Basically, increasing production efficiency means achieving the best results of economic activity at the lowest cost. Thus, each ruble invested in production equipment and processes consuming materials, energy, and fuel, and labor must ensure the maximum output, rapid increase in production, and decrease in overall production costs.

To curtail losses, we need to improve the existing quality management system by introducing lean manufacturing concepts, so that all internal production processes may be optimized [1, 2].

Quality management depends on a set of systems, tools, and methods such that the expectations of the target customers for the enterprise’s services and goods are completely satisfied, the enterprise is as competitive as possible in the global marketplace, and its overall performance is improved.

Table 1 presents lean manufacturing concepts.

Table 1

Characteristic

Brief description

Benefits

Hoshin Kanri

Clear linkage of the enterprise’s strategic goals with tactical measures and the specific activities of each work group

Assists in attaining the enterprise’s goals. Losses due to poor communication between work groups are reduced

Bottleneck analysis

Determination of critical points in the production chain, with corresponding increase in productivity

The weakest links in the production chain may be strengthened

Gemba

The principle that what is most important is the factory floor and not the offices

Active engagement of management, rapid response to problems, improved labor discipline, and access to complete and undistorted information, with improvement in productivity and staff commitment to work outcomes

Muda

Whatever is not of value to the client

The basic goal of lean manufacturing: all possible losses must be identified and detected at the earliest possible stage

Takt Time, Cycle Time

Information regarding the frequency or time interval at which the product must be delivered to the client or the client requests the product

Used in establishing the productivity required in each production department so as to meet the client’s requirements in terms of product quality and delivery

These concepts permit improvement in labor productivity and decrease in production costs.

Since the manufacturing cycle has a complex production chain, different tools will be required at different stages. Therefore, we need to consider the system consisting of the production flux, the relevant process, and the appropriate lean manufacturing tool.

In Fig. 1, we show the logic involved in introducing lean manufacturing tools. In the first stage, we analyze all the production cycles and processes at the basic production sites so as to identify possible losses and bottlenecks.

Fig. 1.
figure 1

Sequence adopted in introducing lean manufacturing tools.

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Given the potential for staff resistance, it is advisable to employ a specialized consulting company whose sole interest is to identify and classify production problems. In addition, an internal audit may be conducted to identify losses in subdivisions outside the production department.

Then, on the basis of the consultant’s findings and the internal audit, a set of possible production and management losses may be formulated. At this stage, the Muda tool is introduced. Then the Takt Time and Cycle Time tools are employed [3, 4].

The Takt Time is the interval within which the target customer wants to receive each final product. It is calculated by dividing the time available within a shift (in seconds) by the customer demand per shift (in product units). This is not a constant value, since demand fluctuates. Unless this tool is employed, any problems with production or product demand will be hidden because of possible variations in output and direct management interference. By means of the Takt Time, all bottlenecks are identified and may be satisfactorily controlled.

The Cycle Time is the time required for a single operational cycle, measured by observation. In other words, this period actually exists, in contract to the Takt Time. When the cycle time for each production operation in the whole process becomes equal to the Takt Time, a flux of individual products appears [5]. The next tool Heijunka may then be implemented: knowing the Takt Time and adjusting the cycle accordingly, the orders may be equalized within the production process.

Finally, in policy development, each staff member begins to move in the direction specified by management. Hence, overall losses are reduced, costs fall, and labor productivity increases.

Management by key performance indicators (KPI) permits increase in staff motivation and identification of the contribution (positive or negative) of each employee to overall output. At present, employees receive their salary regardless of their successful and timely completion of their basic functions and responsibility and hence of their personal contribution to the enterprise’s overall financial wellbeing.

The development of a KPI-based management system employs business technologies such as management by objectives (МВО) and Business Performance Management (BPM). In KPI-based management, the degree of goal attainment is measured, which permits monitoring of the activity of the whole company, individual subdivisions, and each employee. By measuring KPI, management is able to more closely control the production process and the staff [6–9].

Employees are more motivated when they see that their actions contribute to a specific goal. Accordingly, in this approach, the goals of the enterprise and the employees are aligned. In other words, individual goals may only be attained if the goals of the enterprise as a whole are met. The use of KPI permits improvement in the management system; organization of the company’s activity in strict compliance with a predetermined strategy; and the creation of a more effective system for the motivation and evaluation of employees.

This approach ensures that the goals of individual subdivisions and employees are consistent with those of the enterprise. That reduces the risk of horizontal goal conflicts and clearly defines who is responsible for each task. Monitoring of KPI permits a sharp focus on the regions critical to implementation of the overall strategy.

With the introduction of KPI, the enterprise shifts to goal-based management. Senior and middle managers are responsible for the overall direction of the company, while specific employees are responsible for implementing strategic, operational, and design goals, as well as important tasks and initiatives. Hence, by assigning individual responsibilities and delegating authority, the efficiency of each employee is increased. This approach is particularly important in a period of shrinking demand, limited budgets, and labor attrition, when the value and output of each employee is especially apparent.

In goal-based management, targets are assigned to department heads or specific individuals and part of each employee’s salary depends on meeting those goals [6].

One version of this approach is to set goals—that is, KPI—for each subdivision, project team, and employee. In Fig. 2, we show the basis stages required to optimize the incentive system at the enterprise when modifying remuneration policies.

Fig. 2.
figure 2

Basic steps in optimizing the employee remuneration system at manufacturing enterprises.

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This approach offers the following benefits: (1) improved management and better attainment of the enterprise’s strategic goals; (2) clear and objective measures of the effectiveness of processes and individuals; (3) a methodology for developing such measures of effectiveness throughout the enterprise; (4) a clear hierarchy of responsibility for specific company goals; (5) tools for monitoring labor discipline; (6) an orderly planning and accounting system; (7) procedures for identifying and correcting the weak points in the production chain; (8) reduced risk of goal conflict at different levels of management.

As a result, cost management will be markedly improved.

CONCLUSIONS

(1) The system of key performance indicators (KPI) is only the first step in transformation of the enterprise: it permits the creation of a systematically renewable system for employee motivation to meet company goals.

(2) The costs of materials may be optimized by rating suppliers. By that means, the enterprise may sever connections with suppliers that are unscrupulous or overpriced, fail to meet quality standards, or do not offer satisfactory credit terms. In selecting suppliers by means of a rating system, attention focuses on the relation between price, cost, and timely delivery.

(3) Cost reduction entails optimization of production by introducing lean manufacturing and KPI-based management.