JUST IN TIME

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GROUP MEMBERS

SR.NO.

NAMES ROLL NO.

1. NIKHIL SARWADEKAR 36.

2. ASHISH SHAH 37.

3. JYOTI SHARMA 38.

4. JITESH SURTI 39.

5. SNEHA TAMBA 40

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ACKNOWLEGEMENT

It gives us a joy and pleasure to present this topic of “JUST IN TIME” as a part of our presentation topic. This topic is prepared as per the guidelines given by our subject teacher Prof A.A. Samant.

This topic is written in such a way that all the students and the teachers will find it simple to understand. The topic which we have written covers all the points related to “JUST IN TIME”.

However your efforts have seem to be quite useful to us but we have made all possible efforts to present this topic to the class. We will be more happy to have the suggestions from the teacher about this topic.

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INDEX

SR.NO PARTICULAR PAGE NO.

1. Abstract 5

2. Meaning 8

3. Definition 9

4. Philosophy 10

5. Benefit 12

6. Is Just in Time right for your business? 14

7. Japanese JIT system v/s U.S System 16

8. Just in Time Techniques 17

9. American automotive industries 18

10. Barriers for small manufacturing enterprises 19

11. Problems with JIT 20

12. Risk 23

13. Example 26

14 Case study of DELL 28

15. Conclusion 31

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ABSTRACT

The model of ‘Mass Production’, being a common strategy in enterprises and its primary aim is to restrict the range of manufactured products. In the light of this view, a typical example can be observed by Henry Ford’s historical saying "They can get it in any color as long as it is black".In order for the dynamics of Mass Production to come into force, is the constant demand of the manufactured products, the market homogeneity as well as the stability of import of the goods (costs of raw materials, labour costs, etc).

In order to reduce the cost, Mass Production system persists in the productivity as well as in the large quantities of products, while impacts considerably on the flexibility of the system. Consequently, Mass Production system is unable to cope with urgent or separate orders of products with special characteristics, because the preparation time (set up) of the production system is too long and very costly.The new organization of production settles the problem and brings in the light the case of ‘Lean Manufacturing’, which aims at the effective confrontation of the era of mass production, shown by the increased requirements of the markets for larger variety of products in smaller quantities with higher quality.

The aim of this paper is to appoint the comparative advantages and objectives of ‘Lean Production’ concerning the model of Mass Production, while the system administration of production of ‘Just In Time’, will be presented along with the interconnected philosophy of ‘Total Quality Management’.

Key Concepts:“Waste is anything that adds cost to the product without adding value”“Reduce cost through continuous improvement”“Produce according to customer demands: what is needed, when it is needed, in the quantity it is needed”“Lean workers are valued for their minds more than their hands”“TQM simple objective: Do the right things, right the first time, every time”

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Mass Production

The model of ‘Mass Production’, being a common strategy in enterprises and its primary aim is to restrict the range of manufactured products. In the light of this view, a typical example can be observed by Henry Ford’s historical saying "They can get it in any color as long as it is black".

In order for the dynamics of Mass Production to come into force is the constant demand of the manufactured products, the market homogeneity as well as the stability of import of the goods (costs of raw materials, labour costs, etc),In a mass production environment, economies of scale are the focus. More is better. In order to reduce the cost, Mass Production system persists in the productivity as well as in the large quantities of products, while impacts considerably on the flexibility of the system. The prevailing idea is that if you make large batches of product you've used your equipment more efficiently than if you make small batches with time consuming changeovers. In this environment the focus is on individual efficiency, both for machines and operators.

Model T Production

“Every time you reduce the price of the car without reducing the quality, you increase the possible number of purchasers. There are many men who will pay $360 for a car who would not pay $440. We had in round numbers 500,000 buyers of cars on the $440 basis, and I figure that on the $360 basis we can increase the sales to possible 800,000 cars for the year—less profit on each car, but more cars, more employment of labor, and in the end we get all the profit we ought to make.” —H. Ford.Mass production manufacturers set their production schedules based on a forecast of future needs, which in turn is based on historical data and trend analysis. The great weakness of this system is that no one can predict the future with sufficient certainty. When production is based on predictions of the future, risk of loss from overproduction (PUSH systems) is far greater than when production is based on actual demand.

