref-
The research questions are addressed through lit- erence [9] presented a combined review of the concep-
erature findings and empirical analysis. The empir- tual and practical issues of lean production. Finally,
ical part of the paper presents an analysis of the a review of empirical research on lean manufacturing
case company, which includes a current state analysis was conducted in [14].
and its development needs and proposals for produc-
tion. The empirical data was collected from multiple LM development
sources and included observation, company reports, Lean development should be considered as a long-
and interviews with employees. The paper is struc- term philosophy rather than a short-term project.
tured as follows: for the background of the empirical Lean philosophy aims to improve the value stream
study, the literature on lean manufacturing and lean in a holistic way and to minimize non-value adding
manufacturing development is reviewed. Then, the activities [6, 7]. Reference [12] stated that lean im-
research method is explained. The case description plementation should obey the following principles:
and analyses are presented in the results section. Fi- defining the value produced for the customer, iden-
nally, the results are discussed from theoretical and tifying value streams and eliminating waste, creat-
managerial perspectives and the study conclusions ing a flowing process, implementing customer-driven
are presented. pull control, and aiming for perfection. The identifi-
cation of value adding activities is also emphasized
Literature review in [19].
TPS is based on lean principles that entail
Lean manufacturing (LM) focusing on the customer, continuous improve-
Many of the pioneers in the development of mod- ment, waste reduction, and the tight integration
ern production have come from the automobile in- of processes. TPS follows lean principles by us-
dustry [12]. These pioneers include, for example, ing a PPT model: People, processes, and tools and
Henry Ford (mass production), as well as Eiji Toy- technologies are the key cornerstones that should
oda and Taiichi Ohno (Toyota Production System, be in balance [20]. Continuous improvement (a.k.a.
TPS). TPS emphasizes addressing changing cus- Kaizen), standardization, pull control by using Kan-
tomer requirements, employee competencies, stan- ban cards, and JIT production are typical ele-
dardization, and the concept of teamwork. The term ments that are involved in the implementation of
“lean production system” was introduced in 1988 lean manufacturing [6–8]. The 5S method – also
based on a review of the TPS [13]. The terms “lean developed in Japan – supports lean implementa-
manufacturing” and “lean production” were intro- tion. 5S includes the following items: sort/segregate,
duced in the book The Machine That Changed the simplify/straighten, shine/sweep, standardize, and
World [13]. sustain/self-discipline. Two additional items, safe-
Lean manufacturing is closely related to just-in- ty and support/maintenance, are also sometimes in-
time (JIT) production [14] and TPS. The relation- cluded [15].
ship between lean, JIT, and TPS can be depicted as Identifying waste (muda) is important in lean
follows. Lean is a management philosophy that fo- manufacturing, since waste increases costs but does
cuses on adding value, eliminating waste in process- not add value for the customer. The waste classes
es, and meeting customer needs. JIT aims to im- include overproduction, waiting, transport, invento-
prove (logistical) activities and eliminate problems in ry, overprocessing, motion, and defects [7]. Unused
production. TPS is a business philosophy that em- employee creativity is also considered to be waste by
phasizes continuous improvement, employee learn- some authors [21].
ing and empowerment, and standardized work meth- Reference [7] proposed a systemic, data-based ap-
ods [15]. proach for applying the principles of value, waste,

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and flow to the supply chain. The process involves source management. The goal of the 6-month devel-
five steps: collecting data, analyzing data, designing opment project analyzed in this study was to cre-
the change, making the change, and measuring the ate a plan to achieve more productive and efficient
benefits. According to [8], an analysis of the com- production. The main sub-goals included retaining
pany’s current state should be the first step in lean- the competitiveness of local manufacturing, creating
based development. This includes analyzing the orga- a profitable product portfolio, achieving continuous
nization’s strategy, business and production process- flow in production, and improving the workforce’s
es, and value streams. The next step is to define the competencies.
objective state and goals. Analysis is the basis for The reasons for starting the development project
identifying the waste and bottlenecks in the process- were the production’s inflexibility and high costs that
es. Finally, the objective state and goals should be reduced the company’s competitiveness. In addition,
taken into account when development needs are iden- the competitors were continuously improving their
tified and development proposals are generated. competiveness, which posed a huge threat for the
company’s survival. In-house expertise for the devel-
Research method opment work did not exist, so the company decided
to utilize external expertise and conduct a research-
The research reported in this paper is based on based development project. The aforementioned was
a case study method [22]. The study began with a lit- considered important in order to ensure that the de-
erature review on applying the lean philosophy to velopment proposals would be objective. A key goal
manufacturing and production development. After for the project was to achieve a state where systemat-
that, a current state analysis of the case company’s ic improvements could be made instead of just coping
production process was conducted. The data was col- with short-term issues and survival.
