JUST IN TIME INVENTORY MANAGEMENT

INDEX

S. No. Topic Page No.

1. Acknowledgement 2

2. Just in time inventory management 3

3. Requirements for JIT 6

4. Strengths of JIT 8

5. Weaknesses of JIT 9

6. JIT in practice- JIT in Dell 18

7. Advantages of JIT in Dell 21

8. JIT in Toyota Motors 23

9. Case study 26

10. JIT and beyond 29

11. Conclusion

ACKNOWLEDGEMENT

We are duty bound to acknowledge the meaningful support extended to us by Ms. Deepa Kamra, Department of Business Studies, Deen Dayal Upadhyaya College. We are really grateful to her for having spared her valuable time for discussing various facts of the subject.

We would also like to extend our gratitude to our parents without whose love and care, the present study might not have seen the light of the day.

Sincerely,

Saloni Chaudhary

Pooja Jha

Vrinda Khanna

Ayan Nagpal

Just in Time Inventory Management Just-in-time is a movement and idea that has gained wide acceptance in the business community over the past decade. As companies became more and more competitive and the pressures from Japan’s

continuous improvement culture, other firms were forced to find innovative ways to cut costs and compete. The idea behind JIT, or lean manufacturing, is to have the supplies a firm needs at the exact moment that they are needed. In order to accomplish this goal a firm must constantly be seeking ways to reduce waste and enhance value.

A recent survey of senior manufacturing executives showed that 71% used some form of JIT in their processes. This simple statistic illustrates that JIT is here to stay and also that firms must constantly be searching for ways to cut costs and achieve an advantage. JIT is one way to achieve that end. 

In order to understand how JIT works a common vocabulary needs to be established from which to further discuss the topic and gain insight into why so many firms have adopted it. As previously stated, one of the key components of JIT is to reduce waste and add value. There are several activities that a company must monitor as targets for reducing waste. Among these are, excessive waste times, inflated inventories, unneeded people or material movement, unnecessary processing steps, numerous variables throughout a firm’s activities and any other non-value adding activity. A key example of this is a new plant that Caterpillar is bringing on-line in the near future. By reducing the number of times a bucket had to be repositioned while it was being welded, Caterpillar was able to reduce the time the bucket spent in the welding line, reduce labor costs by limiting idle time at the welding station and increase the efficiency of the entire manufacturing process. 

The layout and inventories that are part of a JIT strategy may seem the most logical steps to reduce waste and increase value. By simply redeveloping the layout of certain facilities a firm can reduce the time

it takes for supplies to get to the next step in process and cut costs associated with that movement.

One way to do this is to have work-in-progress close to the next station in the manufacturing chain. Couple this with lowering inventories and a powerful combination is formed to reduce costs. In lowering inventories a firm can reap numerous benefits; batch sizes, set-up times and safety stock are all reduced, ergo costs are trimmed and value is added. But in order to achieve these things a firm must be willing to accept the problems that these actions can either uncover or create.

Dell Computers participates in both of these activities and they are now the industry leader. Dell has warehouse space at their manufacturing facilities in which suppliers keep parts directly on-site which is the quintessential JIT layout. In addition, Dell is constantly working to achieve JIT inventories of only four days and in doing so are constantly uncovering and solving supply chain problems. 

Going hand-in-hand with maintaining Just In Time inventory levels is JIT scheduling. By working to reduce inventory to the lowest possible working levels, a firm must constantly be adjusting its schedule of ordering and delivering. In doing so, communication both up and down the supply chain is critical. Frequent orders are placed for supplies and small production runs are constantly being initiated. In order to achieve this breakneck pace of order/production schedule, a firm must constantly be making small changes to orders/production and recognize that kanbans are of incredible importance. 

Possibly the one piece of JIT that has the most relevance to a study of supply chain management is the partnerships that are essential to making JIT truly work. A firm cannot implement a JIT system by itself; it must have the complete cooperation of its entire supply chain. The sheer amount of information that is needed for a JIT system to operate well demands partnerships to be formed and nurtured, almost to the point at which an entire supply chain operates as one firm. Examples of these kinds of partnerships are everywhere in today’s business world. XYZ-Company allows its key suppliers to work directly at their manufacturing sites and place orders as needed for the parts that that supplier supplies. By example Dell has its suppliers store raw materials directly at the manufacturing plants. Other concepts of Just In Time also need to be introduced in order to have a discussion about what truly makes Just In Time a worthy endeavor. By the 1980s the Japanese had achieved manufacturing greatness by practicing continuous improvement, in that a firm is

constantly working to improve in every facet of its business functions. To do this a firm must always increase quality, look for innovative ways to solve problems and increase focus on the quality of its suppliers. All of these are cornerstones of a modern JIT system.

