Lean production is defined as: “a Japanese approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business – from design, through production to distribution” (Lean production n.d.). It is hard to imagine Lean production without the comprehensive approach to quality suggested by TQM; likewise, it is hard to imagine the implementation of TQM without inventory reduction and other changes. The implications of this combined management strategy for compensation policy are readily apparent. Not all Lean production applications involve as radical a physical restructuring of the basic technology as occurs in cell manufacturing. Indeed, process and assembly industries already involve the kind of product-centered manufacturing process that cell manufacturing is designed to achieve.
Nevertheless, even in applications where changes in the organization of physical technology are relatively minimal, employers still seem to favor fewer, broader job classifications in flatter pay structures. The Lean production approach, along with new forms of group-based work organization, is also generating considerable interest among employers in indirect group incentive systems such as productivity gainsharing and profit-sharing. These systems reward group behavior and in theory provide a financial incentive to bring individual behaviors in line with group goals. They should generate interest in the performance of the organization as a whole and thereby support the systems approach to productivity inherent in Lean production. They also should help sustain interest in group processes and group problem-solving. Under gain-sharing, bonuses are based only on quality product which is shipped to and accepted by the customer. No payment is made for internal scrap or external returns. Thus gain-sharing provides a direct incentive to pay attention to quality.
Lean production supply chain consists of purchasing, production, packaging and distribution. Some programs are being structured to provide direct rewards for performance linked to specific Lean production concerns, such as delivery reliability, customer satisfaction, quality, yield, and other targets for which data series are available. Lean production relies heavily on the quality model of problem-solving groups that meet on a regular basis to identify and solve quality problems and to generate a process of continuous improvement. The same structure has been used to address cost, productivity, and quality of work life concerns. Lean production suggests a more job or work group-centered approach to worker involvement. Again, cell manufacturing provides a useful model.
Workers could play a major role in designing cells, including applying the group technology principle in defining product groups, selecting the necessary equipment, planning the layout of the cell, applying the ergonomic design principles, and so on. Once set up, teams or self-managed work groups could be responsible for planning, coordination, and execution of cell functions. Of course it is also possible to treat all design as exclusively an engineering function and to operate cells under the umbrella of conventional supervisory structures. However, both the rhetoric and the internal logic quality suggest that the system works best with high levels of worker input and commitment. Furthermore, the design of the system itself requires higher levels of cooperation. JIT, through the elimination of inventory and the linkage of manufacturing operations, increases the level of interdependency within the production system and also its vulnerability to disruption. One of the operating principles of Lean production is to design the system to expose problems and force their solution. Another operating principle is to anticipate problems and solve them in advance, before they have the opportunity to disrupt. This is the principle that instructs preventive maintenance, setup reduction, and statistical process control programs. All of this works better when workers are involved and committed to making the system work. As automation penetrates the workplace the concept of direct labor has less and less relevance.
The relationship between expenditure of their labor time and increase in the value-added of a given product is less and less direct. In automated systems, it is often very difficult, if not impossible, to measure jobs and set meaningful production standards. In this environment pay systems based on measurement of direct labor are less and less relevant. Maximizing system up-time is a far more important goal than minimizing the labor time required for individual manufacturing operations.