JIT SCM

If Supply Chain Management is

the Answer, What's the Question?

Introduction

Shift in manufacturing business processes in practically every industrial setting.

JIT thinking paradigm now includes the purchasing function.

JIT concepts have had a significant effect on the profitability in almost all industrial

settings.

Introduction

The key JIT principles focus on people, postponement, efficiency, and the

elimination of waste.

All of these key business principles have a direct effect on the supply chain function.

JIT Conceptual Framework

6-4

Practices Essential for JIT Implementation

1. Uniform production

2. Quick set times

3. Small lot sizes

4. Short lead times

5. Preventive maintenance

6. Multifaceted workforce

7. Supplier development

8. Kanban production control

On The Other Hand, The Japanese..

JIT is Toyotas manufacturing philosophy to minimize waste,

JIT production system is a subsystem controlled by kanban.

The kanban-controlled JIT production system has been erected based on the premise of minimizing work-in-process inventories (waste) by reducing or eliminating discrete batches.

Supported By:

1. Smoothing of production,

2. Standardization of jobs,

3. Reduction of setup times,

4. Improvement of activities,

5. Design of machine layout,

6. Automation of processes.

Significance Of JIT SCM

Material cost as a proportion of total cost of the end product has risen sharply and is

as high as 80 percent in some instances.

The role in a manufacturing organization has become increasingly important.

Significance Of JIT SCM

Focuses on reducing both raw materials and work-in-process inventories.

Provide a firm with component parts and raw materials.

Requires that the right materials are provided to work stations at the right time

Ensure that high-quality products are provided on time, at a reasonable price.

FOR JIT PURCHASING TO WORK.

Reduced Order Quantities

Small lot sizes.

Long and infrequent production runs have in the past been considered beneficial for

the overall productivity of a manufacturing

organization.

However, long production runs usually lead to high levels of raw-material and

finished-goods inventories.

On-Time Delivery Schedules

Supplier performance can be measured more accurately under the JIT SCM

In order to obtain small lot sizes for production, the order quantity size needs

to be reduced and corresponding delivery

schedules need to be made more

frequent.

Reduced Lead Times

To be able to maintain low inventory levels, it is critical that replenishment lead

times be as short as possible.

COMPARISON BETWEEN TRADITIONAL AND JIT PURCHASING APPROACHES

Traditional

Purchasing

JIT-Purchasing

Order quantities Based on trade-offs

between ordering

and carrying costs

Based on small lot

sizes for production

Delivery schedules Infrequent, primarily

because of high

ordering costs

involved

Frequent because

of small lot sizes

and low ordering

costs

Delivery windows Relatively wide Very narrow

Delivery lead times Relatively long and

relaxed

Stringent and

reduced significantly

Parts quality

Responsibility of the

quality function in

the organization

Responsibility of

supplier

Supplier base Fairly broad Considerably

smaller

High Quality of Incoming Materials

Japanese manufacturers attempt to reduce incoming material inspection as

much as possible.

In order to eliminate the associated receiving inspection costs, a very high

emphasis is placed on the quality of

incoming materials under the JIT system.

Reliable Suppliers

Since there is no buffer stocks, unreliable supply, in terms of delivery time and quality of incoming material, may lead to frequent problems in production.

Purchasing function has been preoccupied with trimming the overall supplier base in quest of so called superior suppliers.

JIT SCM BENEFITS

Reduced Inventory Levels

Associated inventory holding costs.

Firms like Toyota have been able to reduce inventory levels to such an extent

that their inventory turnover ratios have

gone up to over 60 times per year,

compared to corresponding ratios of 5 to 8

reported by most American manufacturers.

Improved Lead-Time Reliability

Delivery lead times are shorter.

Lead-time reliability is better

Higher levels of customer service

Lower safety stock requirements for the company.

Reduced working capital requirements for the firm.

Scheduling Flexibility

Reduced purchasing lead times and setup times.

Prevents confusion in the manufacturing plant

Unique competitive advantages to manufacturing firms since they are

capable of adapting to changes in the

environment more quickly.

