It seems that the best way to reduce costs in a production system is to produce high volumes of a standard product. However, this view has been challenged by the rise of flexible manufacturing technologies, also called lean production. Flexible manufacturing technologies allow firms to produce a wider variety of product while still achieving the efficiencies of high volume production. Cost efficiencies are achieved by reducing setup times for complex equipment, increasing the utilization of individual machines through better scheduling, and improving quality control at all stages of the manufacturing process.
Mass customization refers to the use of flexible manufacturing technologies to achieve low cost and differentiation through product customization.
One type of flexible manufacturing technology is flexible machine cells, which are groupings of four to six various machines, a materials handler, and a central computer. The machines are computer controlled, allowing each cell to switch quickly between the production of different products. Flexible machine cells allow for improved capacity utilization due to a reduction in setup times and better coordination of production flow between machines. This system reduce work in progress and waste because of the tight coordination between machines and the ability of computer-controlled machinery to identify how to transform inputs into outputs while producing a minimum of unusable waste material.
Case Study: Toyota’s Lean Production System
Toyota is the most efficient auto company in the global industry, thanks to its lean production system, developed in response to problems Toyota’s engineers saw with the long production runs of a mass production system. The problems included the creation of large and expensive inventories, the production of a large number of defective products if the initial machine settings were wrong, and the system’s inability to accommodate diverse consumer preferences. Toyota then developed a number of techniques designed to reduce equipment setup times—a major source of fixed costs. This made small production runs economical, which eliminated large inventories, fewer defective products, and better responsiveness to consumer demands for product diversity. Process innovations enabled Toyota to produce a more diverse product range at a lower unit cost than was possible with conventional mass production.