Supply Chain Management : Just In Time
In the realm of supply chain management, “Just in time” refers to an inventory strategy that it used to improve a business’s return on investment through a reduction of in process inventory and all related costs. Just in time is driven by a series of signals, referred to as Kanban, which tell production processes when it is necessary to make the next part. Kanban can be visual signals, but are generally “tickets.” When implemented in a correct fashion, “Just in time” can help a producer improve in such areas as quality, efficiency, as well as the return on investment.
When stock drops to a certain level, new stocks have to be ordered. This helps maintain space in the warehouse and keeps costs down to a reasonable amount. One drawback of “Just in time” however is that the re-order level is determined by the previous demand. If the demand rises above that amount, then inventory will be depleted a lot faster than usual and might cause customer service problems. In order to maintain a ninety five percent service rate, the company should always carry two standard deviations of safety stock. Around the Kanban, shifts in demand should be forecast until trends are established to reset the correct Kanban level. Some feel that recycling Kanban at a quicker pace can help the system flex by up to thirty percent. Recently, producers have started touting a thirteen week average as a better predictor than previous forecasts would provide.
Another term employed in “Just in time” is Kaizen. It means literally the continuous improvement of the process.
History of Just in Time
The Ford Motor Company first employed “Just in time”. It describes the “dock to factory floor” concept, in which incoming materials were not even kept in storage, but went directly in to production. Of course, this concept relied upon a useful freight management system; the one employed is described in Ford’s Today and Tomorrow of the year 1926. Later, this technique was taken up by Japan’s Toyota Motor Corporation in its Toyota Production System.
Businesses in Japan are not able to afford large warehouse spaces. Prior to the 1950s, this was a major disadvantage because it forced the production lot size to be below that of the economic lot size. Thus, a poor return could be expected on a factory investment.
Taiichi Ohno was Toyota’s main engineer in the 1950s. After examining several accounting assumptions, Ohno came to the realization that another method would be possible.
It would be possible for the factory to implement “Just in time.” This would require the factory to increase in their flexibility, while simultaneously reducing their overhead costs related to retooling. Effectively, this would also reduce the economic lot size, which would be made to fit the current warehouse space. “Just in time” thus emerged as one of the main pillars of Toyota’s Production System.
Over the next few years, Toyota re-designed car models to aid such production processes as welding and paint spraying. Toyota was one of the first automobile manufacturers to use robots to perform such tasks. Some of the changes were rather minor; one of them was to simply standardize hole sizes that were used to hang parts on hooks. Fastener numbers and types were reduced so as to standardize the assembly tools and process. There were even instances when identical subassemblies were employed.
It was then determined by leading engineers at Toyota that what needed to be mended in the retooling process was the amount of time that was required to change the stamping dies that body parts used. Using crowbars and wrenches, these parts had to be adjusted by hand. Sometimes it would take a period of several days to install large die sets and adjust it to fit Toyota’s high quality standards. Since they had to be installed one at a time by several experts, sometimes this would take up to several weeks all told.
To remedy this situation, Toyota decided to implement a strategy invented by Shigeo Shingo called Single Minute Exchange of Die, or SMED. Using this strategy with simple fixtures, measurements could be substituted for adjustments. It would then take die changes only a few hours, rather than several days. This also reduced the skill level that was required, as the stampings’ quality was then controlled by a written formula. The remaining time was then typically utilized to search for hand tools and move dies. Die change times were reduced to about forty seconds thanks to the use of tool racks as well as major procedural alterations. These days, dies are changed through the factory in a ripple process as the new product begins to flow.
Once Single Minute Exchange of Die was implemented in Toyota factories, economic lot sizes fell to as little as a single car. As little as one part could be stored in each assembly station, thanks to the fact that the process was carried over in to parts storage. Whenever a part was gone, a signal (Kanban) was emitted for a replacement part.
Supply Chain Management : JIT Philosophy
It should be kept in mind that “just in time” is not a simple step by step method, but an entire philosophy that must be observed in order to avoid the downfalls. The ideas comprising “just in time” philosophy come from many different fields, such as industrial engineering, behavioral science, statistics, and production management. When it comes to how inventory is treated according to the “just in time” scheme, one must learn how inventory is to be viewed, the way it expresses certain practices within the company’s management, as well as the philosophy’s main principles.
As opposed to the traditional view of inventory, “just in time” views inventory as being wasteful, in that it incurs costs, rather than adding value to a company. This does not mean that inventory should be removed altogether at the expense of manufacturing. Rather, it expounds the idea that a company could save costs by eliminating inventory that does not compensate for issues related to manufacturing. Also, processes must be constantly upgraded so that the need for inventory is reduced.
What is more, anytime that inventory is permitted to accumulate, a downward spiral begins wherein any and all inventory is admitted. As a result, the management of a company might wish to accumulate inventory to mask any problems within the production process, rather than dealing with the problem directly. Such problems might include machinery related difficulties, a lack of flexibility among employees, backup problems at work stations, or inadequate capacity.
Within the “just in time” system, managers adopt the policy that it is best to have the right materials at the right moment in the right place and in the right amount.
Implementation of Just in Time
While some of the first results at Toyota were less than ideal, the company nonetheless found itself making a lot more money, as inventory was built out and then sold. Thus, upper management became incredibly enthusiastic about “just in time” right off the bat. Another positive effect of “just in time” was the fact that the factory’s response time fell to just one day. Customer satisfaction thus resulted, as cars could then be provided within a couple days of the minimum economic shipping delay. Cars could also be built to order all of a sudden, which meant eliminating the risk that they might not get sold. This eliminated a lot of the risk involved, as Toyota’s return on equity was improved greatly.
Every part in the factory had to perfectly fit, because there was no longer any choice about which part to use. As a result, there was a quality assurance crisis, as well as a major improvement in the quality of products. Toyota eventually decided to redesign every single part of their cars in order to get ride of tolerances. At the same time, they implemented statistical controls. Suppliers of parts had to be tested and trained to assure delivery as well as quality. In many cases, multiple suppliers were eliminated altogether.
Whenever a problem occurred on the production line, it would have to be stopped or at least slowed down significantly. If there was no inventory, that meant to a line could not operate from in process inventory until the problem was fixed. A lot of people working at Toyota during this time thought that that would be the end of “just in time.” The first week that the process was implemented, line stops occurred nearly every hour. But by the time the first month came to an end, line stops only occurred a couple times a day. At the end of six months’ time, there was so little economic effect resulting from line stops that Toyota allowed any worker on the line to pull a stop to inspect the product for quality improvements. Even with this installed, there were only a few line stops per week.
Thus, Toyota’s factory became the envy of everyone in the world of manufacturing. Since then, tons of factories around the world have adopted the “just in time” process.
“Just in time” as a philosophy has been used widely on every level of the supply chain – not just in the automobile industry, either. In the realm of commerce, implementing a “just in time” strategy resulted in the elimination of warehouse spaces that previously linked the factory to a retailer.
“Just in time” allows for supplies to circulate around the clock. This keeps the workers working, while the management can focus their energies on turnover as well as meeting deadlines. The company thus works harder to meet goals and attain benefits, which can come in the form of wage increases or promotion.