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Consequently, Mass Production system is unable to cope with urgent or separate orders of products with special characteristics, because the preparation time (set up) of the production

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MEANING

Just-in-time (JIT) manufacturing is a way of managing manufacturing systems that could reduce waste, and lower cost, thus increasing profit.  In its most basic explanation and principle JIT is every component in the manufacturing system arriving just in time for it to be used.  Since the products arrive just in time there is no need for stock holding facilities of any kind.  The most common industry using JIT manufacturing is the automobile industries.  However, many other companies of all sizes and products are currently using and transitioning to just-in-time manufacturing.  Although just-in-time manufacturing sounds like a very simple application, implementing it can be a very costly and difficult task.

Example

Just-in-time (JIT) is easy to grasp conceptually, everything happens just-in-time. For example consider my journey to work this morning, I could have left my house, just-in-time to catch a bus to the train station, just-in-time to catch the train, just-in-time to arrive at my office, just-in-time to pick up my lecture notes, just-in-time to walk into this lecture theatre to start the lecture. Conceptually there is no problem about this, however achieving it in practice is likely to be difficult!

So too in a manufacturing operation component parts could conceptually arrive just-in-time to be picked up by a worker and used. So we would at a stroke eliminate any inventory of parts, they would simply arrive just-in-time! Similarly we could produce finished goods just-in-time to be handed to a customer who wants them. So, at a conceptual extreme, JIT has no need for inventory or stock, either of raw materials or work in progress or finished goods.

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DEFINITION

1. “Uses a systems approach to develop and operate a manufacturing system”

2. “Organizes the production process so that parts are available when they are needed”

3. “A method for optimizing processes that involves continual reduction of waste”

4. “Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs”

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PHILOSOPHY

Philosophy of JIT is simple: inventory is waste. JIT inventory systems expose hidden causes of inventory keeping, and are therefore not a simple solution for a company to adopt. The company must follow an array of new methods to manage the consequences of the change. The ideas in this way of working come from many different disciplines including statistics, industrial engineering, production management, and behavioral science. The JIT inventory philosophy defines how inventory is viewed and how it relates to management.

Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. This does not mean to say JIT is implemented without awareness that removing inventory exposes pre-existing manufacturing issues. This way of working encourages businesses to eliminate inventory that does not compensate for manufacturing process issues, and to constantly improve those processes to require less inventory. Secondly, allowing any stock habituates management to stock keeping. Management may be tempted to keep stock to hide production problems. These problems include backups at work centers, machine reliability, process variability, lack of flexibility of employees and equipment, and inadequate capacity.

In short, the just-in-time inventory system focus is having “the right material, at the right time, at the right place, and in the exact amount”-Ryan Grabosky, without the safety net of inventory. The JIT system has broad implications for implementers.

1. Transaction cost approach

JIT reduces inventory in a firm. However, a firm may simply be outsourcing their input inventory to suppliers, even if those suppliers don't use JIT (Naj 1993). Newman (1993) investigated this effect and found that suppliers in Japan charged JIT customers, on average, a 5% price premium.

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2. Environmental concerns

During the birth of JIT, multiple daily deliveries were often made by bicycle. Increased scale has required a move to vans and lorries (trucks). Cusumano (1994) highlighted the potential and actual problems this causes with regard to gridlock and burning of fossil fuels. This violates three JIT waste guidelines:

1. Time—wasted in traffic jams2. Inventory—specifically pipeline (in transport) inventory3. Scrap—fuel burned while not physically moving

3. Price volatility

JIT implicitly assumes a level of input price stability that obviates the need to buy parts in advance of price rises. Where input prices are expected to rise, storing inventory may be desirable.

4. Quality volatility

JIT implicitly assumes that input parts quality remains constant over time. If not, firms may hoard high quality inputs. As with price volatility, a solution is to work with selected suppliers to help them improve their processes to reduce variation and costs. Longer term price agreements can then be negotiated and agreed-upon quality standards made the responsibility of the supplier. Fixing up of standards for volatility of quality according to the quality circle

5. Demand stability

Karmarker (1989) highlights the importance of relatively stable demand, which helps ensure efficient capital utilization rates. Karmarker argues that without significantly stable demand, JIT becomes untenable in high capital cost production.