Improved Quality

High-quality incoming materials result in savings associated with reduced rework

and scrap

Reduced Costs of Parts

As cooperation and relationships between suppliers and manufacturers build up in a

JIT system, so do the opportunities to

conduct an extensive value analysis and

focus on reducing the cost of parts

purchased.

Constructive Synergies with Suppliers

Because of smaller lot sizes and frequent delivery schedules, suppliers are in a

position to receive quick feedback

regarding any potential manufacturing or

design problems.

Manufacturing is in a position to implement engineering changes quicker because of

the reduced inventory levels.

Cost Decreases

Reduces physical inventory level

Reduced insurance premiums associated with the storage of inventory.

Reduced inventory holding costs

Reduced labor cost in store rooms and material handing costs.

Reduced clerical and administrative costs.

Cost Decreases

Reduced waste from the manufacturing process.

Reduced obsolescence costs.

Reduced deprecation of handling and storage equipment.

Each of the cost savings will result in a leaner more profitable operation.

PROBLEMS WITH IMPLEMENTATION

Lack of Cooperation from Suppliers

The suppliers see little incentive in adopting the JIT approach when the

primary benefits of the program go to the

buyer

What You Need To Give

1. A long-term business agreement

2. A fair return on supplier investment

3. Adequate time for thorough planning

4. Accurate demand functions

5. Correct and firm specifications

6. Parts designed to match suppliers process capability

What You Need To Give

7. Smoothly timed order releases

8. A fair profit margin

9. Fair dealings with regard to price

10.A minimum number of change orders

11.Prompt payment of invoices

Lack of Top Management Support

Implementation of the JIT philosophy requires a cultural change in the

organization.

Cannot be implemented successfully without total support from top

management.

Lack of Employee Readiness and Support

Resistance is encountered because the employees are required to change their long-standing work habits, or because they interpret the new system as being a threat to their jobs.

JIT system requires most employees to assume more problem-solving responsibilities on the job, which may lead to additional frustration.

Lack of Support from Design Engineering Personnel

Design engineering is responsible for making technical specifications for the

materials a company buys.

SCM does not receive adequate support from engineering functions, and, as a

result, often unable to advise suppliers on

material quality design options.

Low Product Quality

If suppliers fail to provide materials of adequate quality on a regular basis,

production slow-downs and stoppages will

occur regularly.

Lack of Communication

Integration of important functional areas

Lack of proper communication among these areas poses a major obstacle

Purchasing function in an organization must assume the responsibility of calling

on top management regularly for

leadership and support.

Role of Culture

The need to have harmony in organizations provides for better manufacturersupplier relationships at Toyota and Honda.

Severance of a business relationship between manufacturer and supplier has a strong stigma associated with it, which both manufacturers and suppliers try to avoid as much as possible.

Critical Analysis of the JIT Concept

Many companies turned to JIT looking for a relatively painless financial surgery that

would yield substantial short-term benefits.

Over the years, these companies have come to realize the tremendous effort and

commitment required to make a JIT

system run smoothly.

Critical Analysis of the JIT Concept

The practitioners painted an extremely romantic picture of JIT emphasizing

simplicity and efficiency, along with a state

of affairs where employee morale would

be high and relations between buyers and

suppliers would be completely

harmonious.

Critical Analysis of the JIT Concept

It takes time to change attitudes of the workforce and nurture long-term

relationships with suppliers.

JIT systems work best when its smooth production and low inventory requirements

are aimed at meeting a relatively stable

product demand.

Critical Analysis of the JIT Concept

Demand patterns are not stable for all products. In order to induce a relatively

stable demand, companies using JIT

manufacturing often consolidate their

product lines.

Not all marketing strategies are compatible with the JIT system.

Final Note

Key word in supply chain management is management, and when relationships

aren't managed properly (or at all), then

there really isn't much of a supply chain.

What you've got instead is a mad free-for-all, and ultimately, a lot of unhappy

customers.