© 2006 Prentice Hall, Inc.16 – 1 Operations Management Just-in-Time and Lean Production Systems...

© 2006 Prentice Hall, Inc. 16 – 1

Operations ManagementOperations ManagementJust-in-Time and Lean Production SystemsJust-in-Time and Lean Production Systems

© 2006 Prentice Hall, Inc.

Alan D. SmithAlan D. Smith


OutlineOutline

Global Company Profile: Green Global Company Profile: Green Gear CyclingGear Cycling

Just-in-Time and Lean ProductionJust-in-Time and Lean Production

SuppliersSuppliers Goals of JIT PartnershipsGoals of JIT Partnerships

Concerns of SuppliersConcerns of Suppliers


Outline – ContinuedOutline – Continued

JIT LayoutJIT Layout Distance ReductionDistance Reduction

Increased FlexibilityIncreased Flexibility

Impact on EmployeesImpact on Employees

Reduced Space and InventoryReduced Space and Inventory



InventoryInventory Reduce VariabilityReduce Variability

Reduce InventoryReduce Inventory

Reduce Lot SizesReduce Lot Sizes

Reduce Setup CostsReduce Setup Costs

SchedulingScheduling Level SchedulesLevel Schedules

KanbanKanban



QualityQuality

Employee EmpowermentEmployee Empowerment

Lean ProductionLean Production

Building a Lean OrganizationBuilding a Lean Organization

5 S’s5 S’s

Seven WastesSeven Wastes

JIT In ServicesJIT In Services


Learning ObjectivesLearning Objectives

When you complete this chapter, you When you complete this chapter, you should be able to:should be able to:

Identify or Define:Identify or Define:

VariabilityVariability

KanbanKanban

5 S System5 S System



Learning ObjectivesLearning Objectives

When you complete this chapter, you When you complete this chapter, you should be able to:should be able to:

Describe or Explain:Describe or Explain:

Just-in-time (JIT) PhilosophyJust-in-time (JIT) Philosophy

Pull SystemsPull Systems

Push SystemsPush Systems

The Goals of JIT PartnershipsThe Goals of JIT Partnerships


Principles of Toyota Production SystemPrinciples of Toyota Production System


Green Gear CyclingGreen Gear Cycling

Designs and manufactures high Designs and manufactures high performance travel bicycles (bike-in-a-performance travel bicycles (bike-in-a-suitcase)suitcase)

Strategy is mass customization with low Strategy is mass customization with low inventory, work cells, and elimination of inventory, work cells, and elimination of machine setupsmachine setups

Major focus on JIT and supply-chain Major focus on JIT and supply-chain managementmanagement

One day throughput timeOne day throughput time

Focus on qualityFocus on quality


Just-In-Time and Just-In-Time and Lean ProductionLean Production

JIT is a philosophy of continuous JIT is a philosophy of continuous and forced problem solving that and forced problem solving that supports lean productionsupports lean production

Lean production supplies the Lean production supplies the customer with their exact wants customer with their exact wants when the customer wants it without when the customer wants it without wastewaste

Key issues are continual Key issues are continual improvement and a pull systemimprovement and a pull system


Waste ReductionWaste Reduction

Waste is anything that does not Waste is anything that does not add value from the customer point add value from the customer point of viewof view

Storage, inspection, delay, waiting Storage, inspection, delay, waiting in queues, and defective products in queues, and defective products do not add value and are 100% do not add value and are 100% wastewaste


Waste ReductionWaste Reduction

Faster delivery, reduced work-in-Faster delivery, reduced work-in-process, and faster throughput all process, and faster throughput all reduce wastereduce waste

Reduced waste reduces room for Reduced waste reduces room for errors emphasizing qualityerrors emphasizing quality

Reduced inventory releases assets Reduced inventory releases assets for other, productive purposesfor other, productive purposes


Variability ReductionVariability Reduction

JIT systems require managers to JIT systems require managers to reduce variability caused by both reduce variability caused by both internal and external factorsinternal and external factors

Variability is any deviation from the Variability is any deviation from the optimum processoptimum process

Inventory hides variabilityInventory hides variability

Less variability results in less Less variability results in less wastewaste


Causes of VariabilityCauses of Variability

1.1. Employees, machines, and suppliers Employees, machines, and suppliers produce units that do not conform to produce units that do not conform to standards, are late, or are not the standards, are late, or are not the proper quantityproper quantity