6. Supply Stability

In the U.S., the 1992 railway strikes caused General Motors to idle a 75,000 worker plant because they had no supply

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BENEFITS

Just In Time aims to reduce waste and improve quality, bringing a whole range of benefits to manufacturing businesses of any size, as well as retailers with complex supply chains. These benefits include:

1. Reduced costs :-Just In Time can minimize storage costs. Many businesses find that purchasing only the raw materials or components they need for their current jobs, improves cashflow and minimizes the amount of money tied up in stock. Likewise, storing less work-in-progress and fewer finished goods reduces space requirements. For example, using just-in-time working in a circuit board plant, computer manufacturer Hewlett Packard reduced the value of the inventory held from $670,000 to $20,000. In retail too, getting your suppliers signed up to deliver just in time, can reduce the need for costly storage space - you may no longer need an expensive warehouse.

2. Higher productivity:-It may seem a daunting prospect, but reorganizing production to make Just In Time work is excellent discipline for any business. It forces you to consider how every part of the production process works and to look for ways of streamlining working practices. In the above example from Hewlett Packard, as well as reduced stock holdings, the company was able to cut the assembly time by over 95%.

While in the UK, thanks to a brainstorming session led by the DTI's Manufacturing Advisory Service, Cheshire-based Advanced Medical Solutions realized long changeover times were holding up their production line. The company rehearsed quicker changeovers and is now more flexible and reactive to customer requirements.

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4. Competitive advantage:-Lean manufacturing helps create a more flexible business that has better communication with customers and suppliers, and can react more quickly to market demands. Many businesses find greater customer loyalty is a welcome by-product of adopting this new way of working. Implementing JIT working will help your business move towards industry best practice and keep up with competitors.

5. Improved job satisfaction:-JIT demands active participation in the production process from employees. It increases their skills, gives them greater responsibility and fosters an interest in the performance of the whole company, rather than just their department or team. You may find this raises morale and helps reduce staff turnover, thereby cutting recruitment costs. Read more about the cultural impact of JIT on the JIT Considerations page

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IS JUST IN TIME RIGHT FOR YOUR BUSINESS?

Just In Time usually works best if your business produces a medium to high volume of a relatively high value product. (Its origins are in car manufacturing). Ideally your company should have short setup times on machines, and a commitment to quality assurance.

To see if Just In Time might be applicable to some or all of your business, work through the following steps.

1.Examine your business model

Are major customers driving an initiative towards more automated ordering and supply?

Could you extract more value from your suppliers by communicating directly with their systems?

Could you win more customers or foster increased customer loyalty by extending your business processes into supply partner organisations?

If you answered "Yes" to any of these questions, your business could benefit from employing JIT techniques in your ordering, planning and dispatch.

2.Identify key stages in the business

Can you identify the key interfaces between your business and your suppliers/customers?

Are ordering, delivery or transportation failures costing you time and money?

Can you quantify the cost of failure/delay at any given interface between you and your suppliers/customers?

Have you calculated the cost of managing your supply chain and could you reduce the cost by automating the processes?

If you answered "Yes" to any of these questions you are ready to look at the next section below on inventory. If you answered "No" to any of these questions you should review your processes further.

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3. Minimize inventory

Do you know how much inventory you hold at any one time? Do you know how much inventory you need to hold at any one time? Would you benefit from implementing systems that communicate this

information automatically to supply chain partners?

If you answered "Yes" to these questions, you are ready to look at the next section below on demand planning. Weigh up the benefits of minimizing inventory against the costs of investing in JIT technology.

4. Analyze demand peaks

Does production proceed at a rate dictated by your customers rather than your supply chain partners?

Do you know in advance when demand peaks will occur? Do your supply chain partners know in advance when your demand

peaks will affect their business? Can you quantify the cost of delays at peak periods?

If you answered "No" to any of these questions, you should consider using automated JIT techniques in ordering, supply and production to streamline your supply chain.

5. Review your working practices

Is the sequence of steps required to take a product from point of sale to point of delivery a standard one, repeatable at a pre-defined quality level?

Do your business partners' systems give you automated access to component/material histories, quality procedures or safety certifications?

Can you trace what you produce (including its constituent parts) back to source and prove that you meet the appropriate commercial or regulatory standards?

