Chapter 15

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

Producing only what is needed, Producing only what is needed, when it is neededwhen it is needed

A philosophy A philosophy An integrated management systemAn integrated management systemJIT’s mandate: JIT’s mandate:

Eliminate all wasteEliminate all waste

What is JIT ?

....

Lean Operations:Best Implementation is Toyota Production System

• TPS is a production management system that aims for the “ideal” through continuous improvement

• Includes, but goes way beyond JIT. Pillars:– Synchronization

• Reduce transfer batch sizes• Level load production• Pull production control systems (vs. push): Kanban• Quality at source• Layout: Cellular operations

– Continuous Improvement (Kaizen): through visibility & empowerment

Basic Elements of JIT

1.1. Flexible resourcesFlexible resources2.2. Cellular layoutsCellular layouts3.3. Pull production systemPull production system4.4. Kanban production controlKanban production control5.5. Small-lot productionSmall-lot production6.6. Quick setupsQuick setups7.7. Uniform production levelsUniform production levels8.8. Quality at the sourceQuality at the source9.9. Total productive maintenanceTotal productive maintenance10.10. Supplier networksSupplier networks

Toyota’s waste elimination in Operations

1. Overproduction

2. Waiting

3. Inessential handling

4. Non-value adding processing

5. Inventory in excess of immediate needs

6. Inessential motion

7. Correction necessitated by defects

Other Important Points

• Only make what you need

• only buy what you need,when you need it

• SMED – single minute exchange of dies

• continuous process improvement

• as the level of the water lowers, new problems or inefficiencies are identified

Waste in Operations

Waste in Operations

Waste in Operations

Flexible Resources

Multifunctional workersMultifunctional workersGeneral purpose machinesGeneral purpose machinesStudy operators & improve Study operators & improve

operationsoperations

Cellular Layouts

Group dissimilar machines in Group dissimilar machines in manufacturing cell to produce manufacturing cell to produce family of partsfamily of parts

Work flows in one direction Work flows in one direction through cellthrough cell

Cycle time adjusted by changing Cycle time adjusted by changing worker pathsworker paths

The Push System

• Pre-planned issues of supplies/merchandise regardless of customer demand criteria

• Creates excess and shortages

• not efficient over the long run

The Pull System

Material is pulled through the system Material is pulled through the system when neededwhen needed

Reversal of traditional push system Reversal of traditional push system where material is pushed according where material is pushed according to a scheduleto a schedule

Forces cooperationForces cooperationPrevent over and underproductionPrevent over and underproduction

Kanban Production Control System

Kanban card indicates standard quantity Kanban card indicates standard quantity of productionof production

Derived from two-bin inventory systemDerived from two-bin inventory system Kanban maintains discipline of pull Kanban maintains discipline of pull

productionproduction Production kanban authorizes productionProduction kanban authorizes production Withdrawal kanban authorizes movement Withdrawal kanban authorizes movement

of goodsof goods

A Sample Kanban

The Origin of Kanban

a) Two-bin inventory systema) Two-bin inventory system b) Kanban inventory b) Kanban inventory systemsystem

Reorder Reorder cardcard

Bin 1Bin 1

Bin 2Bin 2

Q - R

KanbanKanban

RR

QQ = order quantity = order quantity

RR = reorder point - demand during lead time = reorder point - demand during lead time

Types of Kanbans

Types of Kanbans

Types of Kanbans

Bin Kanban - when bin is empty Bin Kanban - when bin is empty replenishreplenish

Kanban SquareKanban SquareMarked area designed to hold itemsMarked area designed to hold items

Signal KanbanSignal KanbanTriangular kanban used to signal Triangular kanban used to signal

production at the previous workstationproduction at the previous workstation Material KanbanMaterial Kanban

Used to order material in advance of a Used to order material in advance of a processprocess

Supplier KanbansSupplier KanbansRotate between the factory and suppliersRotate between the factory and suppliers

Determining Number of Kanbans

wherewhere

NN = number of kanbans or containers= number of kanbans or containersdd = average demand over some time period= average demand over some time periodLL = lead time to replenish an order= lead time to replenish an orderSS = safety stock= safety stockCC = container size= container size

