Lean Vs Traditional Production
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As a management accountant, one of the primary responsibilities is to assess the cost of the way the business is currently operating and to identify cost effective and cost saving measures to help make the company more profitable. The size of the company should not matter but in reality, I have found that in a smaller company, it is much easier to gain understanding and consensus from the management team. In larger firms, I have experienced much more resistance to change and it was very difficult to implement a lean production. This was very apparent when I was with Compaq Computer Corp. I was a member of the senior management team that attempted to revamp our existing model for production of PCs to emulate the model being utilized by Dell.
Dell used a build-to-order (BTO) model to produce their products. When Michael Dell started his company, this was the model he used from the beginning for his operations. Compaq, on the other hand, utilized the traditional model for producing PCs. We (Compaq) received large quantities of raw materials from our suppliers and produced the various models of PCs based on what we thought the customer market wanted. Early on, with the introduction and popularity of PCs being relatively new to consumers, Compaq was the leading PC-maker and had the largest market share in the industry. However, as consumers became more familiar with PCs and more knowledgeable of the vast differences in the characteristics that met their individual needs and what they were will to spend, the consumers began to gravitate towards customizing their PC requirements and going to Dell. Dells place in the industry grew as did their market share.
Compaq was faced with having to change its production model from traditional to a BTO that incorporated many of the Lean production concepts. We started out by completely gutting one of our production facilities and reconfigured it accommodate a Lean production environment. We set up assembly lines to quickly retrieve raw materials that were more centralized among the assembly lines. At the same time this was going on, we revisited our supply chain and worked closely with our suppliers to establish more frequent deliveries of needed materials and explored options to ensure that the materials we received had fewer defects than what we had been receiving previously. This was not an easy task. Not only were we attempting to change the production model within our company, but in order to be successful, we had to depend on changes from our suppliers and vendors.
Of course, to implement this major change in production, Compaqs senior management team had to make serious (and costly) decisions. The impact of the change would be felt across the company – from Production, Sales, HR, Service, Marketing, etc. In retrospect, Compaqs failure was largely due to not assessing all the costs (prevention, appraisal, internal failure and