If you answered "No" to any of these questions, consider how you could increase efficiency and improve customer satisfaction by automating the interfaces with your supply chain.

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JAPENESE (JIT) V/S U.S SYSTEM

SRNO. JAPENESE(JIT)APPROACH U.S APPROACH

1. Small size purchasing of raw material

Bulk quantity of raw material.

2. Inspection of Raw material at supplier’s end.

Inspection of Raw material at buyer’s end.

3. Zero defect in quality is required.

2% defect in quality is acceptable.

4. Supplier is selected based on reasonable pricing as worked out in view quality consideration.

Supplier is selected based on biding pricing for quoted quality.

5. Long term agreement with suppliers.

Vary from consignment to consignment.

6. Less paper formality. More paper formality as is based on tender system

7. Minimum packing in handling of raw materials.

Heavy packing in handling of raw materials as bulk purchases.

8. Transportation cost is less as suppliers are located nearby.

Transportation cost is more as supplier’s are scattered

9. More suitable for single product system.

More suitable for multi product system.

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JUST IN TIME TECHNIQUES

1. Reduced Setup Times:-Reduced setup times are achieved in JIT by

keeping batch sizes as small as possible, the ideal batch size is said to be one. Companies spend a lot of time in setup time reduction, with the implementation of JIT setup time are usually reduced thirty or fifty percent. In a Just-In-Time manufacturing company the plant floors are laid out so that there is a minimal movement of goods during the production process, this reduces a great deal of waste.

2. Total Quality Assurance:-Product quality is extremely important in a JIT

situation, all aspects of the product and the manufacturing process must be carefully scrutinized for optimum quality. Every member of the production process must be trained in production quality and should use techniques to assure quality. Techniques such as Statistical process control is a very good way to ensure quality during production.

3. Preventive Maintenance: -Preventive maintenance is needed to

reduce variation in the process and also to keep a high level of quality. This requires a comprehensive examination of all machines on a regular basis.

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AMERICAN AUTOMOTIVE INDUSTRIES

American automotive companies such as Ford and General Motors have implemented JIT into their production, however, not as smoothly as Toyota. They came across several problems including strikes and the suppliers inability to supply the materials demanded (Glenn, T. 2001). Since JIT is a stockless production system it leaves the company at the mercy of the suppliers. Ford experienced a problem with a JIT supplier that may have cost them tens of millions of dollars. They had to shut down six plants leaving many workers with nothing to do. So the plant was still costing money to run, but nothing productive was taking place. A similar problem took place with General Motors in 1996 resulting in them temporarily closing over two-thirds of their plants. Their supply company had a seventeen day strike and without having any emergency or back-up materials there was nothing that could be done to correct the problem. Even after the strike was over there were still complications for some time. After the strike was over the supplier had to speed up production to meet General Motors needs resulting in a large amount of defective products. This seventeen day strike resulted in General Motors loosing between 600-800 million dollars in profits. A statement by Keith Crain of Automotive news sums up these problem very well, "JIT manufacturing, along with single source suppliers, creates terrific manufacturing efficiencies, quality improvements, and lower costs. Unfortunately, the downside is it creates and Achilles' heel for manufacturers. any natural or unnatural disaster at any critical supply plant whether it's a flood, fire, or strike- that shuts off the flow of materials from that critical plant to the assembly process can shut down a manufacturing operation in a matter of hours."(Glenn, T. 2001)

