Supply Chain Management : Just In Time

Introduction

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.