2.2. Engineering drawings or specifications Engineering drawings or specifications are inaccurateare inaccurate

3.3. Production personnel try to produce Production personnel try to produce before drawings or specifications are before drawings or specifications are completecomplete

4.4. Customer demands are unknownCustomer demands are unknown


Pull Versus Push SystemsPull Versus Push Systems

A pull system uses signals to A pull system uses signals to request production and delivery request production and delivery from upstream stationsfrom upstream stations

Upstream stations only produce Upstream stations only produce when signaledwhen signaled

System is used within the immediate System is used within the immediate production process and with production process and with supplierssuppliers


Pull Versus Push SystemsPull Versus Push Systems

By pulling material in small lots, By pulling material in small lots, inventory cushions are removed, inventory cushions are removed, exposing problems and emphasizing exposing problems and emphasizing continual improvementcontinual improvement

Manufacturing cycle time is reducedManufacturing cycle time is reduced

Push systems dump orders on the Push systems dump orders on the downstream stations regardless of downstream stations regardless of the needthe need


JIT and Competitive JIT and Competitive AdvantageAdvantage

Table 16.1Table 16.1

JIT Requires:JIT Requires:


JIT and Competitive JIT and Competitive AdvantageAdvantage


Which Results In:Which Results In:

Which Yields:Which Yields:


SuppliersSuppliers

JIT partnerships exist when a JIT partnerships exist when a supplier and purchaser work supplier and purchaser work together to remove waste and drive together to remove waste and drive down costsdown costs

Four goals of JIT partnerships are:Four goals of JIT partnerships are: Elimination of unnecessary activitiesElimination of unnecessary activities

Elimination of in-plant inventoryElimination of in-plant inventory

Elimination of in-transit inventoryElimination of in-transit inventory

Elimination of poor suppliersElimination of poor suppliers


JIT PartnershipsJIT PartnershipsSuppliersSuppliers

Few suppliersFew suppliersNearby suppliersNearby suppliersRepeat business with same suppliersRepeat business with same suppliersSupport suppliers so they become or remain Support suppliers so they become or remain

price competitiveprice competitiveCompetitive bidding mostly limited to new Competitive bidding mostly limited to new

purchasespurchasesBuyer resists vertical integration and subsequent Buyer resists vertical integration and subsequent

wipeout of supplier businesswipeout of supplier businessSuppliers encouraged to extend JIT buying to Suppliers encouraged to extend JIT buying to

their supplierstheir suppliersTable 16.2Table 16.2


JIT PartnershipsJIT PartnershipsQuantitiesQuantities

Share forecasts of demandShare forecasts of demandFrequent deliveries of small-lot quantitiesFrequent deliveries of small-lot quantitiesLong-term contractLong-term contractMinimal paperwork to release order (EDI or the Minimal paperwork to release order (EDI or the

Internet)Internet)Little or no permissible overage or underageLittle or no permissible overage or underageSuppliers package in exact quantitiesSuppliers package in exact quantitiesSuppliers reduce production lot sizesSuppliers reduce production lot sizes



JIT PartnershipsJIT PartnershipsQualityQuality

Minimal product specifications imposed on Minimal product specifications imposed on suppliersupplier

Help suppliers meet quality requirementsHelp suppliers meet quality requirementsClose relationships between buyers’ and Close relationships between buyers’ and

suppliers’ quality assurance peoplesuppliers’ quality assurance peopleSuppliers use poka-yoke and process control Suppliers use poka-yoke and process control

chartscharts



JIT PartnershipsJIT PartnershipsShippingShipping

Scheduling inbound freightScheduling inbound freightGain control by using company-owned or Gain control by using company-owned or

contract shipping and warehousingcontract shipping and warehousingUse of advanced shipping notice (ASN)Use of advanced shipping notice (ASN)



JIT LayoutJIT Layout


Reduce waste due to movementReduce waste due to movement

Layout TacticsLayout Tactics

Build work cells for families of productsBuild work cells for families of productsInclude a large number operations in a small areaInclude a large number operations in a small areaMinimize distanceMinimize distanceDesign little space for inventoryDesign little space for inventoryImprove employee communicationImprove employee communicationUse poka-yoke devicesUse poka-yoke devicesBuild flexible or movable equipmentBuild flexible or movable equipmentCross train workers to add flexibilityCross train workers to add flexibility


