'Just In Time' ('JIT') is an inventory strategy implemented to improve the
return on investment of a
business by reducing in-process
inventory and its associated costs. The process is driven by a series of signals, or , that tell production processes when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf.
When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization's
return on investment, quality, and efficiency.
New stock is ordered when
stock drops to the re-order level. This saves
warehouse space and costs. However, one drawback of the JIT system is that the re-order level is determined by historical
demand. If demand rises above the historical
average demand, the firm will deplete inventory faster than usual and cause
customer service issues. To meet a 95%
service rate a firm must carry about 3
standard deviations of demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until trends can be established to reset the appropriate Kanban level. Others
[1] have suggested that recycling Kanban faster can also help flex the system by as much as 10-30%. In recent years
manufacturers have touted a trailing 13 week average as a better predictor than most forecastors could provide.
A related term is
Kaizen which is an approach to productivity improvement literally meaning "continuous improvement" of process.
History
The technique was first used by the
Ford Motor Company as described explicitly by
Henry Ford's ''My Life and Work'' (1922): "We have found in buying materials that it is not worthwhile to buy for other than immediate needs. We buy only enough to fit into the plan of production, taking into consideration the state of transportation at the time. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads of
raw materials would arrive on schedule and in the planned order and amounts, and go from the railway cars into production. That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials. With bad transportation one has to carry larger stocks." This statement also describes the concept of "dock to factory floor" in which incoming materials are not even stored or warehoused before going into production. The concept needed an effective freight management system (FMS); Ford's ''Today and Tomorrow'' (1926) describes one.
The technique was subsequently adopted and publicised by
Toyota Motor Corporation of
Japan as part of its
Toyota Production System (TPS).
Japanese corporations cannot afford large amounts of land to warehouse finished products and parts. Before the
1950s, this was thought to be a disadvantage because it forced the production lot size below the economic lot size. (An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product.) The undesirable result was poor return on investment for a
factory.
The chief engineer at Toyota in the
1950s, , examined accounting assumptions and realized that another method was possible. The factory could implement JIT which would require it to be made more flexible and reduce the overhead costs of retooling and thereby reduce the economic lot size to fit the available warehouse space. JIT is now regarded by Ohno as one of the two 'pillars' of the Toyota Production System.
Therefore over a period of several years, Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding. Toyota was one of the first to apply flexible robotic systems for these tasks. Some of the changes were as simple as standardizing the hole sizes used to hang parts on hooks. The number and types of fasteners were reduced in order to standardize assembly steps and tools. In some cases, identical subassemblies could be used in several models.
Toyota engineers then determined that the remaining critical bottleneck in the retooling process was the time required to change the stamping dies used for body parts. These were adjusted by hand, using crowbars and wrenches. It sometimes took as long as several days to install a large (multiton) die set and adjust it for acceptable quality. Further, these were usually installed one at a time by a team of experts, so that the line was down for several weeks.
So Toyota implemented a strategy called
Single Minute Exchange of Die (SMED), developed by . With very simple fixtures, measurements were substituted for adjustments. Almost immediately, die change times fell to hours instead of days. At the same time, quality of the stampings became controlled by a written recipe, reducing the skill level required for the change. Further analysis showed that a lot of the remaining time was used to search for hand tools and move dies. Procedural changes (such as moving the new die in place with the line in operation) and dedicated tool-racks reduced the die-change times to as little as 40 seconds. Today dies are changed in a ripple through the factory as a new product begins flowing.
After SMED, economic lot sizes fell to as little as one vehicle in some Toyota plants.
Carrying the process into parts-storage made it possible to store as little as one part in each assembly station. When a part disappeared, that was used as a signal (
Kanban) to produce or order a replacement.
Philosophy
Just-in-time (JIT) inventory systems are not a simple method that a company can adopt; it has a whole philosophy that the company must follow in order to avoid its downsides. The ideas in this philosophy come from many different disciplines including statistics, industrial engineering, production management and behavioral science. In the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says about the management within the company, and the main principle behind JIT.
Inventory is seen as incurring costs, or waste, instead of adding value, contrary to traditional thinking. This does not mean to say that JIT is unaware that removing inventory exposes manufacturing issues. Under the philosophy, businesses are encouraged to eliminate inventory that doesn’t compensate for manufacturing issues, and to constantly improve processes so that inventory can be removed. Secondly, allowing any stock habituates the management to stock and it can then be a bit like a narcotic. Management are then tempted to keep stock there to hide problems within the production system. These problems include backups at work centres, machine reliability, process variability, lack of flexibility of employees and equipment, and inadequate capacity among other things.
In short, the just-in-time inventory system is all about having “the right material, at the right time, at the right place, and in the exact amount” but its implications are broad for the implementors.