No. of Kanbans =No. of Kanbans =average demand during lead time + safety stockaverage demand during lead time + safety stock

container sizecontainer size

NN = =dLdL + + SS

CC

Determining the Number of Kanbans

dd = 150 bottles per hour= 150 bottles per hourLL = 30 minutes = 0.5 hours= 30 minutes = 0.5 hoursSS = 0.10(150 x 0.5) = 7.5= 0.10(150 x 0.5) = 7.5CC = 25 bottles= 25 bottles

Round up to 4 (to allow some slack) or Round up to 4 (to allow some slack) or down to 3 (to force improvement)down to 3 (to force improvement)

NN = == =

= = 3.3 kanbans or containers= = 3.3 kanbans or containers

dLdL + + SSCC

(150 x 0.5) + 7.5(150 x 0.5) + 7.5

252575 + 7.575 + 7.5

2525

Small-Lot Production

Requires less space & capital Requires less space & capital investmentinvestment

Moves processes closer togetherMoves processes closer togetherMakes quality problems easier to Makes quality problems easier to

detectdetectMakes processes more dependent Makes processes more dependent

on each otheron each other

In theory:

Reducing waste: Increase Problem VisibilityLower the Water to Expose the Rocks

Scrap &Rework

Missed Due DatesToo Much Space

Late Deliveries

Poor Quality

Machine Downtime

Engineering Change Orders

Long queues

Too much paperwork

100% inspection

Inve

ntor

y

Inventory Hides Problems

Components of Lead Time

Processing timeProcessing time Reduce number of items or improve Reduce number of items or improve

efficiencyefficiencyMove timeMove time

Reduce distances, simplify Reduce distances, simplify movements, standardizemovements, standardize routingsroutings

Waiting timeWaiting time Better scheduling, sufficient capacityBetter scheduling, sufficient capacity

Setup timeSetup time Generally the biggest bottleneckGenerally the biggest bottleneck

SMED Principles

1.1. Separate internal setup from Separate internal setup from external setupexternal setup

2.2. Convert internal setup to external Convert internal setup to external setupsetup

3.3. Streamline all aspects of setupStreamline all aspects of setup

4.4. Perform setup activities in Perform setup activities in parallel or eliminate them entirelyparallel or eliminate them entirely

Common Techniques for Reducing Setup Time

• Preset Buttons/settings

• Quick fasteners

• Reduce tool requirements

• Locator pins

• Guides to prevent misalignment

• Standardization

• Easier movement

Uniform Production

Results from smoothing production Results from smoothing production requirementsrequirements

Kanban systems can handle +/- 10% Kanban systems can handle +/- 10% demand changesdemand changes

Smooths demand across planning Smooths demand across planning horizonhorizon

Mixed-model assembly steadies Mixed-model assembly steadies component productioncomponent production

Quality at the Source

Jidoka is authority to stop production Jidoka is authority to stop production lineline

Andon lights signal quality problemsAndon lights signal quality problemsUndercapacity scheduling allows for Undercapacity scheduling allows for

planning, problem solving & planning, problem solving & maintenancemaintenance

Visual control makes problems visibleVisual control makes problems visiblePoka-yoke prevents defects (mistake Poka-yoke prevents defects (mistake

proof the system)proof the system)

Visual Control

Visual Control

In use at Harley-Davidsonand at Opal Plant - Russelsheim

Visual Control

Kaizen

Continuous improvementContinuous improvementRequires total employment Requires total employment

involvementinvolvementEssence of JIT is willingness of Essence of JIT is willingness of

workers toworkers toSpot quality problemsSpot quality problemsHalt production when necessaryHalt production when necessaryGenerate ideas for improvementGenerate ideas for improvementAnalyze problemsAnalyze problemsPerform different functionsPerform different functions

Total Productive Maintenance (TPM)

Breakdown maintenanceBreakdown maintenance Repairs to make failed machine operationalRepairs to make failed machine operational