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BARRIERS FOR SMALL MANUFACTURING ENTERPRISES

Small manufacturing enterprises have just as much to gain as large enterprises from implementing JIT into their company. They also a few advantages by being smaller than the larger companies. However, There are more barriers for them to overcome and they are taking a larger risk. An accepted measurement of a small manufacturing enterprises are fewer than 100 employees having a sales volume of no more than 5 million dollars (Johnston, R. B. n.d.). Some advantages that SMEs have are they can be owned privately which means the decision to switch does not have to be held up in an approval process. Also with fewer employees it is easier to communicate the new system to the employee. Since they have fewer employees many SMEs train their employees on several machine in case of sudden absences. That gives them one less component to worry about. They also are used to making smaller batches of products and switches over so thus makes them more flexible. Many SMEs do not have union contracts to worry about which makes it much easier to make the change over. Although SMEs have several advantages their risks are much greater and their size creates several barriers. The first is money is always an issue with smaller companies, and implementing JIT can cost a relatively large amount of money without any short time returns. Since smaller companies do not have a large amount of free cash and are less susceptible to get loans, coming up with appropriate funding can be a huge issue. Also since SMEs do not use as large an amount of materials they do not have any bargaining power over the larger manufacturing companies. This can restrict them from getting a good price ordering only small amounts at a time. Although SMEs implementing JIT into their manufacturing system can have positive result it can be a risk. Unlike large manufacturing having an unsuccessful attempt could cost the smaller manufacture enough most to result in bankruptcy. To be successful a SME needs to look at the different components of JIT and choose which one will fit. An SME trying to implement the who concept has a smaller chance of succeeding because certain components are not designed for them.

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PROBLEMS

Within a JIT system

Just-in-time operation leaves suppliers and downstream consumers open to supply shocks and large supply or demand changes. For internal reasons, Ohno saw this as a feature rather than a bug. He used an analogy of lowering the water level in a river to expose the rocks to explain how removing inventory showed where production flow was interrupted. Once barriers were exposed, they could be removed. Since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup downstream. A key tool to manage this weakness is production leveling to remove these variations. Just-in-time is a means to improving performance of the system, not an end.

Very low stock levels means shipments of the same part can come in several times per day. This means Toyota is especially susceptible to flow interruption. For that reason, Toyota uses two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk because of the 1997 Aisin fire. However, since Toyota also makes a point of maintaining high quality relations with its entire supplier network, several other suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation. Thus, a strong, long-term relationship with a few suppliers is better than short-term, price-based relationships with many competing suppliers. Toyota uses this long-term relationship to send Toyota staff to help suppliers improve their processes. These interventions have been going on for twenty years and have created a more reliable supply chain, improved margins for Toyota and suppliers, and lowered prices for customers. Toyota encourages their suppliers to use JIT with their own suppliers.

Within a raw material stream

As noted by Liker (2003) and Womack and Jones (2003), it ultimately would be desirable to introduce synchronized flow and link JIT through the entire supply stream. However, none followed this in detail all the way back through the processes to the raw materials. With present technology, for example, an

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ear of corn cannot be grown and delivered to order. The same is true of most raw materials, which must be discovered and/or grown through natural processes that require time and must account for natural variability in weather and discovery. The part of this currently viewed as impossible is the synchronised part of flow and the linked part of JIT. It is for the reasons stated raw materials companies decouple their supply chain from their clients' demand by carrying large 'finished goods' stocks. Both flow and JIT can be implemented in isolated process islands within the raw materials stream. The challenge becomes to achieve that isolation by some means other than carrying huge stocks, as most do today.

Because of this, almost all value chains are split into a part made-to-forecast and a part that could, by using JIT, become make-to-order. Historically, the make-to-order part has often been within the retailer portion of the value chain. Toyota took Piggly Wiggly's supermarket replenishment system and drove it at least half way through their automobile factories. Their challenge today is to drive it all the way back to their goods-inwards dock. Of course, the mining of iron and making of steel is still not connected to an order for a particular car. Recognising JIT could be driven back up the supply chain has reaped Toyota huge benefits and a dominant position in the auto industry.

Note that the advent of the mini mill steelmaking facility is starting to challenge how far back JIT can be implemented, as the electric arc furnaces at the heart of many mini-mills can be started and stopped quickly, and steel grades changed rapidly.

Oil

It has been frequently charged that the oil industry has been influenced by JIT.

The argument is presented as follows:

The number of refineries in the United States has fallen from 279 in 1975 to 205 in 1990 and further to 149 in 2004. As a result, the industry is susceptible to supply shocks, which cause spikes in prices and subsequently reduction in domestic manufacturing output. The effects of hurricanes Katrina and Rita are given as an example: in 2005, Katrina caused the shutdown of 9 refineries in Louisiana and 6 more in Mississippi, and a large number of oil production and transfer facilities, resulting in the loss of 20% of the US domestic refinery

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output. Rita subsequently shut down refineries in Texas, further reducing output. The GDP figures for the third and fourth quarters showed a slowdown from 3.5% to 1.2% growth. Similar arguments were made in earlier crises.

