Benefits of Fordism in Comparison to Lean Production - Literature review Example

A CRITICAL ANALYSIS OF FORDISM IN COMPARISON TO LEAN PRODUCTION Student’s Name Professor Course Date Introduction In the wake of changing market environment and increased competition, firms are forced to re-assess their business strategies in order to remain competitive. Business environment is becoming increasingly unpredictable, and the cost of production is rising by the day. In order to sustain the business in the long-term and to ensure profitability of the business, firms have resulted to cutting costs while improving production efficiency and quality of their products as well as enhancing good customer relations. Production philosophy adopted by an organization is important in determining the sustainability of the business. Proper management of human resources couples this to efficiency in production while ensuring cost effectiveness. This article critically analyses the Fordism system of production while comparing it to lean production. The article also links these productions to different approaches to human resource management. Fordism Fordism is a system of production aimed at achieving high production i.e. mass production by evening out the output using assembly lines and defragmenting work into small deskilled tasks. The philosophy was brought forth by Henry Ford (1863- 1947) and is based on the organizational principles of Taylor i.e. Taylorism and the technological innovations of Ford. The system is targeted at mass production and mass consumption. Large economise of the 1940s to 1960s developed through application of Ford’s principles. According to Polanyi (1944, p. 91), Fordism shaped the markets by shifting production from craft to mass production. Ford fragmented labour into small unskilled tasks, brought in specialization, made tools into machines and transformed machines to machine systems. These changes in production characterised transformation from craft to mass production. This market transformation, which was based on economies of scale, led to the rise of large organizations based on division of labour into small tasks and specialization. Ford achieved mass production and consumption by utilizing the principle of process engineering. He standardized the process by standardizing the components, manufacturing process and also the products. He ensured standard products were produced. These products were easy to make and repair. Process standardization was enhanced by introduction of assembly lines, which in turn increased productivity. In addition, assembly lines reduced the cost of production, especially by reducing labour requirements. For example, chassis assembly reduced the amount of labour required to assemble the chassis by six times, which in turn reduced the cost of production (Womack, Jones and Roos 1990, p. 31) Division of labour and specialization also played an important role in streamlining the production process and increasing output. By breaking down work process into smaller tasks, it was easy to identify and fix production bottlenecks. This made it easier to replace machines that were less effective with machines that are more efficient without changing the entire production system. This enhanced flexibility in the labour process, which resulted into increased production and reduced cost of production. Other than enhancing flexibility and efficiency in the labour process, defragmentation of tasks in the Ford system also created need for more skills to fill the gaps created by the new process. In addition, it created a need for development of new advanced tools and machines in order to maintain smooth flow of production. The new tools and machines in turn necessitated the need for highly skilled work force making and maintaining these machines (Williams et al 1987, p. 410). To enhance further success of his project, Ford introduced the principle of vertical integration and product standardization. However, these principles brought in some form of rigidity, which were an impediment to success of Fordism. Vertical integration proved to be efficient in the beginning. However, it prevented further development in the end. For example, components suppliers resulted in supplying similar products to different manufacturers because they reaped more profits in so doing through rationalization and economies of scale. Furthermore, vertical integration brought about technological, commercial, legal, as well as financial constraints, which resulted to reduced competitive advantage of Ford Company. Products standardization also had similar effects to vertical integration. Initially, standardization of the product brought about rationalization in the production process and resulted in standardization of components. This proved vital in the beginning but was an impediment to future technological development of the Ford Company. This is partly due to rapid infiltration of second hand cars into the market, which caused market saturation for the basic car. This left a gap, which was exploited by Ford’s competitors especially the General Motors who rapidly diversified car models hence gaining a competitive edge over Ford. Organization Theory and Fordism Fordism can be aligned to organization theory. Leavitt model of organization theory suggested a model for both simple and complex organizations. Leavitt’s model was made up of four main components, which include social structure, technology, the participants/employees and a goals and objectives (Leavitt 1965, p. 27). Fordism system applied a technological model called longlink. This required linear arrangement of various operational functions. Through this system, the product of one function became the raw material for the next function. This system was more productive and efficient than an individual employee. However, it was more rigid and could not allow for variations in the flow pattern. In addition, it required a more receptive market that is ready to receive the products without problems. This type of technology was only suited for production of standardized products and does not give room for variations, which was characteristic of Fordism. The closed model of production endeavoured to eliminate external factors, such as changes in market demand, uneven flow of raw materials and/or sudden breakdown of machines. To enhance sustainability of this system, the system had to protect itself from external influences. This was achieved through introduction of stock areas around assembly lines. Stock areas were warehouses build along assembly lines to ensure smooth flow of production and to normalize any irregularity in the production cycle. In addition, regular maintenance programs were put in place to avoid sudden breakdown of machines. This resulted to increased cost of production, which was unsustainable in the end. Comparison between Fordism and Lean production Lean production is a system of production that focuses on reducing wastage while ensuring production of quality products. Taiichi Onho, a Japanese Engineer, brought forward the philosophy of lean production. Lean production emphasizes on cost reduction by ensuring that the business is responsive to the market needs and that it is more efficient. The system reduces wastes by eliminating all processes that do