Criticisms
Shocks
JIT emphasises inventory as one of the seven wastes, and as such its practice involves the philosophical aim of reducing input buffer inventory to zero. Zero buffer inventory means that production is not protected from exogenous (external) shocks. As a result, exogenous shocks reducing the supply of input can easily slow or stop production with significant negative consequences. For example as noted in Liker (2003) Toyota suffered a major supplier failure as a result of the 1997 Aisin fire which rendered one of its suppliers incapable of fulfilling Toyota's orders. In the US the 1992 railway strikes resulted in General Motors having to shut down a 75,000 worker plant temporarily as they had no inputs flowing in to the factory.
Transaction Cost Approach
JIT reduces inventory in a firm, however unless it is used throughout the supply chain, then it can be proposed that firms are simply outsourcing their input inventory to suppliers (Naj 1993). This effect was investigated by Newman (1993) who found that on average suppliers in Japan charged JIT customers a 5% price premium.
Environmental concerns
During the birth of JIT multiple daily deliveries were often made by human powered bicycle, however with increases in scale has come the adoption of vans and lorries for these deliveries. Cusumano (1994) has highlighted the potential and actual problems this causes with regard to gridlock and the burning of fossil fuels. This violates three JIT wastes: 1) Time; wasted in traffic jams 2) Inventory; specifically pipeline (in transport) inventory and 3) Scrap; with respect to petrol or diesel burned while not physically moving.
Price volatility
JIT implicitly assumes a level of input price stability such that it is not desirable to inventory inputs now at today's prices. Where input prices are expected to rise storing inputs may be desirable.
Quality volatility
JIT implicitly assumes that the quality of available inputs remains constant over time. If not firms may benefit from hoarding high quality inputs.
Demand stability
Karmarker (1989) highlights the importance of relatively stable demand which can help ensure efficient capital utilisation rates. Karmarker argues that without a significant stable component of demand, JIT becomes untenable in high capital cost production.
Implementation
Effects
Some of the initial results at Toyota were horrible, but in contrast to that a huge amount of cash appeared, apparently from nowhere, as in-process inventory was built out and sold. This by itself generated tremendous enthusiasm in upper management.
Another surprising effect was that the response time of the factory fell to about a day. This improved customer satisfaction by providing vehicles usually within a day or two of the minimum economic shipping delay.
Also, many vehicles began to be
built to order, completely eliminating the risk they would not be sold. This dramatically improved the company's return on equity by eliminating a major source of risk.
Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. The result was a severe quality assurance crisis, and a dramatic improvement in product quality. Eventually, Toyota redesigned every part of its vehicles to eliminate or widen tolerances, while simultaneously implementing careful
statistical controls. (See
Total Quality Management). Toyota had to test and train suppliers of parts in order to assure quality and delivery. In some cases, the company eliminated multiple suppliers.
When a process problem or bad parts surfaced on the production line, the entire production line had to be slowed or even stopped. No inventory meant that a line could not operate from in-process inventory while a production problem was fixed. Many people in Toyota confidently predicted that the initiative would be abandoned for this reason. In the first week,
line stops occurred almost hourly. But by the end of the first month, the rate had fallen to a few line stops per day. After six months, line stops had so little economic effect that Toyota installed an overhead pull-line, similar to a bus bell-pull, that permitted ''any'' worker on the production line to order a line stop for a process or quality problem. Even with this, line stops fell to a few per week.
The result was a factory that became the envy of the industrialized world, and has since been widely emulated.
The 'Just in Time' philosophy was also applied to other segments of the
supply chain in several types of industries. In the commercial sector, it meant eliminating one or all of the
warehouses in the link between a factory and a retail establishment.
Benefits
As most companies use an inventory system best suited for their company, the Just-In-Time Inventory System (JIT) can have many benefits resulting from it. The main benefits of JIT are listed below.
# ''Set up times are significantly reduced in the warehouse.'' Cutting down the set up time to be more productive will allow the company to improve their bottom line to look more efficient and focus time spent on other areas that may need improvement.
# ''The flows of goods from warehouse to shelves are improved.'' Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand.
# ''Employees who possess multiple skills are utilized more efficiently.'' Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product.
# ''Better consistency of scheduling and consistency of employee work hours.'' If there is no demand for a product at the time, workers don’t have to be working. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day.
# ''Increased emphasis on supplier relationships.'' No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. Having a trusting supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public.
# ''Supplies continue around the clock keeping workers productive and businesses focused on turnover.'' Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction, promotion or even higher pay.
Problems
Within a JIT System
The major problem with Just In Time operation is that it leaves the supplier and downstream consumers open to
supply shocks and large supply or demand changes. For internal causes this was seen as a feature rather than a bug by Ohno, who used the analogy of lowering the level of water in a river in order to expose the rocks to explain how removing inventory showed where flow of production was interrupted. Once the 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 in the next downstream area. One of the other key tools to manage this weakness is
production levelling to remove these variations. Just In Time is a means to improving performance of the system, not an end.