Beside the obvious point that prices went up because of the reduction in supply and not for anything to do with the practice of JIT, JIT students and even oil & gas industry analysts question whether JIT as it has been developed by Ohno, Goldratt, and others is used by the petroleum industry. Companies routinely shut down facilities for reasons other than the application of JIT. One of those reasons may be economic rationalization: when the benefits of operating no longer outweigh the costs, including opportunity costs, the plant may be economically inefficient. JIT has never subscribed to such considerations directly; following Waddel and Bodek (2005), this ROI-based thinking conforms more to Brown-style accounting and Sloan management. Further, and more significantly, JIT calls for a reduction in inventory capacity, not production capacity. From 1975 to 1990 to 2005, the annual average stocks of gasoline have fallen by only 8.5% from 228,331 to 222,903 bbls to 208,986 (Energy Information Administration data). Stocks fluctuate seasonally by as much as 20,000 bbls. During the 2005 hurricane season, stocks never fell below 194,000 thousand bbls, while the low for the period 1990 to 2006 was 187,017 thousand bbls in 1997. This shows that while industry storage capacity has decreased in the last 30 years, it hasn't been drastically reduced as JIT practitioners would prefer.

Finally, as shown in a pair of articles in the Oil & Gas Journal, JIT does not seem to have been a goal of the industry. In Waguespack and Cantor (1996), the authors point out that JIT would require a significant change in the supplier/refiner relationship, but the changes in inventories in the oil industry exhibit none of those tendencies. Specifically, the relationships remain cost-driven among many competing suppliers rather than quality-based among a select few long-term relationships. They find that a large part of the shift came about because of the availability of short-haul crudes from Latin America. In the follow-up editorial, the Oil & Gas Journal claimed that "casually adopting popular business terminology that doesn't apply" had provided a "rhetorical bogey" to industry critics. Confessing that they had been as guilty as other media sources, they confirmed that "It also happens not to be accurate."

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RISK

The following is a guest article written by Nick Koletic, an economics specialist at UCLA. In addition to giving a brief background on Just -In-Time inventory systems benefits, the articles main focus is the risks that JIT systems face. Just-In-Time inventory (JIT) is part of a production system whereby a firmvastly reduces inventory from its production processes so that utilization of production inputs and delivery of finish head products are accomplished without incurring significant holding costs. While JIT inventory systems are quite attractive for this reason, they are a double -edged sword. And though a JIT system might even be a necessity given the inventory demands of certain business types, its many advantages are realized only when some significant risks to healthy inventory management are mitigated. JIT systems have several cost-cutting advantages. As Charles mentioned in his Dell Computer case study, JIT inventory systems, a ³financial imperative for Dell, can radically reduce holding costs. In the case of Dell Computers, this meant that the fewer finished computers Dell holds in inventory, the less money they lose per computer as they ³rot´ on a shelf. In addition to these significant cuts in depreciation costs, which for Dell can be up to 1 percent per computer per week, JIT inventory can also cut storage costs. One can imagine how Toyota, a pioneer of JIT systems, might save on storage costs as their finished computers and cars no longer sit idle in warehouses awaiting customers. And these storage cost savings apply not only to these finished goods, but also to parts that Toyota might use as inputs in production. These inventories are kept at a minimum through J IT systems as parts are ordered as needed. JIT systems also cut delivery costs as finished products are shipped to where they are in demand. Shipping the same quantity of a product to different retail outlets, for example, might not make much sense if the demand for that good is significantly greater at one location relative to another. This approach to delivery cost savings also facilitates decreases in aforementioned holding costs by not overstocking certain locations with a product. The same principle holds for inputs in production; parts are not delivered and held at production centers where they might lay idle. Some positive externalities may also result from a firms decision to implement a JIT system. Suppliers of such a firm, for

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example, might t hen be able handle larger orders but fulfill them with smaller shipments. That is to say that for any given order size, supplying a customer that utilizes JIT is typically easier to do because individual shipments tend to be smaller for these customers and thus tend to be less demanding of the supplier. So it might be possible for suppliers, merely by the nature of their customers JIT system, to greatly expand their ability to fill larger orders without having to increase production capacity.