Preventive maintenancePreventive maintenance System of periodic inspection & maintenance System of periodic inspection & maintenance

to keep machines operatingto keep machines operating

TPM combines preventive maintenance & TPM combines preventive maintenance & total quality conceptstotal quality concepts

Commercial industry answer to PMCS

TPM Requires Management to:

Design products that can be easily produced Design products that can be easily produced on existing machineson existing machines

Design machines for easier operation, Design machines for easier operation, changeover, maintenancechangeover, maintenance

Train & retrain workers to operate machinesTrain & retrain workers to operate machines Purchase machines that maximize Purchase machines that maximize

productive potentialproductive potential Design preventive maintenance plan Design preventive maintenance plan

spanning life of machinespanning life of machine

Goals of JIT

1.1. Reduced inventory - Reduced inventory - where?where?

2.2. Improved qualityImproved quality3.3. Lower costsLower costs4.4. Reduced space Reduced space

requirementsrequirements5.5. Shorter lead timeShorter lead time6.6. Increased Increased

productivityproductivity7.7. Greater flexibilityGreater flexibility

8.8. Better relations with Better relations with supplierssuppliers

9.9. Simplified scheduling Simplified scheduling and control activitiesand control activities

10.10. Increased capacityIncreased capacity11.11. Better use of human Better use of human

resourcesresources12.12. More product varietyMore product variety13.13. Continuous Process Continuous Process

ImprovementImprovement

Use JIT to finely tune an operating Use JIT to finely tune an operating systemsystem

Somewhat different in Somewhat different in USA than JapanUSA than Japan

JIT is still evolvingJIT is still evolving JIT as an inventory reduction program JIT as an inventory reduction program

isn’t for everyone - JIT as a CPI isn’t for everyone - JIT as a CPI program is!program is!

Some systems need Just-in-Some systems need Just-in-Case inventoryCase inventory

JIT Implementation

JIT In Services

Competition on speed & qualityCompetition on speed & qualityMultifunctional department store Multifunctional department store

workersworkersWork cells at fast-food restaurantsWork cells at fast-food restaurantsJust-in-time publishing for Just-in-time publishing for

textbooks - on demand publishing textbooks - on demand publishing a growing industrya growing industry

Construction firms receiving Construction firms receiving material just as neededmaterial just as needed

Reverse Logistics: Important or Irritant?

Estimated $100 billion industry in 2006

“In an ideal world, reverse logistics would not exist.”

Jim Whalen, “In Through the Out Door,”Warehousing Management, March 2001

“Now, more than ever, reverse logistics is seen

as being important.”

Dale Rogers, Going Backwards, 1999

Reverse Logistics - What is it?The Army’s Definition

The return of serviceable supplies that are surplus to the needs of the unit or are unserviceable and in need of rebuild or remanufacturing to return the item to a serviceable status

Reverse Logistics - What is it?The Commercial Perspective

• Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Typical Reverse Logistics Activities

• Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory

• Recycling packaging materials/containers

• Reconditioning, refurbishing, remanufacturing

• Disposition of obsolete stuff• Hazmat recovery

Why Reverse Logistics?

• Competitive advantage

• Customer service

- Very Important: 57%

- Important: 18%

- Somewhat/unimportant:23%

• Bottom line profits

Reverse Logistics - New Problem?

• Sherman• Montgomery Ward’s - 1894• Recycling/remanufacturing in 1940s• World War II - 77,000,000 square feet of

storage across Europe with over $6.3 billion in excess stuff

• Salvage and reuse of clothing and shoes in the Pacific Theater World War II

Key Dates in Reverse Logistics

• World War II – the advent of refurbished automobile parts due to shortages

• 1984 - Tylenol Scare - Johnson and Johnson• 1991 - German ordinance that put teeth in

environmental reverse pipeline• Summer 1996 – UK Packaging and Packaging

Waste Legislation• 1998 - first real study of reverse logistics in

the US - University of Nevada, Reno• 2001 – EU goal of 50-65% recovering or

recycling of packaging waste

Reverse Logistics

A US Army Perspective

Operation Iraqi Freedom

The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

Military Operations and Excess

“In battle, troops get temperamental and ask for things which they really do not need. However, where humanly possible, their requests, no matter how unreasonable, should be answered.” George S. Patton, Jr.