Distance ReductionDistance Reduction

Large lots and long production Large lots and long production lines with single-purpose lines with single-purpose machinery are being replaced by machinery are being replaced by smaller flexible cellssmaller flexible cells

Often U-shaped for shorter paths Often U-shaped for shorter paths and improved communicationand improved communication

Often using group technology Often using group technology concepts concepts


Increased FlexibilityIncreased Flexibility

Cells designed to be rearranged Cells designed to be rearranged as volume or designs changeas volume or designs change

Applicable in office environments Applicable in office environments as well as production settingsas well as production settings

Facilitates both product and Facilitates both product and process improvementprocess improvement


Impact on EmployeesImpact on Employees

Employees are cross trained Employees are cross trained for flexibility and efficiencyfor flexibility and efficiency

Improved communications Improved communications facilitate the passing on of facilitate the passing on of important information about important information about the processthe process

With little or no inventory With little or no inventory buffer, getting it right the first buffer, getting it right the first time is criticaltime is critical


Reduced Space and Reduced Space and InventoryInventory

With reduced space, inventory With reduced space, inventory must be in very small lotsmust be in very small lots

Units are always moving because Units are always moving because there is no storagethere is no storage


InventoryInventory

Inventory is at the minimum level Inventory is at the minimum level necessary to keep operations runningnecessary to keep operations running

JIT Inventory TacticsJIT Inventory Tactics

Use a pull system to move inventoryUse a pull system to move inventoryReduce lot sizesReduce lot sizesDevelop just-in-time delivery systems with suppliersDevelop just-in-time delivery systems with suppliersDeliver directly to point of useDeliver directly to point of usePerform to schedulePerform to scheduleReduce setup timeReduce setup timeUse group technologyUse group technology



Reduce VariabilityReduce Variability

Inventory levelInventory level

Process downtimeScrap

Setup time

Late deliveries

Quality problems

Figure 16.1Figure 16.1


Inventory Inventory levellevel

Reduce VariabilityReduce Variability

Scrap

Setup time

Late deliveries

Quality problems

Process downtime



Reduce Lot SizesReduce Lot Sizes


200 200 –

100 100 –

Inve

nto

ryIn

ven

tory

TimeTime

QQ22 When average order size When average order size = 100= 100average inventory is average inventory is 5050

QQ11 When average order size When average order size = 200= 200average inventory is average inventory is 100100


Reduce Lot SizesReduce Lot Sizes Ideal situation is to have lot sizes Ideal situation is to have lot sizes

of one pulled from one process to of one pulled from one process to the nextthe next

Often not feasibleOften not feasible

Can use EOQ analysis to calculate Can use EOQ analysis to calculate desired setup timedesired setup time

Two key changesTwo key changes Improve material handlingImprove material handling

Reduce setup timeReduce setup time


Lot Size ExampleLot Size Example

DD == Annual demand Annual demand = 400,000= 400,000 units unitsdd == Daily demand Daily demand = 400,000/250 = 1,600= 400,000/250 = 1,600 per day per daypp == Daily production rate Daily production rate = 4,000= 4,000 units unitsQQ == EOQ desired EOQ desired = 400= 400HH == Holding cost Holding cost = $20= $20 per unit per unitSS == Setup cost (to be determined)Setup cost (to be determined)

Q =Q = 2DS2DSHH(1 -(1 - d/p d/p))

QQ22 = = 2DS2DSHH(1 -(1 - d/p d/p))

S S = = = $2.40= = = $2.40((QQ22)()(HH)(1 -)(1 - d/p d/p))

22DD(3,200,000)(0.6)(3,200,000)(0.6)

800,000800,000


Lower Setup CostsLower Setup Costs


Sum of ordering Sum of ordering and holding costsand holding costs

Holding costHolding cost

Setup cost curves Setup cost curves ((SS11, S, S22))TT11

SS11

TT22

SS22

Co

stC

ost

Lot sizeLot size


Reduce Setup CostsReduce Setup Costs

High setup costs encourage large High setup costs encourage large lot sizeslot sizes