not improve the process of production. It is aims at reducing labour requirements, production materials, space requirements, and time taken to produce a finished product. In addition to reducing cost of production, lean production also targets at selling its products its customers at a reduced price. It is based on the efficiency concepts of continuous improvements, just-in-time production (JIT), time based management and total quality management (TQM). Onho challenged the Fordism philosophy, which was widely accepted as the best system in motor industry. For instance, Fordism centred its cost-cutting strategies in economies of scale and large-scale production. In order to enhance competitiveness and production of low cost but quality products, Ohno eliminated all fixed costs. This strategy was aimed at ensuring that the company remains competitive especially in the time of slow growth. Ohno achieved his strategy of cutting fixed costs by reducing the number of employees, especially those who were not directly involved in production. In addition to introduction of cost cutting strategy, Ohno through the lean production system embarked on process innovation. One of the major and the most successful process innovations was the just-in-time production philosophy. Just-in-time is a production philosophy that only manufactures products only when needed. It is aimed at reducing inventories and eliminating dead times (Piore and Sabel 1985, p. 119). Consequently, production components are similarly produced only when needed. To ensure success and smooth flow of this mode of production, Onho ensured proper synchronization of all departments. The departments that produced the component parts and those that assembled the parts into complete products were synchronized to avoid unnecessary production delays and hold-ups. This was an improvement from the Ford system whereby the assembly lines were surrounded by stock areas filled with component parts. In the lean production, the stock areas were replaced by clear communication system called the Kanban System. The Kanban System ensured proper flow of information within departments. This resulted in reduction of the production cost as the cost incurred by presence of stock areas and employees working in these sections are eliminated. Cost reduction was then passed down to the consumer by offering cheap quality products to the market, which results in more sales. The Kanban system of communication replaced the complicated logistical approach employed in the Fordism system. In the Ford system, intermediate stores were located at the end assembly line. Component parts to be assembled into a complete product were stored in these intermediate stores. In the Kanban system, the department producing the components i.e. the conveyer belt, is notified well in advance of the number of components that will be required for production in the main assembly line. Therefore, the conveyor belt only produces the component parts needed in the main assembly line. In the Fordism system, the number of products to be produced was determined by the management rather than by the demand for product as is the case in lean production. The communication flows from top to bottom whereas in the lean production, information flows was from bottom upwards, from the end to the beginning and from sides to centre as necessitated by product demand. A shift from the Fordism to lean production also resulted in technological developments especially in the field of information technology. The older assembly lines were phased out and replaced with more advanced computer systems. Machines and robots that were computerized substituted manual labour (Reschenthaler and Thompson 1996, p. 125). The machines revolutionized production by making it more efficient and responsive to production needs. Computerization of operations brought in flexibility that enabled faster adjustment to fit the market demands. Strategy and Human Resource Management Organizational strategy is the plan through which an organization utilizes in order to achieve its objectives. For instance, Ford Company adopted the philosophy of Fordism proposed by Henry Ford while Toyota adopted the lean system of production. Human resource management on the other hand is the approach used to make decision on the goals and objectives of an organization. Proper human resource management achieved through plans, policies and practices that concern hiring of employees, growth and development of employees, management of performance and reward system as well as employee relations. According to Sisson (1990, p. 9), various features distinguish human resource management: aligning employees’ policies to business planning, ensuring that employees are committed and have initiative, and shifting responsibilities from specialists to managers. Human resource management is an important basis of competitive advantage. The reason is it can be used to cultivate and reinforce good organization culture through proper integration of human resource policies to business planning (Legge 1995, p. 66). For an organization to achieve its goals successfully, it must establish proper linkage between human resource management and business strategy. For example, Ford’s Company was threatened with extinction due to labour problems. Production was frequently interrupted since employees repeatedly failed to report to work. There was also a high turnover of employee and increased activity of trade unions. This trend resulted in deterioration of quality of the products and interference of production process. In order to deal with this problem, Henry Ford introduced a ‘skilled-wages’ structure. He also provided more incentives to his employees and introduced a Savings and Loan Association in an attempt to deal with the problem of job insecurity. However, this had very little impact and hence the company was still faced with labour problems. As a result, Ford resulted to a more ambitious process of social engineering. He introduced the famous Five Dollar Day structure. This system involved restructuring of job groups and it offered better pay to the employees. It also helped in cultivating a good organization culture based on morality and good behaviour. While this new structure has an immediate positive impact, it was not sustainable in the long-term due to inflation and reduced market for Ford’s cars. This is a classic example showing how management of employees can be incorporated into the firm’s strategy to determine its competitive advantage over its rivals. Human resource management can approached from different perspectives such as best-fit, best practice and resource based view. Best-fit Approach In the best-fit approach, the human resource practices are forced to fit in well with other organizational aspect in order to enhance efficiency. The best-fit approach examines the extent to which the organizational strategy is vertically integrated to policies and practices of human resource management. In this approach, individual performance is required to ‘fit’ in the business strategy of an organization. Since performance of an individual determines team performance and subsequently the performance of the organization, vertical integration between an individual behaviour and business strategy forms the core