Lastly, getting the workforce to buy into a JIT lean manufacturing system is important because without the dedication of the workforce, any endeavor is sure to fail. There are several ways to achieve workforce commitment.

A simple way is to cross train the workforce members outside of their normal business function and help increase an employee’s problem solving ability. In doing so a firm is empowering its workforce to think about their function in a new way while looking for ways to improve and giving them an overall view of the entire firm, not just their single job. When this is coupled with the support of management, an increase in resources to solve problems, and an increase in employee roles and responsibility, a workforce will feel empowered and work to make JIT a success. 

REQUIREMENTS JIT applies primarily to repetitive manufacturing processes in which the same products and components are produced over and over againFor Example Cars, Fast Food Chains

The requirements for a proper just-in-time management are:

STANDARDIZATION: Where the supplies are standardized and the suppliers are trustable and close to the plant. As there is little buffer inventory between the workstations, so the quality must be high and efforts are made to prevent machine breakdowns. Those organizations that need to respond to customer demands regularly this system is also being able to respond to changes in customer demands.

SOFTWARE: For JIT to work efficiently Supply Chain Planning software, companies have in the mean time extended Just-in-time manufacturing externally, by demanding from their suppliers to deliver inventory to the factory only when it's needed for assembly, making JIT manufacturing, ordering and delivery processes even speedier, more flexible and more efficient.

MULTI-FUNCTIONALITY In JIT workers are multifunctional and are required to perform different tasks. Machines are also multifunction and are arranged in small U-shaped work cells that enable parts to processed in a continuous flow through the cell. Workers produce pars one at a time within cells and transport those parts between cells in small lots.

CLEANLINESS Environment is kept clean and free of waste so that any unusual occurrence are visible.

SCHEDULES: Schedules are prepared only for the final assembly line, in which several different models are assembled at the same line. Requirements for the component parts and subassemblies are then pulled through the system. The "PULL" element of JIT will not work unless production is uniform and lot sizes are low. Pull system is also used to order material from suppliers (fewer in numbers usually). They make be requested to make multiple deliveries of the same item in the same day, so the manufacturing system must be flexible.

QUALITY: Quality within JIT manufacturing is necessary, because without a quality program in JIT, the JIT will fail.  Here we think about quality at the source and the Plan, Do, Check, Action with its statistical process control.  Furthermore, techniques are also very important.  The JIT technique is a pull system rather than a pull system, based on not producing things until they are needed.  The well known Kanban card is used as a signal to produce.  Moreover, integration also plays a key role in JIT systems.  JIT integration can be found in four points of the manufacturing firm.  The Accounting side, Engineering side, Customer side and Supplier side.  At the accounting side, JIT has concern for WIP, utilization and overhead allocation and at the engineering side of JIT focuses on simultaneously and participative design of products and processes.

Strengths of JIT  

There is much strength to incorporating JIT lean manufacturing in a company.

JIT makes production operations more efficient, cost effective and customer responsive.

JIT allows manufacturers to purchase and receive components just before they’re needed on the assembly line, thus relieving manufacturers of the cost and burden of housing and managing idle parts. In that respect, company spokesman for Dell Venancio Figueroa, says ‘With our pull-to-order system, we’ve been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be’ (Songini, 2000).

The benefit of carrying smaller amounts of inbound, in-process, and finished goods inventory exists regardless of the firm’s operating context (size, production technology, etc).

Just In Time appeals to many companies because it helps prevent manufacturers from being stuck with inventory that may become obsolete.

JIT was initially developed and justified based on cost reduction and quality improvement dimensions. Now, companies view JIT as providing an approach to achieving excellence in the elimination of waste (thought of as all things that do not add value to the product), as well as making the company more responsive to short-term customer demand patterns. 

JIT manufacturing can be a real money-saver for a company. Companies are not only more responsive to their customers, but they also have less capital tied up in raw materials and finished goods inventory, allowing companies to optimize their transportation and logistics operations (UPS, 2003). 