With very low stock levels meaning that there are shipments of the same part coming in sometimes several times per day, Toyota is especially susceptible to an interruption in the flow. For that reason, Toyota is careful to use two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk by 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 preferred to short-term, price-based relationships with competing suppliers. This long-term relationship has also been used by Toyota to send Toyota staff into their suppliers to improve their supplier's processes. These interventions have now been going on for twenty years and result in improved margins for Toyota and the supplier as well as lower final customer costs and a more reliable supply chain. Toyota encourages their suppliers to duplicate this work with their own suppliers.
Within a raw material stream
As noted by Liker (2003) and Womack and Jones (2003), it would ultimately be desirable to introduce synchronised flow and linked JIT all the way back through the supply stream. However, none of them followed this in detail all the way back through the processes to the raw materials. With present technology, for example, an 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. However the part of this that is currently viewed as impossible is the ''synchronised'' part of flow and the ''linked'' part of JIT. It is for the reasons stated that raw materials companies decouple their supply chain from their clients demand by carrying large 'finished goods' stocks. However both flow and JIT can be implemented in isolated process islands within the raw materials stream, the challenge then becomes to achieve that isolation by some means other than the huge stocks they carry to achieve it today.
It is because of this almost all value chains are split into a part which makes-to-forecast and a part which could, by using JIT, become make-to-order. Often, historically, the make-to-order part has been within the retailer portion of the value chain. Toyota's revolutionary step has been to take "Piggly Wiggly's" supermarket replenishment system and drive it back to 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 done specifically because somebody orders a particular car. But recognising that JIT could be driven back up the supply chain has reaped Toyota huge benefits and a world dominating position in their main industry.
It should be noted 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 (see
here (2004),
here (1996), and
here (1996)). 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 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."
See also
★
Business
★
Lean manufacturing
★
Preorder Economy
★
Logistics
★
Liquid Logistics
★
Management
★
Manufacturing
★
Industrial Engineering
★
Statistical process control
★
Total Quality Management
★
Vendor Managed Inventory
★
Just in case Manufacturing
★
CONWIP
References
1. A study of the Toyota Production System, Shigeo Shingo, Productivity Press, 1989, p 187
★ Editorial, "The Inventory Land Mine", ''Oil & Gas Journal'', Vol 94, Number 29, 15 July 1996.
★ Goldratt, Eliyahu M. and Fox, Robert E. (1986), ''The Race'', North River Press, ISBN 0-88427-062-9
★ Hirano, Hiroyuki and Makota, Furuya (2006), "JIT Is Flow: Practice and Principles of Lean Manufacturing", PCS Press, Inc., ISBN 0-9712436-1-1
★ Liker, Jeffrey (2003), ''The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer'', First edition, McGraw-Hill, ISBN 0-07-139231-9.
★ Ohno, Taiichi (1988), ''Toyota Production System: Beyond Large-Scale Production'', Productivity Press, ISBN 0-915299-14-3
★ Ohno, Taiichi (1988), ''Just-In-Time for Today and Tomorrow'', Productivity Press, ISBN 0-915299-20-8
★ Wadell, William, and Bodek, Norman (2005), ''The Rebirth of American Industry'', PCS Press, ISBN 0-9712436-3-8
★ Waguespack, Kevin, and Cantor, Bryan (1996), "Oil inventories should be based on margins, supply reliability", ''Oil & Gas Journal'', Vol 94, Number 28, 8 July 1996.
★ Womack, James P. and Jones, Daniel T. (2003), ''Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Revised and Updated'', HarperBusiness, ISBN 0-7432-4927-5.
★ Womack, James P., Jones, Daniel T., and Roos, Daniel (1991), ''The Machine That Changed the World: The Story of Lean Production'', HarperBusiness, 2003, ISBN 0-06-097417-6.
★ Flinchbaugh, Jamie and Carlino, Andy (2006), ''The Hitchhiker's Guide to Lean: Lessons from the Road'', SME, ISBN 0-87263-831-6
★ Management Coaching and Training Services, (2006). The Just-In-Time (JIT) Approach. Retrieved June 19, 2006 from the World Wide Web:
[1]
★ Evolving excellence
[2].
External links
★
“NWLEAN: http://www.nwlean.net/” - The Northwest Lean Networks - A free knowledge-sharing website, with over 10,000 professionals discussing the various aspects of lean implementation.
★
“Lean Blog” A blog focused on lean manufacturing, Toyota Production System, and lean healthcare news.
★
Strengths & Weaknesses of Just In Time
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“Just In Time drives on” - The Manufacturer Magazine US - An article discussing the continued impact of Just In Time in the automotive sector
★
“Just in Time Under Fire: The Five Major Constraints Upon JIT Practices” - Published academic paper discusses weakness of JIT Philosophy and names five major areas of concern--customer-driven & economic conditions, logistics, organizational culture & conditions, intractable accounting & finance practices, and small supplier difficulties
★
"The Lean Library The Lean Library includes books reviews, recommendations and more information on lean.
★
“Lean Blog” A blog focused on Lean implementation and different aspects of Lean. The site is under development after great succes with a Danish Lean Blog.
★
Links to Value-adding Lean Resources NOT Available on Wikipedia
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