lected through observation, accessing the company’s
data systems, and conducting semi-structured inter- Current state analysis
views with the employees. The questions in the in- The current state analysis was started in May
terviews focused on the employees’ daily and weekly 2016 by studying and observing the case company’s
tasks, challenges and development ideas, and issues production. In addition to observation, the data col-
in the company’s production process. The last part lection included interviews and accessing data in the
of the study included analyzing the data, creating company’s data systems. This included, for example,
development plans, validating the results with the different reports related to raw materials, produc-
case company, and making conclusions. tion, and sales. The production layout and processes
of two production lines were analyzed and a value
Results stream description was created. It was essential to
identify the key areas that should be improved by us-
Case description ing lean principles, tools, and methods. While quick
The case company was originally established in results were aimed to be achieved, it was also under-
the 1950s and is located in Southern Finland. The stood that potential resistance from the employees
company’s revenue is approximately seven million should be addressed by spending time in motivating
euros and it employs roughly twenty people. The and training them. Educating the employees about
company focuses on importing and manufacturing lean and its benefits was considered very important,
paint and surface finish products. Approximately because they lacked previous lean experience. Based
20% of the products are manufactured in-house by on the current state analysis, the key issues were
using make-to-stock principles. Customers are retail- identified (Table 1).
ers that are mainly located in Finland, and they re- Based on the current state analysis, several forms
quire very short delivery times. The demand is sea- of waste were identified. The main challenges were
sonal; roughly 50% of sales occur between May and identified to be a large amount of work-in-process
September. (WIP) production, a large product portfolio, and the
The company’s key business processes include production layout. The first issue, the large number
customer service, marketing and sales, manufactur- of WIP items, resulted in extra intermediate in-
ing, inventory management, and purchasing. Sup- ventory, which caused disorder in the facilities. In
port processes include business planning, compe- addition, quality issues were not identified due to
tence development, product development, and re- these inventories.

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Table 1
The key production issues based on the current state analysis.
Issue Waste category Implication(s)
Large WIP Waiting and inventory Several intermediate piles of stock and long
lead times
Stock piling up at the workstations Inventory Disorder and difficult access in production fa-
cilities
Disorder in the facilities Motion Extra time spent in finding items, safety risks
The equipment placement does not support Transport WIP items must be transferred around the fa-
the production flow cilities
Difficult to find the raw materials in the stock Motion Stressful for employees, less time for produc-
tive work
Large product portfolio Overproduction Man-hours spent in setups, low profit
Large amount of different raw materials Inventory High ordering and holding costs, lack of space
Employees’ competencies not used Unused employee creativity Low motivation, lack of development sugges-
tions
Lack of up-to-date information Defects Extra time spent in finding the correct infor-
mation, inefficiency, reworking

The current state analysis also demonstrated that ees’ competencies were not fully utilized and several
the company’s portfolio included over one hundred issues existed with the information flow and using
different products. The large amount of product vari- old and invalid information.
ants was partly causing large WIP production. In ad-
dition, the employees specialized in certain tasks and Development needs and proposals
their absences increased WIP production. The sales
volumes for many products were low, but in order After the current state analysis, the objective
to meet the customers’ delivery time requirements, state and goals were set for the company’s produc-
the low-volume products had to be manufactured by tion. The aim was to remove all non-value adding
using the make-to-stock approach. Over 90% of the activities from the production process. Value stream
product volume was produced with only 20% of the mapping and related tools were utilized to standard-
production equipment; thus, several machines had ize activities and improve the production flow, lay-
very low utilization rates. Decisions on the produc- out, and cycle and setup times. The 5S method and
tion lot sizes and sequences were affected by the pre- continuous improvement were also identified as im-
vious year’s demand, but the forecasts were not accu- portant to achieve the objectives that were set. Fi-
rate, which caused under-production for some items gure 1 illustrates the case company’s objective state
and over-production of others. and goals.
The production flow was not smooth enough.
Items were transferred several times between work-
stations during the production process. Production
setup times were also quite long. This was partly due
to disorder in the facilities; a lot of time was spent
searching for production tools and in some cases the
tools had to be repaired before use. In addition, the
utilization rates for some of the machines were very
low. The setup times for these machines were long, Fig. 1. The case company’s objective state and goals.
which led the management to increase the lot sizes.
Product lot sizes varied between 3,000 and 10,000 The removal of non-value adding activities was
units. identified as a key element in the development of pro-
Raw materials were ordered in large amounts to duction. For example, two assembly lines in the main
cover demand for several months. This increased the production line had lower throughput than packag-
inventory holding costs and the risk of having obso- ing; thus, a need to elevate bottlenecks was recog-
lete items, and caused disorder in the facilities. The nized. The decision was made to remove unneces-
disorder, in turn, caused the employees to spend time sary and time-consuming activities by implementing
searching for items, resulting in production stoppage a new layout and adopting the 5S method. Table 2
and creating frustration. A standard way to store presents a summary of the development needs and
items in the facilities did not exist. Finally, employ- proposals.