Overall, JIT manufacturing results in lower total system costs and improved product quality. With JIT, some plants have reduced inventory more than fifty-percent and lead time more than eighty-percent (Droge, 1998). JIT is lowering costs and inventory, reducing waste, and raising the quality of products. 

Weaknesses of JIT  

Just as JIT has many strong points, there are weaknesses as well.

In just-in-time, everything is very interdependent. Everyone relies on everybody else . Because of this strong interdependence with JIT, a weakness in the supply chain caused by a JIT weakness can be very costly to all linked in the chain.

JIT processes can be risky to certain businesses and vulnerable to the supply chain in situations such as labor strikes, interrupted supply lines, market demand fluctuations, stock outs, lack of communication upstream and downstream in the supply chain and unforeseen production interruptions. 

Labor strikes, stock outs, and port lockouts can quickly disrupt an entire supply chain while JIT processes are in place. Adhering to the just-in-time concept can be expensive in times of emergency such as at ports. When a ship arriving from Asia full of supplies cannot make it to shore, the company using JIT generally has very little inventory to compensate for the emergency. This lack of inventory is exactly what makes JIT so great to companies in reducing costs, yet making it risky as well by in some cases not having enough buffer inventories to react and keep the supply chain moving. 

Every year markets experience seasonal demand fluctuations as well as fluctuations due to demand from disasters or other unforeseen events. Just-in-time delivery leaves retailers and manufacturers with little inventory as the holiday season approaches. Relying solely on JIT systems would leave supply chains in shock due to the overwhelming seasonal market demand at different times of the year for seasonal products. Not all products should be produced with JIT systems in place. Custom made items will not work very well with JIT as JIT systems respond best to mass produced and highly automated production items. 

Communication is king in a JIT rich supply chain. There is a risk involved with JIT when there is a communication breakdown and the company cannot get the right amount of supplies needed to keep the just-in-time system running smoothly.

Technology is playing a big role in JIT number, however, the reliance on technology can lead to breakdowns in the IT systems that can be costly to work around and go back to the pencil and paper methods of doing supply/inventory demand calculations. Companies should always have backup systems in place to help thwart the possibility of technology or communication

breakdown. 

Weaknesses in JIT systems are very important to recognize. From Cisco routers to Dell computers to the Gap’s leather pants, companies have found their just-in-time manufacturing systems have let them down. Companies must strongly evaluate the pros and cons of implementing JIT systems.

The effects and risk to their supply chain must also be heavily considered. Although JIT has its weaknesses, in most cases, the benefits outweigh the risks to the JIT enabled company. Planning for and recognizing when things may go wrong with the JIT system are vital for the success of JIT implementation across all areas of supply chains. 

JIT in Practice

Just in time has an overall strategic focus to provide companies with an exceptional amount of savings. There is a large variety of companies and industries that have experienced these cost savings. Dell and Toyota are two examples to illuminate the cost saving effects that just in time offers. 

JIT in Dell

Dell, which participates in the computer technology industry, is the only company within its industry that effectively utilizes just in time. They have revolutionized the selling of personal computers, using a direct-business model whose fundamental tenets include taking custom orders directly from customers, thereby reducing inventory and streamlining distribution. After Dell has received a customer order, they then begin production of the product that the customer desires.

This exemplifies a pull system within the supply chain. A pull system is reactive whereby production is executed in response to a customer order. This unique supply chain provides Dell with a competitive advantage within its industry allowing them to become the market leader over Compaq in 2001. 

Dell’s position within its industry is a result of their strategic focus to reduce inventory and streamline distribution. This strategy has allowed them to keep only five days of inventory on hand. This is the smallest amount of inventory of any company within this industry, according to Mike Gray, Supply Chain Evangelist for Dell. He stated that most companies within the computer industry currently hold between 20 and 30 days worth of inventory. 

Advantages of JIT for Dell

The limited amount of inventory held by Dell has created value for their customers. The value created for their customers is a function of integrating the entire value chain: invention, development, design, manufacturing, logistics, service, delivery and sales. Integrating the entire value chain creates visibility and provides stronger relationships between Dell and their customers and suppliers.

This visibility allows them to only invest in what their customers want, rather than trying to guess what they might want. In addition Dell has a philosophy to only manufacture what their customers ask them to make, when they ask them. 