of many models of human resource management. Therefore, vertical integration is an important part to approaches used to manage employees strategically (Graton et al 1999, p. 149). Vertical integration of people and organizational strategy enables an organization to establish competencies, which in turn enhances competitive advantage of an organization (Wright et al 1994, p. 311). As observed by Tyson (1995, p. 181), vertical integration between business strategy and human resource is an important component that transforms human resource into strategy. The best-fit model of human resource management has been accused of lacking a pluralistic approach that fits into both the organization and an individual. In this approach, the alignment only ‘fits’ the organization while ignoring the interests of the employees and those of the stakeholders (Torrington and Hall 1998, p. 137). Resource-based View For HRM, it views human resource as an internal resource in an organization. It views human resources as a strategic asset that an organization can utilize to gain competitive advantage over its rivals. This approach focuses on the internal resources possessed by an organization rather than focusing on the external factors (Barney and Wright 1998, p. 40; Mueller 1998, p. 160). According to this approach, organization’s internal resources results to uniqueness, which give an organization its competitive edge. Internal resources of an organization include human resources among others (Boxall and Purcell 2003, p. 72). Organizations gain competitive advantage from human resource through value, rarity, inimitability, and organization (Barney 1991, p. 111). Human resource function adds value to the business through outputs (Thompson 2001, p. 257) by making sure that the needs of the customers are met. Human Resource department is therefore responsible for recruiting, developing, retaining, as well as rewarding high performance employees who provide more leverage for competitiveness of an organization. In addition, the Human Resource department utilize the rare characteristics within an organization to its own advantage. Value and rarity may not sustain competitive advantage of an organization in the long-term since they can be imitated by the rival organizations. It is therefore the responsibility of Human Resource to develop inimitable characteristics that cannot be replicated by the competitors. Finally, an organization needs to be well organized in order to take advantage of value adding, rarity and inimitability. Therefore, for an organization to achieve long-term competitive advantage from human resource function, it must establish human resource function that adds value, rare and that cannot be easily copied by the competitors. Best Practice Approach This approach was identified in the early practices of human resource management in the United States. Best practice approach states that ‘best’ practices of human resource results in better performance of an organization. Improved organizational performance is achieved through cultivation of proper behaviour and attitude in employees which result to retention skilled man-power hence increased production of high quality products and services. Pfeffer (1998, p. 164) noted that for an organization to achieve competitive advantage, it must adopt human resource practices that put people first. He noted that employment security, proper hiring and training, information sharing, enhancing teamwork as well as higher pay equivalent to performance reduction of status difference among the employees are key to ensuring a firm’s competitive advantage through human resource. This view was also echoed by Marchington and Wilkinson (2002, p. 174) who noted that high committed human resource management that promotes internally, encourages learning and development, listens and involve its employees and that pays well and encourage teamwork cultivates a culture of high performance and creates a sustainable competitive advantage of an organization over its rivals. According to Pfeffer (1994, p. 55), human resource innovates and thus help an organization to cope with challenges of the external market environment hence remain competitive. Under this approach, an organization is assured of high productivity and increased profits if it achieves the ‘ideal set of practices’ (Guest 1997, p. 272). In order to achieve best practices of human resource management, an organization must integrate horizontally within and between human resource practices (Storey 1992, p. 325). This is because it is hard to implement effectively individual practices in isolation and hence they should be integrated. Horizontal integration focuses on proper coordination of human resource practices through pre-planned patterns of actions which results into synergistic benefits, which ensure achievement of organizational goals. Conclusion Competitive advantage of an organization is influenced by various factors among them business philosophy, business strategy and human resource management practices. This article critically analysed two different business philosophies i.e. Fordism and lean production. It also explored various approaches employed in human resource management i.e. best fit, resource-based view, and best practice approach while linking them to the aforementioned business philosophies. In analysis of Fordism, the philosophy played an important role in revolutionizing production from craft production to mass production and consumption. The philosophy achieved this milestone by introduction assembly lines of production based on economies of scale. It also resorted to product standardization as well as labour restructuring through introduction of Five Dollar Day structure. Whereas these changes were effective in the initial stages, they later hindered future development of Fordism due to rigidity of the system. The systems was also expensive to run and therefore unsustainable in the long run. As a result, Toyota Company introduced the lean manufacturing system to overcome the shortfalls of Fordism. Lean manufacturing system was targeted at cutting cost while maintaining quality. In this system, products were produced based on market demand. Therefore, the system was able to cut cost through reduction of labour requirement and reduction of inventories as products were only produced only when needed. The system was flexible and hence more responsive to market dynamics. It also allowed for innovation and technological innovation culminating in computerization of the production lines to replace manual labour. Success of any production system requires proper integration of business strategy to human resource management. Human resource is an essential element that determines the competitiveness of an organization. Human resource is an internal resource of an organization, which creates uniqueness and organization competencies that enhance competitiveness. Therefore proper integration of production philosophy with business strategy coupled with proper human resource management practices can determine how an organization competes with its competitors. Reference List Barney, J.B 1991, ‘Firm Resources and sustained competitive advantage’, Journal of Management, vol. 17, no. 1, pp. 99-120. 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