Several factors, however, make JIT systems a risky proposition. A key concern here is the extent to which firms are dependent upon particular suppliers under such an inventory system. For example, if a firm were to commission a highly proprietary product to a single supplier (single suppliers being common in JIT), a JIT inventory system would put such a firm at an even higher risk of rip -off on behalf of the supplier because the firm would have no immediate inventory to buffer an interruption of supply. Such an interruption of supply might be so costly that the firm might just allow the supplier to overcharge the firm up to the cost of this interruption. This rip-off cost might completely cancel out or even exceed the savings that drove a firm to utilize a JIT inventory system in the first place. Even more dangerous are internal issues that might lead single suppliers to be unable to fulfill a firms orders. In this case, the firm has no option but to incur the costs of an interruption of its production input supply. Internal issues might include, say, labor strikes on behalf of the suppliers employees in which labor unions could hold the supplier for ransom up to the amount of its pending orders, again leading to an interruption of the firms supply of production inputs. But internal issues can mean a host of things (and no, I'm not talking about a Webhost) that prevent a firms supplier from supplying. The point is that by facilitating the interconnectedness between businesses, JIT inventory systems increases the risk that problems or failures on one end of the production chain might be felt on another end. However, these risks associated with JIT inventory systems may be ameliorated to a certain extent. Indeed, the evolution of the organization of firms has already taken many of these risks into account, particularly with respect to rip-offs. For example, firms that might otherwise

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commission highly proprietary products to a handful of suppliers usually either produce these items themselves or in fact own the suppliers that do so in order to prevent price-gouging from occurring. If in-house production or a supplier buy -out is not a feasible option, firms still have other common-sense ways of preventing these risks.

A firm might have to really scrutinize the integrity of their suppliers not only in terms of their trustworthiness but also in terms of the health of their business; contracting with a supplier at risk of going out of business makes little business sense in general, but firms with JIT systems are and should be even more acutely aware of these scenarios. Taking it a logical step further, a firm might contract with several suppliers in order to lessen the harm done by any one of them failing to supply. Furthermore, for the risk-averse firm, short-term and non-exclusive contracts with suppliers might also be attractive as they provide both insurance and punishment against a supplier’s misbehavior´. A supplier would have less incentive to misbehave and the firm would have more recourse under such an arrangement. Just-In-Time inventory systems provide for an attractive, cost cutting production system as long as risks are weighed and mitigated. Preventative measures introduced here are by no means meant to be an exhaustive list of how firms should approach these risks, but rather are suggestions to the preliminary considerations firms should make in implementing a successful Just-In-Time inventory system.

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EXAMPLE

MCDONALD

McDonald's is another example of a JIT system wherein McDonald's doesn't begin to cook (well, I should probably say reheat and assemble what may or may not be actual food) its orders until a customer has placed a specific order. What used to be the case was McDonald's would pre -cook a batch of hamburgers and let them sit under heat lamp’s. They would keep them for as long as possible and eventually discard what couldn't be sold. The only way to get a fresh hamburger under the old system was to make a special order. Now, due to more sophisticated burger -making technology (including a record-breaking bun toaster), McDonald's is able to make food fast enough to wait until it's been ordered. What both of these firms do is they provide a customer with their order as fast as possible while having the finished product sitting in inventory for as short as possible.

Toyota

Toyota is considered by many to be the poster child for JIT success. The Toyota production strategy is highlighted by the fact that raw materials are not brought to the production floor until an order is received and this product is ready to be built. No parts are allowed at a node unless they are required for the next node, or they are part of an assembly for the next node. This philosophy has allowed Toyota to keep a minimum amount of inventory which means lower costs. This also means that Toyota can adapt quickly to changes in demand without having to worry about disposing of expensive inventory.

Important factors to Toyota success:

Small amounts of raw material inventory must be kept at each node in production, so that production can take place for any product. These parts are then replenished when they are used.

Accuracy of forecasting  is important so the correct amount of raw materials can be stocked.

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Harley Davidson

Harley Davidson’s use of JIT is mostly characterized by its transformation in the late World War 2 era from an inefficient manufacturer that solved all of its problems with extra inventory to a nimble manufacturer able to meet demand and provide short lead times.

Results of Harley Davidson’s JIT implementation:

Inventory levels decreased 75%. Increased productivity.