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Table 2
Development needs and proposals for the case company.
Development need Waste category Proposal
Large WIP Waiting and inventory Finalizing the product being produced before
moving on to a different one
Layout Transport Renewed layout with smooth production flow
Product portfolio Overproduction Smaller portfolio with profitable products
Removal of unnecessary equipment
Human resources Waiting and unused employee creativity Re-allocation, training, and task rotation
Disorder in production facilities Motion 5S implementation
Packaging materials Overprocessing Change in packaging materials

Decreasing WIP production was considered to tasks. Fifth, continuous improvement is carried out;
be an effective way to tackle some of the prob- every employee seeks for ways to improve productiv-
lems presented above. Finalizing a production lot ity and well-being at work.
before starting the next one results in shorter lead
times and smaller intermediate inventories. This, in Challenges during the project
turn, makes it easier to find items in the produc-
tion facilities. A renewed layout reduces unnecessary The development project included various chal-
movement and ensures smooth production flow. The lenges. At the beginning of the project, a lot of time
discontinuation of nonprofitable products – approx- was spent in analyzing the case company’s produc-
imately 50% of the portfolio – improves profitabil- tion processes, supply chain, and product portfolio.
ity and enables getting rid of unnecessary machine The project planning was challenging, since the ex-
resources in production (i.e., 40% of the current act scope could not be defined before the current
equipment). state analysis was complete and the key problem ar-
Human resources was also identified as a key area eas were identified.
needing development. One of the key issues identified One typical challenge in lean development is to
in the current state analysis was the high specializa- identify and select the most appropriate tools and
tion of the production employees, which made the methods that suit the company’s needs. Although
production process vulnerable, since the absence of processes and working methods should be changed
one employee could prevent producing certain prod- and harmonized, actual implementation is recom-
ucts. This issue was planned to be tackled with re- mended to be carried out in small steps, since imple-
source re-allocation, training, and task rotation. Dis- menting large and rapid changes in an organization
order in the production facilities would be addressed can result in failure. The aforementioned issue af-
with 5S implementation. Required tools and their fected the creation of the development proposals for
storage locations were defined at each workstation. the case company; for example, it was decided that
Finally, a proposal was made to change the packag- changes in the production lot sizes toward customer-
ing materials for the final products from cardboard driven, pull control based production would be ex-
boxes to plastic bags in cases where the old materi- amined after other development needs had been ad-
al was not considered to add any value compared to dressed and the new operating procedures had be-
plastic. This change results in material cost savings come a daily practice.
and enables automatization.
The development proposals were planned to be Discussion
implemented in the following order. First, the prod-
uct portfolio renewal is carried out, which enables This study presented and analyzed the results
getting rid of unnecessary production equipment and of the case company’s development project, which
improves the utilization of human resources. Second, aimed to improve production by using the lean phi-
the production layout is improved; this aims for con- losophy. A current state analysis was conducted, de-
tinuous flow in production, the minimization of waste velopment needs were identified, and development
related to motion and transport, and the removal of proposals were created. A literature review on lean
unnecessary interim production phases. Third, the manufacturing and lean manufacturing development
5S implementation targets to getting rid of unneces- provided the background for the empirical study. The
sary tools and items and disorder. Fourth, the em- purpose of this section is to discuss the study findings
ployees are trained for the new working methods and from theoretical and managerial perspectives.

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The results of the study indicated several waste be in line with the findings by [26], who stressed the
classes in the case company’s production (Table 1). importance of leadership and management, finance,
These waste classes included waiting, inventory, mo- skills and expertise, and organization culture for the
tion, transport, overproduction, unused employee successful implementation of lean manufacturing in
creativity, and defects. The findings corresponded to SMEs.