Reducing setup costs reduces lot Reducing setup costs reduces lot size and reduces average size and reduces average inventoryinventory

Setup time can be reduced through Setup time can be reduced through preparation prior to shutdown and preparation prior to shutdown and changeoverchangeover


Reduce Setup TimesReduce Setup Times


Use one-touch system to eliminate Use one-touch system to eliminate adjustments (save 10 minutes)adjustments (save 10 minutes)Step 4Step 4

Step 5Step 5Training operators and standardizing Training operators and standardizing work procedures (save 2 minutes)work procedures (save 2 minutes)

Repeat cycle until subminute Repeat cycle until subminute setup is achievedsetup is achieved

Initial Setup Time

Step 2Step 2

Move material closer and improve material handling

(save 20 minutes)

Step 1Step 1

Separate setup into preparation and actual setup, doing as much as possible while the

machine/process is operating (save 30 minutes)

Step 3Step 3

Standardize and improve tooling

(save 15 minutes)

90 min —90 min —

60 min —60 min —

45 min —45 min —

25 min —25 min —

15 min —15 min —13 min —13 min —

——


SchedulingScheduling

Schedules must be communicated Schedules must be communicated inside and outside the organizationinside and outside the organization

Level schedulesLevel schedules Process frequent small batchesProcess frequent small batches

Freezing the schedule helps Freezing the schedule helps stabilitystability

KanbanKanban Signals used in a pull systemSignals used in a pull system


KanbanKanban

1.1. User removes a User removes a standard sized standard sized containercontainer

2.2. Signal is seen by Signal is seen by the producing the producing department as department as authorization to authorization to replenishreplenish

Part numbers Part numbers mark locationmark location

Signal marker Signal marker on boxeson boxes



Scheduling Small LotsScheduling Small Lots

AA BB CCAA AAAABB BB BB BB BB CC

JIT Level Material-Use ApproachJIT Level Material-Use Approach

AA CCAA AAAA BB BB BB BB BB CC CCBB BB BB BBAA AA

Large-Lot ApproachLarge-Lot Approach

TimeTimeFigure 16.5Figure 16.5


More KanbanMore Kanban

When the producer and user are not When the producer and user are not in visual contact, a card can be usedin visual contact, a card can be used

When the producer and user are in When the producer and user are in visual contact, a light or flag or visual contact, a light or flag or empty spot on the floor may be empty spot on the floor may be adequateadequate

Since several components may be Since several components may be required, several different kanban required, several different kanban techniques may be employedtechniques may be employed



Usually each card controls a specific Usually each card controls a specific quantity or partsquantity or parts

Multiple card systems may be used if Multiple card systems may be used if there are several components or there are several components or different lot sizesdifferent lot sizes

Kanban cards provide a direct Kanban cards provide a direct control and limit on the amount of control and limit on the amount of work-in-process between cellswork-in-process between cells



In an MRP system, the schedule can In an MRP system, the schedule can be thought of as a build authorization be thought of as a build authorization and the kanban a type of pull system and the kanban a type of pull system that initiates actual productionthat initiates actual production

If there is an immediate storage area, If there is an immediate storage area, a two-card system can be used with a two-card system can be used with one card circulating between the one card circulating between the user and storage area and the other user and storage area and the other between the storage area and the between the storage area and the producerproducer


Kanban SignalsKanban Signals

Work Work cellcell

Raw Raw Material Material SupplierSupplier

KanbanKanban

Purchased Purchased Parts Parts

SupplierSupplier

Sub-Sub-assemblyassembly

ShipShip

KanbanKanban

KanbanKanban

KanbanKanban

KanbanKanban

Finished Finished goodsgoods

Customer Customer orderorder

Final Final assemblyassembly

KanbanKanban



The Number of CardsThe Number of Cardsor Containersor Containers

Need to know the lead time needed to produce a container of parts

Need to know the amount of safety stock needed

Number of kanbans =Number of kanbans =

Demand during Demand during SafetySafetylead timelead time ++ stockstockSize of containerSize of container


Number of Kanbans ExampleNumber of Kanbans Example

Daily demandDaily demand == 500500 cakes cakes

Production lead timeProduction lead time == 22 days days(wait time + (wait time + material handling time + material handling time + processing time)processing time)