Harley Davidson’s success with the implementation of JIT had a lot to do with the fact that when JIT was put into practice, process problems could no longer be hidden by costly inventory that helped to meet ship dates. The inefficiencies in the processes were quickly identified and solved.

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CASE STUDY

When managers discuss low inventory levels, Dell is invariably discussed.

Hell, even I've mentioned Dell on this site. So why all the commotion? Has

their low inventory REALLY helped out that much? In short, yes. This article is

primarily going to discuss how much it helped. This article will not discuss

how they achieved such high inventory turns using a state of the art just in

time inventory system.

Reasoning behind need for lower inventory

The first thing that needs to be discussed is why low inventory has such a

great effect on Dell's overall performance. The reason is quite simple:

computers depreciate at a very high rate. Sitting in inventory, a computer

loses a ton of value.

As Dell's CEO, Kevin Rollins, put it in an interview with Fast Company:

"The longer you keep it the faster it deteriorates -- you can literally see the

stuff rot," he says. "Because of their short product lifecycles, computer

components depreciate anywhere from a half to a full point a week. Cutting

inventory is not just a nice thing to do. It's a financial imperative."

We're going to assume that the depreciation is a full point per week (1%/week) and use that to determine how much money high inventory turns can save Del This means that for every 7 days a computer sits in Dell's warehouses, the computer loses 1% of its value. Ok, now that we know how much Dell loses for e ach day, let's take a look at some of Dell's data over the past 10 years that I pulled fromwww.themanufacturer.co What I got from this was the inventory turns. An inventory turn, as this website successfully describe sit, is "cost of goods sold from the income statement divided by value of inventory from the balance sheet". Typically, this is turned into a value showing how many days worth of inventory a firm has by dividing inventory turnover by 365. I divided the inventory turnover by 52 in order to show how many weeks worth of inventory Dell holds. Here are the results:

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Dells Inventory Turnover Data

YEAR INVENTORY TURNOVER WEEK’S INVENTORY

1992 4.79 10.856

1993 5.16 10.078

1994 9.4 5.532

1995 9.8 5.306

1996 24.2 2.149

1997 41.7 1.247

1998 52.40 0.992

1999 52.40 0.992

2000 51.4 1.012

2001 63.5 0 .819

Key point to notice here is that Dell was carrying over 10 weeks worth of inventory in 1993. By 2001, Dell was carrying less than 1 week's worth of inventory. This essentially means that inventory used to sit around for 11 weeks and now it sits around for less than 1 week. So what does this mean for Dell? Remember, computers lose 1 percent of their value per week. This isn't like the canned food industry where managers can let their supplies sit around for months before anyone bats an eye. Computers aren’t canned goods, and as Kevin Rollins of Dell put it, computers rot´. The longer a computer sits around, the less it is worth. That said, due to depreciation alone, in 1993 Dell was losing roughly 10% per computer just by allowing computers to sit around before they were sold. In 2001, Dell was losing less than a percent. Based on holding costs alone, Dell reduced costs by nearly 9%.

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Since 2001, Dell has continued to lower inventory. Looking at their latest annual reports, day's inventory has dropped by approximately a day. Hopefully this article provided you with a practical example that demonstrates the positive effects lower inventory can have on a firm's overall costs. For more information regarding lawyers in the Texas area, check out Dallas Fort Worth trucking accident attorney. For more basic information regarding holding costs, please read A Simplified Look at the Pros and Cons of Inventory.

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CONCLUSION

  Just-in-time manufacturing can be a positive influence on a company. 

However there are many risks associated with attempting to implement JIT

manufacturing techniques.  When looked at it appears to be a very simple,

quick, and easy thing to do.  In reality it is a very complicated technique that

takes long term commitment and a initial cost with no guarantee of success.  If

implemented successfully it would eliminate waste, make the company more

productive and more efficient.  It does this through shorter transportation and

increased communication.  Although there are many companies that are

successful, many companies are not.  Even though there are enormous risks

many still consider implementing JIT for it many advantages.

Companies Currently using JIT

Harley Davidson

Toyota Motor Company

General Motors

Ford Motor Company

Manufacturing Magic

Hawthorne Management Consulting

Strategy Manufacturing Inc.

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THANK YOU

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