Just In Time (JIT) Inventory Control

Just In Time

Introduction

Just In Time Inventory Control is a production method which views inventory as waste. Although it eliminates the need for inventory, it a complex process which is not easily implemented in companies. In order for a company to successfully implement JIT Inventory Control, different areas of statistics, industrial engineering, production management, and behavioral sciences have to be taken into account. Just in Time (JIT) is a tool for process improvement. This type of manufacturing system has allowed the company to substantially improve the value stream, that is, increase profitability and build high-quality, low-cost products at high efficiencies. JIT principles are closely aligned with lean manufacturing, another production concept that grew out of Toyota. Lean is an overarching philosophy which seeks to reduce waste throughout the organization. While JIT is one of several tools used to achieve lean, it can be implemented on its own. Lean practitioners have a language of their own, and the definition or application of these terms is often debated. Here are some common terms which are associated with lean practices and one accepted meaning for each: 5S – A five-step method for creating clean, organized workspaces: sort, simplify, sweep, standardize, and sustain. Kaizen is known as an event in which team members evaluate procedures or equipment and seek to make improvements. Kaizen events are part of a continuous improvement process. In addition, Kanban is a visual sign or signal typically used to trigger an order for parts or materials, (Edward J. Hay; Wiley, 1998.)

Description

According to the traditional accounting practices, inventory holds and adds value. Just In Time, on the contrary, views inventory as waste that is constantly incurring costs. The waste is associated in terms of time, labor, and storage space. In essence, JIT Inventory Control produces only what is needed, when needed, and only in the amount required. JIT Inventory Control also produces the required units, in required quantities, with the right quality. There are many problems which can arise due to having little or no inventory such as work center backups, machine breakdown, variance in processes, problems with employees, lack of flexibility of employees and equipment, or even insufficient capacity. The main problem with JIT Inventory Control is that companies cannot predict total accuracy of material flows. Another problem that is encountered is that warehouse inventories fluctuate and inventories may be full or near empty at any given time. This makes it a task for members of management to accurately plan logistics.

History and Development

Ford Motor Company initially used JIT in the early 1920’s. This was later implemented by Toyota in 1954 who then publicized the concept. This concept helped Toyota cut down on overstocking car production. The concept focuses on eliminating inventory that doesn’t add value to the product and it views inventory as a sign of poor management as inventory acts as a buffer that conceals problems in the production system. Toyota has proved to be one of the largest players in the auto industry. The company is headquartered in Toyota City in Japan and has plants worldwide.

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Cultural aspects

It is necessary to consider several factors that influence the Japanese culture, which accelerated the evolution of JIT. Different Japanese characteristics, from which will take those that is considered the most relevant are lack of space: in Japan in general there is not room enough for mostly any activity, not surprisingly the reduction of inventories was welcome by the management. Commitment to consumers: consumers’ satisfaction has always been a priority. JIT is a pull production system that minimizes the waiting time of each buyer. This time starts when the buyer places the request for new products. Overcrowded living conditions: lead time shortages and maximum efficiency are a consequence of Japanese’s requirements to improve their

living conditions, either inside the company or within the society. Toyota aims at producing cars of high quality at a low cost. JIT Process Control enables Toyota to achieve this effectively. Toyota, especially being situated all over the world, has excellent labor relations. For Toyota, parts are delivered to the assembly line just in time for assembly. Supplier and labor relations are a crucial aspect of this process. Toyota holds and maintains close relationships with its suppliers and focuses on continuous improvement. Together, teams follow a decentralized method of decision-making and move forward with a motivated workforce. Employees are cross-trained to operate many different types of machinery. Toyota also uses “Andon” to show daily production figures and to report problems encountered on the assembly line. Toyota also focuses on total quality that is achieved through zero defects. This ties in with just in time inventory control. If a part is defective, the problem is traced to the source and the problem is attended immediately or the production line is stopped. Without excellent supplier relations, a large manufacturer cannot support a just in time manufacturing system. Parts are delivered many times daily and suppliers are also responsible for entire systems such as brakes, seats, and electrical systems.

Since deliveries can be interrupted, Toyota uses two suppliers. 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.” Without cooperation and a dedicated workforce, success of the JIT Inventory Control system would not be possible for Toyota. Long term commitment and cooperation is essential for the success of JIT.

Implementing JIT

Just-in-time cannot be explained in a simple multi-step process. Naturally, every company presents unique challenges and opportunities. The following is a basic overview of just-in-time concepts. People involvement- whoever is related to the company that intends the implementation, shall be committed to the project. Starting with the machine operators and ending on the high level management, everybody has not only to be aware of the implications but to support the implementation as well.

Implementation is a critic phase of JIT, and is advisable to avoid problems, to reduce the amount of time and efforts throughout this stage. Plants- numerous changes take place in the layout of the “new” plant. Some changes are easy to achieve as the so called productions cells, in which the machinery is located in a way that helps reducing the time it takes to move materials from one process to another. Nevertheless the introduction of Kanban (Japanese name of the cards that confirm material requirements), self-inspection, Material Requirement Planning (“MRP”) and MRP II (in case they were not already in use) and job enrichment within plant workers, involve structural change; thus they are far from being simple to implement. MRP I involves a computer system for building inventory, scheduling the production and to administrate inputs; on the other side MRP II, that stands for Manufacturing Resource Planning, includes the MRP I’s activities plus marketing and purchasing operations and the financing function. Systems- existent systems may remain within the company; however the MRP and MRP II systems should be implemented. Further investments can take place, as the use of luminous Kanbans or the implementation of the Electronic Data Interchange (“EDI”) to link inventory existences with the suppliers. Purchasing- relationships with suppliers become a key factor not only in a JIT environment but in other production systems that intend to reach efficiency and to shorten production time. This issue is reviewed in depth on the 3rd part of this paper.

Conclusion

JIT Inventory Control is a very effective and efficient in eliminating waste. The process also enables companies to use more of the warehouse for assembly and production. Therefore space is not wasted and utilized instead to maximum capacity. This also reduces inventory costs. JIT Inventory Control requires cooperation and commitment between suppliers and the manufacturer. Without a close knit supplier-manufacturer relationship and reliability, JIT Inventory Control is useless. Although with many suppliers, manufacturers can expect price wars and competition enjoying lower prices. However, this puts reliability at stake. With limited or few suppliers as in the case with Toyota, a close bond can be maintained and reliability is not jeopardized. If it is possible, companies should adopt JIT Inventory Control and maintain long term supplier manufacturer relationships with dependable suppliers in order for the process to flow smoothly.

Citation

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