Optimizing Supply Chain with Just-In-Time Manufacturing Techniques

1. Lecture 27Just-in-Time Manufacturing Books Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. Clive, P.E., CFPIM, Fleming College Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, N.Y.: McGraw-Hill/Irwin. Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of Business, Rollins College, Prentice Hall

2. Objectives • Origin of JIT • Supply Chain • Characteristics of JIT • Importance of JIT • JIT, TPS, Lean Production • Eliminating Waste • Seven Sources of Waste • 5S’s • Function of JIT inventory • Supplier partnership • Advantages of setup reduction • Sources of variability • JIT and competitive advantage

3. Toyota Motor Corporation • Largest vehicle manufacturer in the world with annual sales of over 9 million vehicles • Success due to two techniques, JIT and TPS • Continual problem solving is central to JIT • Eliminating excess inventory makes problems immediately evident

4. Toyota Motor Corporation • Central to TPS is a continuing effort to produce products under ideal conditions • Respect for people is fundamental • Small building but high levels of production • Subassemblies are transferred to the assembly line on a JIT basis • High quality and low assembly time per vehicle

5. Origins of JIT The Toyota Production System by Taiichi Ohno Various titles by Shigeo Shingo

6. Supply Chain (Logistics System) SUPPLIERS CUSTOMER DISTRIBUTION SYSTEM MANUFACTURER Manufacturing Planning and Control Physical Distribution Physical Supply DOMINANT FLOW OF PRODUCTS AND SERVICES DOMINANT FLOW OF DEMAND & DESIGN INFORMATION

7. Characteristics of JIT Environments • Flow manufacturing • Process flexibility • Total quality management • Total productive maintenance

8. Characteristics of JIT Environments • Uninterrupted flow • Continuous process improvement • Supplier partnerships • Total employee involvement

9. Importance of JIT JIT is not primarily an inventory reduction program. Its primary purpose is to focus attention on problems.

10. Deming on: JIT The great advantage of the [JIT] system is the discipline behind it - processes in control; quality, quantity, and regularity predictable. Out of the Crisis

11. Just-In-Time, TPS, and Lean Operations • JIT is a philosophy of continuous and forced problem solving via a focus on throughput and reduced inventory • TPS emphasizes continuous improvement, respect for people, and standard work practices • Lean production supplies the customer with their exact wants when the customer wants it without waste

12. Just-In-Time, TPS, and Lean Operations • JIT emphasizes forced problem solving • TPS emphasizes employee learning and empowerment in an assembly-line environment • Lean operations emphasize understanding the customer

13. Eliminate Waste • Waste is anything that does not add value from the customer point of view • Storage, inspection, delay, waiting in queues, and defective products do not add value and are 100% waste

14. Ohno’s Seven Wastes • Overproduction • Queues • Transportation • Inventory • Motion • Overprocessing • Defective products

15. Seven Sources of Waste • The process • Methods • Movement • Product defects • Waiting time • Over-production • Inventory

16. Eliminate Waste • Other resources such as energy, water, and air are often wasted • Efficient, ethical, and socially responsible production minimizes inputs, reduces waste • Traditional “housekeeping” has been expanded to the 5 Ss

17. 5S’s • Sort:Organization (Seiri) • Set in order: Orderliness (Seiton) • Shine: Cleanliness (Shitsuke) • Standardized Cleanup (Seiso) • Sustain: Discipline (Seiketsu)

18. The 5 Ss • Sort/segregate – when in doubt, throw it out • Simplify/straighten – methods analysis tools • Shine/sweep – clean daily • Standardize – remove variations from processes • Sustain/self-discipline – review work and recognize progress

19. The 5 Ss • Sort/segregate – when in doubt, throw it out • Simplify/straighten – methods analysis tools • Shine/sweep – clean daily • Standardize – remove variations from processes • Sustain/self-discipline – review work and recognize progress • Two additional Ss • Safety – build in good practices • Support/maintenance – reduce variability and unplanned downtime

20. JIT Two Basic Questions • How much to order? • When to order?

21. The Functions of Inventory • To meet anticipated demand • To de-couple production and distribution processes • To take advantage of quantity discounts • To hedge against inflation • To protect against stockouts • To permit operations to continue smoothly

22. Types of Inventory • Raw Material Inventory • Work-In-Process Inventory (WIP) • Finished Goods Inventory • Maintenance/Repair/Operating Supplies (MRO)

23. Inventory Turns • Inventory turns: a measure of how effectively inventories are being used. The ratio of Annual Cost of Goods Sold divided by average inventory in dollars

24. Just-in-Time Inventory • Just-in-time inventory is the minimum inventory necessary to keep a perfect system running. • The exact amount of goods arrive at the moment they are needed, not a minute before or a minute after the units are required.

25. Supplier Partnerships • Commitment • Communication • Change • Principles • Time together • Appreciation / Feedback

26. Advantages of Setup Reduction • Reduced EOQ • Reduced queue & mfg. Lead time • Reduced WIP • Improved quality • Improved process and material flow

27. Inventory Management Terms • Holding Costs • The costs associated with holding or “carrying” inventory over time. • Ordering Costs • Includes costs of supplies, forms, order processing, clerical support, etc. • Setup Costs • The costs to prepare a machine or process for manufacturing an order. • Safety Stock • Extra stock held to prevent a stockout, held for uneven demand.

28. Danger of Blind JIT Implementation • Coupling your customers to problems • Inadequate resources to address problems in a timely manner

29. Remove Variability • JIT systems require managers to reduce variability caused by both internal and external factors • Variability is any deviation from the optimum process • Inventory hides variability • Less variability results in less waste

30. Sources of Variability Incomplete or inaccurate drawings or specifications Poor production processes resulting in incorrect quantities, late, or non-conforming units Unknown customer demands

31. Sources of Variability Incomplete or inaccurate drawings or specifications Poor production processes resulting in incorrect quantities, late, or non-conforming units Unknown customer demands Both JIT and inventory reduction are effective tools in identifying causes of variability

32. Improve Throughput • The time it takes to move an order from receipt to delivery • The time between the arrival of raw materials and the shipping of the finished order is called manufacturing cycle time • A pull system increases throughput

33. Improve Throughput • By pulling material in small lots, inventory cushions are removed, exposing problems and emphasizing continual improvement • Manufacturing cycle time is reduced • Push systems dump orders on the downstream stations regardless of the need

34. Just-In-Time (JIT) • Powerful strategy for improving operations • Materials arrive where they are needed when they are needed • Identifying problems and driving out waste reduces costs and variability and improves throughput • Requires a meaningful buyer-supplier relationship

35. JIT and Competitive Advantage

36. JIT and Competitive Advantage

37. JIT Partnerships • JIT partnerships exist when a supplier and purchaser work together to remove waste and drive down costs • Four goals of JIT partnerships are: • Removal of unnecessary activities • Removal of in-plant inventory • Removal of in-transit inventory • Improved quality and reliability

38. JIT Partnerships

39. Concerns of Suppliers • Diversification – ties to only one customer increases risk • Scheduling – don’t believe customers can create a smooth schedule • Changes – short lead times mean engineering or specification changes can create problems • Quality – limited by capital budgets, processes, or technology • Lot sizes – small lot sizes may transfer costs to suppliers

40. End of Lecture 27