Just in Time (JIT) Manufacturing and Inventory Control System:
Learning objectives of the article:
- Define and explain the concept of just
in time manufacturing and inventory control system.
- What are advantages and disadvantages of
just in time manufacturing system?
Traditionally manufacturers have forecasted demand for their products into
the future and then have attempted to smooth out production to meet that
forecasted demand. At the same time, they have also attempted to keep
everyone as busy as possible producing output so as to maximize "efficiency"
and (hopefully) reduce costs. Unfortunately, this approach has a number of
major drawbacks including large inventories, long production times, high
defect rates, production obsolescence, inability to meet delivery schedules,
and (ironically) high costs. Non of this is obvious-if it were, companies
would long ago have abandoned this approach.
Managers at Toyota are
credited with the insight that an entirely new approach, called just in
Just In Time (JIT) is a
production and inventory control system in which materials are purchased
and units are produced only as needed to meet actual customer demand.
When Companies use Just in Time
(JIT) manufacturing and inventory control system, they purchase
materials and produce units only as needed to meet actual customers
demand. In just in time manufacturing system inventories are reduced
to the minimum and in some cases are zero. JIT approach can be
used in both manufacturing and merchandising companies. It has the
most profound effects, however, on the operations of manufacturing
companies which maintain three class of inventories-raw
Work in process, and
finished goods. Traditionally, manufacturing companies have
maintained large amounts of all three types of inventories to act as
buffers so that operations can proceed smoothly even if there are
Raw materials inventories provide insurance in case suppliers are
late with deliveries.
Work in process inventories are maintained in case a work station
is unable to operate due to a breakdown or other reason.
Finished goods inventories are maintained to accommodate
unanticipated fluctuations in demand. While these inventories provide
buffers against unforeseen events, they have a cost. In addition to
the money tied up in the inventories, expert argue that the presence
of inventories encourages inefficient and sloppy work, results in too
many defects, and dramatically increase the amount of time required
to complete a product.
Under ideal conditions a company
operating at JIT manufacturing system would purchase only enough materials each
day to meet that days needs. Moreover, the company would have no goods still in
process at the end of the day, and all goods completed during the day would have
been shipped immediately to customers. As this sequence suggests, "just-in-time"
means that raw materials are received just in time to go into production,
manufacturing parts are completed just in time to be assembled into products,
and products are completed just in time to be shipped to customers.
Although few companies have been
able to reach this ideal, many companies have been able to reduce inventories
only to a fraction of their previous level. The result has been a substantial
reduction in ordering and warehousing costs, and much more efficient and
effective operations. In a just in time environment, the flow of goods is
controlled by a pull approach. The pull approach can be explained as
follows. At the final assembly stage a signal is sent to the preceding work
station as to the exact amount of parts and materials that would be needed over
the next few hours to assemble products to fill customer orders, and only that
amount of materials and parts is provided. The same signal is sent back to each
preceding workstation so a smooth flow of parts and materials is maintained with
no appreciable inventory buildup at any point. Thus all workstations respond to
the pull exerted by the final assembly stage, which in turn respond to customer
orders. As one worker explained, "Under just in time system you don't produce
any thing, any where, for any body unless they ask for it some where downstream.
Inventories are evil that we are taught to avoid".
The pull approach described
above can be contrasted to the push approach used in conventional
manufacturing system. In conventional system, when a workstation completes its
work, the partially completed goods are pushed forward to the next work station
regardless of whether that workstation is ready to receive them. The result is
an unintentional stockpiling of partially completed goods that may not be
completed for days or even weeks. This ties up funds and also results in
operating inefficiencies. For one thing, it becomes very difficult to keep track
of where every thing is when so much is scattered all over the factory floor.
An other characteristics of
conventional manufacturing system is an emphasize on "keeping every one
busy" as an end on itself. This inevitably leads to excess inventories
work in process inventories. In Just in time manufacturing, the traditional
emphasize of keeping everyone busy is abandoned in favor of producing only what
customers actually want. Even if that means some workers are idle.
The main benefits of just in
time manufacturing system are the following:
Funds that were tied up in
inventories can be used elsewhere.
Areas previously used, to store
inventories can be used for other more productive uses.
Throughput time is reduced,
resulting in greater potential output and quicker response to customers.
Defect rates are reduced,
resulting in less waste and greater customer satisfaction.
As a result of advantages
such as those cited above, more companies are embracing just in time
manufacturing system each year. Most companies find, however, that simply
reducing inventories is not enough. To remain competitive in an ever changing
and ever competitive business environment, must strive for continuous
Real Business Examples:
PCs Just In Time Management:
Del Computer Corporation has finally tuned its Just-in-Time system
so that an order for a customized personal computer that comes in
over the internet at 9 AM. can be on a delivery truck to the
customer by 9 P.M. In addition, Dell's low cost production system
allows it to under price its rivals by 10% to 15%. This combination
has made Dell the envy of the personal computer industry and has
enabled the company to grow at five times the industry rate. How
does the company's just in time system deliver lower costs? "While
machines from Compaq and IBM can languish on dealer shelves for two
months Dell does not start ordering components and assembling
computers until an order is booked. That may sound like no biggie,
but the price of PC parts can fall rapidly in just a few months. By
ordering right before assembly, Dell figures it s parts, on average,
are 60 days newer than those in an IBM or Compaq machine sold at the
same time. That can translate into a 6% profit advantage in
Source: Gray McWilliams, "Whirlwind on
the web, "Business Week, April 7, 1997.
Slashing Process Time:
American Standards uses cell manufacturing to cut inventories
and reduce manufacturing time. At its plant, England, it used to
take as long as three weeks to manufacture a vacuum pump and another
week to process the paper work for an order. Therefore customers had
to place orders in advance. "Today Leeds has switched to
manufacturing cells that do every thing from lathing to assembly in
quick sequence. The result is a break through in speed.
Manufacturing a pump now takes six minutes."
Source: Shawn Tully, "Raiding a
company's Hidden Cash," Fortune, August 22, 1994, PP 82-87.
Implementing thorough JIT procedures
can involve a major overhaul of your business systems - it may be
difficult and expensive to introduce.
JIT manufacturing also opens
businesses to a number of risks, notably those associated with your supply
chain. With no stocks to fall back on, a minor disruption in supplies to
your business from just one supplier could force production to cease at very
Real Business Example:
the Developer of JIT System
Just-in-time manufacturing system has many advantages, but they are
vulnerable to unexpected disruptions in supply. A production line
can quickly come to a halt if essential parts are unavailable.
Toyota, the developer of JIT, found
this out the hard way. One Saturday, a fire at Aisin
seiki Company's plant in Aichi Prefecture stopped the
delivery of all break parts to Toyota. By Tuesday, Toyota had to
close down all of its Japanese assembly line. By the time the supply
of break parts had been restored, Toyota had lost an estimated $15
billion in sales.
Source: "Toyota to Recalibrate ,'"
International Herald Tribune, February 8, 1997.