Lean resource management techniques
Learning outcome statements
The learning outcome statements relevant for this section are:
- define lean resource management techniques
- identify and describe the operational benefits of implementing lean resource management techniques
- define material requirements planning (MRP)
- identify and describe the operational benefits of implementing a just-in-time (JIT) system
Lean resource management
Lean principles originate from the Toyota Production System (TPS) and focus on improving efficiency, reducing non-value-added activities, and aligning operations with customer demand.
The goal of lean is to create more value for customers using fewer resources. This is achieved by streamlining processes, eliminating bottlenecks, and engaging employees in continuous improvement. Lean techniques apply across industries, from manufacturing and logistics to healthcare and service environments, wherever resource optimization and quality improvement are priorities.
Although lean implementation may vary by organization, five core principles form the foundation of lean thinking:
Organizations that successfully implement lean resource management techniques can expect several operational advantages:
| Lean principle | Operational benefit |
| 1. Define value - specify what the customer is willing to pay for | Focuses effort on customer-valued activities and improves product-market fit |
| 2. Map the value stream - chart every step from raw material to customer and flag non-value-added steps | Improves transparency across functions and highlights waste for elimination |
| 3. Create flow - make the remaining steps run without interruption, waiting, or back-flow | Reduces lead times and improves throughput |
| 4. Establish pull - produce only when downstream demand signals a need | Lowers inventory holding costs and aligns production with actual demand |
| 5. Pursue perfection - repeat the cycle through continuous improvement | Sustains competitive advantage through incremental gains |
Lean thinking targets eight forms of waste - overproduction, waiting, transport, excess processing, excess inventory, unnecessary motion, defects, and underused talent - and relies on tools such as kanban signals, kaizen (continuous improvement events), cellular manufacturing, and 5S workplace organization to eliminate them.
Material requirements planning (MRP)
MRP is especially valuable in manufacturing environments where products are built from multiple components or subassemblies. It helps planners determine:
- What materials are needed
- How much of each material is required
- When the materials should be ordered or produced
The system uses backward scheduling, meaning it starts from a production due date and works backward to determine the necessary order and production dates for materials and components.
Core inputs of MRP
MRP relies on three inputs:
1. Master production schedule (MPS)
The master production schedule is the foundation of MRP. It specifies the quantity and timing of finished goods that must be produced to meet customer demand or sales forecasts. It breaks down overall production goals into weekly or daily targets and serves as the driver for material planning.
- The MPS answers the question: “What finished products are needed, when, and in what quantities?”
- It ensures that production planning aligns with marketing forecasts, customer orders, or contractual commitments.
Example: Master production schedule
If the MPS shows a requirement of 100 units of Product A in week 5, the MRP system uses this to calculate backward the timing and quantity of raw materials needed to fulfill that order.
2. Bill of materials (BOM)
The bill of materials is a comprehensive list of all components, subassemblies, and raw materials required to manufacture one unit of a finished product. It also specifies the quantity of each input and the hierarchy or level at which each component exists.
- The BOM answers the question: “What materials are required to make the product, and in what structure?”
- MRP systems use the BOM to explode the product structure, calculating total component needs across all levels of the product.
3. Inventory records (item master file)
Inventory records provide real-time data on material availability. This includes on-hand inventory levels, open purchase orders, lead times for procurement or production, safety stock policies, lot-sizing rules, and scheduled receipts.
- Inventory records answer: “What do we already have, and what is already on order?”
- These records are crucial to calculating net material requirements by subtracting available inventory and expected deliveries from gross requirements.
Example: Inventory records
If 200 units of Component B are required, but 50 units are already in stock and 100 more are expected to arrive next week, the system only schedules 50 new units for procurement or production.
Example of MRP analysis
Example: MRP analysis
A company needs to produce 100 units of Product A, which is due 8 weeks from now. Product A is composed as follows:
- 1 unit of Product B
- 2 units of Product C
Product C is composed of:
- 1 unit of Product D
- 2 units of Product E
Bill of materials breakdown
| Component | Required per parent | Level | Total units needed for 100 units of A |
| B | 1 | 1 | 100 |
| C | 2 | 1 | 200 |
| D | 1 (per C) | 2 | 200 |
| E | 2 (per C) | 2 | 400 |
Lead times
| Item | Lead time (weeks) |
| A | 4 |
| B | 3 |
| C | 2 |
| D | 1 |
| E | 1 |
Order release planning
To meet the 8-week target:
- Product A must be started by week 4
- Product B must be ready by week 4, so it must be released by week 1
- Product C must be ready by week 4, so it must be released by week 2
- Products D and E (needed for C) must be ready by week 2, thus released in week 1
Benefits of MRP
Implementing MRP provides a range of operational and strategic advantages:
- Reduces excess inventory by producing and ordering only what is needed.
- Ensures material availability for scheduled production, reducing delays.
- Provides precise timing for order placement, reducing last-minute procurement issues.
- Aligns purchasing, manufacturing, and sales with real-time inventory and demand data.
Just-in-time (JIT) system
This approach is closely aligned with lean management principles and emphasizes the elimination of non-value-adding activities, reduction of inventory costs, and improvement of product quality.
JIT originated with Toyota’s Production System (TPS) and has since been adopted widely in manufacturing and service industries worldwide.
The key features of a JIT system are as follows:
- Demand-pull production: Items are produced or purchased only in response to actual demand, not in anticipation of future sales; kanban cards or similar signals trigger replenishment as items are consumed.
- Small lot sizes: Production is done in small batches to increase flexibility and reduce inventory holding costs.
- Zero inventory mindset: Excess inventory is treated as waste that hides problems, so firms reduce it as much as possible.
- High supplier coordination: Frequent, reliable deliveries of small quantities from suppliers are critical for success.
- Streamlined layout and workflows: Production lines are optimized to minimize movement, wait time, and excess processing.
Implementing a JIT system yields numerous operational advantages that contribute directly to improved financial and non-financial performance:
- Reduced inventory costs: With minimal raw materials and finished goods on hand, storage, insurance, and obsolescence costs are significantly lowered.
- Improved cash flow: Less capital is tied up in inventory, freeing resources for other operational needs or investment.
- Enhanced product quality: JIT promotes quality at the source and continuous improvement since errors or delays immediately disrupt production.
- Increased efficiency: Leaner operations encourage better workflow design, less rework, and faster throughput.
- Greater responsiveness: Organizations can adapt more quickly to changes in customer demand with shorter production cycles and less stock inertia.
JIT versus MRP
While both JIT and MRP aim to improve inventory control and align production with demand, their approaches differ:
| Feature | JIT | MRP |
| Planning basis | Actual demand (pull system) | Forecasted demand (push system) |
| Inventory approach | Minimized, near-zero | Planned buffer inventories |
| Flexibility | High (but fragile to disruptions) | Moderate (more robust to variability) |
| System complexity | Operationally lean but sensitive | Data-intensive and structured |
| Industry fit | High-volume, stable environments | Complex, multi-stage production lines |