Jane’s Defence Weekly

“Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.”

From GAO Audit Report

Does this create a problem?

From GAO Audit Report

Reverse Logistics

• Rate of returns?

• Cost to process a return?

• Time to get the item back on the shelf if resaleable?

Costs - above the cost of the item

– Merchandise credits to the customers.

– The transportation costs of moving the items from the retail stores to the central returns distribution center.

– The repackaging of the serviceable items for resale.

– The cost of warehousing the items awaiting disposition.

– The cost of disposing of items that are unserviceable, damaged, or obsolete.

Costs

• Process inbound shipment at a major distribution center = 1.1 days

• Process inbound return shipment = 8.5 days

• Cost of lost sales• Wal-Mart: Christmas 2003 - returns = 4

Days of Supply for all of Wal-Mart = 2000 Containers

• PalmOne - 25% return rate on PDAs

More Costs

• Hoover - $40 Million per year

• Cost of processing $85 per item

• Unnamed Distribution Company - $700K items on reverse auction

• 2001 - over $60 billion in returns; $52 billion excess to systems; $40 billion to process

Is it a problem?

• Estimate of 2004 holiday returns: $13.2 billion• % of estimated 2004/2005 holiday returns: 25%• Wal-Mart: $6 Billion in annual returns = 17,000

truck loads (>46 trucks a day)• Electronics: $10 Billion annually in returns• Personal Computers: $1.5 Billion annually =

approximately $95 per PC sold• 79% of returned PCs have no defects

Is it a Problem?

• European influence – spread to US - Green Laws• Estee Lauder - $60 million a year into land fills• FORTUNE 500 Company - $200 million over their

$300 million budget for returns• Same Provider - 40,000 products returned per

month; 55% no faults noted• K-Mart - $980 million in returns 1999• Warranty vice paid repairs

More consequences

• Increased Customer Wait Times

• Loss of Confidence in the Supply System

• Multiple orders for the same items

• Excess supplies in the forward pipeline

• Increase in “stuff” in the reverse pipeline

• Constipated supply chain

Impact?

• Every resaleable item that is in the reverse supply chain results in a potential stock out or “zero balance” at the next level of supply.

• Creates a “stockout” do-loop

Results?

• This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring.

• More stocks = “larger logistics footprint” = the need for larger distribution centers and returns centers.

Dawes’ Six Symptoms of a Problem

1. Returned merchandise or supplies arrive faster than they are processed or disposed of.

2. There are large amounts of returned inventory held in the distribution center or warehouse.

3. There are unidentified or unauthorized returns.

4. There is a lengthy processing cycle time for returned goods.

Dr. Richard Dawes, University of San Francisco

Six Symptoms (Continued)

5. The total cost of the returns process is unknown.

6. Customers lose confidence in the repair activities.

Reverse Logistics

• Estimated $ 58.34 Billion in 2004 in the U.S. alone

• For "industrial equipment" the return rate is over 8% and the total revenue impacted by returns is $105.6 billion in 2005, in just the U.S. alone.

• For computers and network equipment, the return rate reaches as high as 20%, for a 2005 total of $65.8 billion, up from $61.4 billion in 2004.

Reverse Logistics

• According to the Reverse Logistics Executive Council, the percent increase in costs for processing a return, as compared to a forward sale, is an astounding 200-300%.

• “In the U.S. alone, the cost is an annual $100 billion.” Forbes, March 2005

• Typically, as many as 8 more steps per item in the reverse pipeline than items in the forward pipeline

RFID and Returns

• Visibility Tracking

• Component tracking

• Data Warehouse on what, why, when

• Altered products

• Not for every product

Impacts of Reverse Logistics

• Forecasting• Carrying costs• Processing costs• Warehousing• Distribution• Transportation• Personnel• Marketing

Upcoming

• Next week –– Chap 14/16/3

• Final Exam due back Friday week