the common waste classes discussed in the lean lit- In this study, lean manufacturing implementation
erature [7, 21], except for overprocessing, which was was proposed to be carried out in small steps. Earlier
not identified during the current state analysis phase. research (e.g. [27]) highlights the importance of com-
Inventory, mainly due to large WIP production, was prehensive adoption of lean practices rather than a
identified to be the most common waste class in the piecemeal approach. Reference [27] presents numer-
case company. ous lean manufacturing elements that require a small
The development project followed the principles investment, are feasible to implement, and can be
described in the literature review section; the objec- recommended for SMEs. These include set up time
tive state and goals were defined after the current reduction, visual control, cell layout, standardized
state analysis (Fig. 1). The objective state and goals operation, Kanban, continuous flow, uniform work-
were taken into account in the development needs load, small lot size, TQM/TQC, continuous improve-
and proposals (Table 2). Removing non-value adding ment, 5S, quality circle, multifunctional employee,
activities, creating a new layout, and adopting the training, teamwork, supplier management, and pre-
5S method were identified as the key elements in the ventive maintenance. In this case study, the visual
development work. control, small lot size, TQM/TQC, quality circles,
supplier management, and preventive maintenance
Theoretical implications were not among the elements in the first phase of the
In spite of a large body of knowledge about the lean implementation. In [27] it is further argued that
field of lean manufacturing (e.g., [18]), a need ex- lean practices that require least financial investment
ists for further empirical research [14]. Most of the include 5S, visual control & display, standardization
previous empirical studies have focused on US- and of operation, Statistical Process Control (SPC), and
UK-based companies and on firms in automotive and quality circle. Thus, SMEs are recommended to ap-
ICTE industries. SMEs are typically considered to be ply those practices first, followed then by other prac-
lean in nature during the start-up phase. However, tices, such as Kanban and small lot sizes. The afore-
many types of SMEs exist and not all of them are mentioned can be seen to be somewhat in line with
created based on the lean principles; furthermore, the findings of this case study. Yet, for example the
their ways of operating change and their process- SPC requires sufficient and accurate data about the
es may become less lean during later development production process, which can be a challenge for the
stages [23–25]. In a manufacturing SME, the invest- SME.
ment made in the production equipment and the pro- The results of this study support the previous ob-
duction process may reduce the flexibility of the op- servation by [28] who recommended the utilization of
erations. This necessitates applying new approaches outside expertise to fill the knowledge gap in lean im-
to develop the company. The case analyzed in this plementation. Furthermore, [28] stated that country-
study indicated that lean development is also ben- dependent cultural issues can cause challenges. For
eficial for manufacturing SMEs, since applying the example, Indian managers tend not to use systemat-
lean philosophy provides a systematic way to devel- ic management tools. However, this could also be a
op production activities. Several forms of waste were common problem for SMEs, which does not depend
identified in the case company, and these findings on the location.
correspond well with the common waste classes dis-
cussed in the lean literature [7, 21]. Managerial implications
The development project followed the principles Lean philosophy can provide many benefits for
described in [8]. Although the implementation of manufacturing SMEs. However, the results of this
the development proposals was not included in this study indicate that lean-based development neces-
study, the study results indicate that the principles sitates sufficient knowledge and understanding of
can be applicable to manufacturing SMEs. lean manufacturing. It should also be noted that the
In contrast to [26], the management in the case knowledge of lean itself is not sufficient; production
company embraced lean thinking. The management development necessitates broad knowledge of opera-
was also keen to provide information for research pur- tions and supply chain management and related top-
poses. However, the results of this study appear to ics, such as process management, product portfolio

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management, setup times, cycle times and through- turing principles. The development project followed
put, layout design, pull control, and JIT. Meeting a literature-based framework. The framework proved
these knowledge and competency requirements can applicable to the case company; the results indicate
be a challenge for SMEs, which typically have a lack that SMEs can benefit from the framework when cre-
of resources. External consultation, training, and re- ating lean-based development proposals. The study
cruitment may therefore be preconditions for the results can assist managers in SMEs in the prop-
development work. The availability of proper data er planning of lean-based production development
should also be ensured (e.g., [29]). projects.
The study results also indicate that enough time The limitations of this study include the typical
should be reserved for the current state analysis; this limitations of a single case study, including validi-
includes several aspects, such as an analysis of the ty and reliability concerns. These concerns were ad-
company’s production processes, supply chain, and dressed by using multiple data collection methods
product portfolio. The problem areas can only be and careful analysis, and by validating the findings
identified after a careful current state analysis. It in the case company. However, the generalization of
should also be stressed that the same tools and meth- the findings based on a single case would be difficult.
ods may not be appropriate for all SMEs. Finally, al- Furthermore, the implementation of the development
though the implementation of the development pro- proposals was not included in the study. This calls
posals was not included in this study, some words for further research on the performance implications
of advice should be given. As pointed out in previ- related to, for example, the new layout. Recommend-
ous studies, for example, in [7], lean implementation ed future studies, besides addressing the aforemen-
should be carried out in small steps. In addition, the tioned limitations, could include how well the find-
company’s management has a key role in the lean ings of this study apply to various types of SMEs
implementation. For further discussion of the man- operating in other sectors and different parts of the
agement’s role, see, for example, [5]. value chain. Especially the service industry should be
Reference [30] argues that some special require- addressed in the future due to its growing economic
ments should be considered when designing a frame- importance.
work for business process improvements in SMEs.
The findings of this study resonate with this state- References
ment. Especially, the following recommendations by
[30] can be considered important for the success of
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