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 / JIT Company?
- Highlight six advantages of just in time in material production.
- just in time (jit) systems and their effect on inventory levels
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 time (JIT) was needed.
Definition and Explanation of Just in Time Manufacturing:
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 material, 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 unanticipated disruptions. 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 particularly 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.
Benefits / Advantages of Just in Time Manufacturing System:
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 improvement.
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 components alone.”
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.
Disadvantages of Just in Time Manufacturing System:
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 short notice.
Real Business Example:
Toyota 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.
List of Companies that use just in time (JIT):
You may also be interested in other useful articles from “business and quality improvement programs” chapter:
- Just-in-Time (JIT) Manufacturing and Inventory Control System
- Total Quality Management (TQM) System
- Six Sigma
- Business Process Reengineering (BPR)
- Theory of Constraints (TOC)