Safety stockSafety stock == 1/21/2 day day

Container sizeContainer size == 250250 cakes cakes

Demand during lead time Demand during lead time = 2= 2 days days x 500x 500 cakes cakes = 1,000= 1,000

Number of kanbans Number of kanbans = = 5= = 51,000 + 2501,000 + 250

250250


Advantages of KanbanAdvantages of Kanban

Allow only limited amount of faulty or Allow only limited amount of faulty or delayed materialdelayed material

Problems are immediately evidentProblems are immediately evident

Puts downward pressure on bad Puts downward pressure on bad aspects of inventoryaspects of inventory

Standardized containers reduce Standardized containers reduce weight, disposal costs, wasted space, weight, disposal costs, wasted space, and laborand labor


QualityQuality

Strong relationshipStrong relationship JIT cuts the cost of obtaining good JIT cuts the cost of obtaining good

quality because JIT exposes poor quality because JIT exposes poor qualityquality

Because lead times are shorter, Because lead times are shorter, quality problems are exposed soonerquality problems are exposed sooner

Better quality means fewer buffers Better quality means fewer buffers and allows simpler JIT systems to be and allows simpler JIT systems to be usedused


JIT Quality TacticsJIT Quality Tactics

Use statistical process controlUse statistical process control

Empower employeesEmpower employees

Build fail-safe methods (poka-Build fail-safe methods (poka-yoke, checklists, etc.)yoke, checklists, etc.)

Expose poor quality with small Expose poor quality with small lot JITlot JIT

Provide immediate feedbackProvide immediate feedback



Employee EmpowermentEmployee Empowerment

Empowered employees bring their Empowered employees bring their knowledge and involvement to daily knowledge and involvement to daily operationsoperations

Some traditional staff tasks can move to Some traditional staff tasks can move to empowered employeesempowered employees

Training, cross-training, and fewer job Training, cross-training, and fewer job classifications can mean enriched jobsclassifications can mean enriched jobs

Companies gain from increased Companies gain from increased commitment from employeescommitment from employees



Different from JIT in that it is Different from JIT in that it is externally focused on the customerexternally focused on the customer

Often called the Toyota Production Often called the Toyota Production System (TPS)System (TPS)

In practice, JIT, Lean Systems, and In practice, JIT, Lean Systems, and TPS are often essentially the sameTPS are often essentially the same


Toyota Production SystemToyota Production System

Work shall be completely specified as to Work shall be completely specified as to content, sequence, timing, and outcomecontent, sequence, timing, and outcome

Every customer-supplier connection must Every customer-supplier connection must be directbe direct

Product and service flows must be simple Product and service flows must be simple and directand direct

Any improvement must be made in Any improvement must be made in accordance with the scientific method at accordance with the scientific method at the lowest possible level of the the lowest possible level of the organizationorganization


Lean SystemsLean Systems

Use JIT techniquesUse JIT techniques Build systems that help employees Build systems that help employees

produce perfect partsproduce perfect parts Reduce space requirementsReduce space requirements Develop close relationships with Develop close relationships with

supplierssuppliers


Lean SystemsLean Systems

Educate suppliersEducate suppliers Eliminate all but value-added Eliminate all but value-added

activitiesactivities Develop the workforceDevelop the workforce Make jobs more challengingMake jobs more challenging Reduce the number of job classesReduce the number of job classes


The 5 S’sThe 5 S’s

Sort/segregateSort/segregate

Simplify/straightenSimplify/straighten

Shine/sweepShine/sweep

StandardizeStandardize

Sustain/self disciplineSustain/self discipline

Safety

Support/maintenance



OverproductionOverproduction

QueuesQueues

TransportationTransportation

InventoryInventory

MotionMotion

Over-processingOver-processing

Defective productDefective product

A broader perspective

suggests other resources like

energy and water are wasted but should not be


JIT in ServicesJIT in Services

The JIT techniques used in The JIT techniques used in manufacturing are used in servicesmanufacturing are used in services SuppliersSuppliers

LayoutsLayouts

InventoryInventory

SchedulingScheduling

© 2006 Prentice Hall, Inc.16 – 1 Operations Management Just-in-Time and Lean Production Systems...

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