This strategy provides Dell with a time-to-market advantage. They can get their customers the freshest, latest, greatest Pentium 4 and all associated operating systems 85 days faster than HP. This is true in regards to research that shows Hewlett Packard has 63 days of inventory and a distribution channel with 25 to 30 days of inventory as well. Collectively, HP has about 90 days of inventory compared to Dell’s five.

The minimal amount of inventory held by Dell provides them with an economic advantage, because the value of components and manufacturing materials declines about one per cent per week.

The five day inventory also minimizes a customer’s ability to change their wants before they receive their computer. For example, if an individual tells a manufacturer what they want today but they do not hear the request for 90 days, chances are by this time the customer wants something else. 

Dell’s use of just in time results in cost savings, superior customer satisfaction, limited waste, and the ability to provide their suppliers with more information. In the end these benefits all result in a cost savings for Dell and higher revenue. Since Dell holds minimal inventory, they do not have to fund raw materials, work in process or finished goods inventory. 

JIT in Toyota Motors

Toyota Motor Corporation is another company that effectively uses just in time. They are known as the master and pioneer of just in time and are currently entering the market to provide customized vehicles to customers with a minimal wait.

Toyota has spent the last six years revamping its ordering, manufacturing and distribution to make it easier for dealers and customers to make changes right before production.

Their goal is to reduce the average time between dealer order and delivery from Toyota’s North American factories from 70 days to 14. This goal accomplishment would not only make customers happier but also cut dealer inventory costs and the need for Toyota to spend on rebates for slow-selling vehicles.

In order to seek the benefits of providing customized orders and reducing the average delivery time, Toyota has developed its own software that connects dealers to factories and factories to suppliers. The integration of the value chain creates visibility for all members of

Toyota’s supply chain. When a request from a dealer is received by Toyota their software is able to figure out the availability of parts nearby, the time to resequence the assembly line and whether the change would unbalance the line by scheduling, for example, too many models loaded with time-consuming options one right after the other. 

Toyota has also adjusted their distribution process to effectively provide customized vehicles in a just in time process. Toyota now sends finished vehicles to sorting docks where they can be grouped by region. This new process cuts delivery by two days. And in assembling cars, Toyota now considers destination, so that it may, for instance, make vehicles headed to Seattle at the same time. This process adjustment has provided Toyota with a cost savings in result. 

Dell and Toyota are two model companies of just in time. They effectively get the right products to their customers when they need it. Both companies have achieved a competitive advantage within their industries due to utilizing the just in time process and allowing visibility between them and other members of the value chain. 

CASE-STUDY

The work described in this case study was undertaken in a young, rapidly expanding company in the financial services sector with no previous experience with Total Quality Management (TQM). The quality project began with a two-day introductory awareness program covering concepts, cases, implementation strategies and imperatives of TQM. The program was conducted for the senior management team of the company. This program used interactive exercises and real life case studies to explain the concepts of TQM and to interest them in committing resources for a demonstration project.

Step 1. Define the Problem

1.1 Selecting the theme: A meeting of the senior management of the company was held. Brainstorming produced a list of around 10 problems. The list was prioritized using the weighted average table, followed by a structured discussion to arrive at a consensus on the two most important themes -- customer service and sales productivity.

Under the customer service theme, "Reducing the Turnaround Time from an Insurance Proposal to Policy" was selected as the most obvious and urgent problem. The company was young, and therefore had few claims to process so far. The proposal-to-policy process therefore impacted the greatest number of customers.

An appropriate cross functional group was set up to tackle this problem.

1.2 Problem = customer desire – current status. Current status: What did the individual group members think the turnaround is currently? As each member began thinking questions came up. "What type of policies do we address?" Medical policies or non-medical? The latter are take longer because of the medical examination of the client required. "Between what stages do we consider turnaround?" Perceptions varied, with each person thinking about the turnaround within their department. The key process stages were mapped:

Several sales branches in different parts of the country sent proposals into the Central Processing Center. After considerable debate it was agreed at first to consider turnaround between entry into the computer system at the Company Sales Branch and dispatch to the customer from the Central Processing Center (CPC). Later the entire cycle could be included. The perception of the length of turnaround by different members of the team was recorded. It was found that on an average Non-Medical Policies took 17 days and Medical Policies took 35 days.

Customer desire: What was the turnaround desired by the customer? Since a customer survey was not available, individual group members were asked to think as customers -- imagine they had just given a

completed proposal form to a sales agent. When would they expect the policy in hand? From the customer's point of view they realized that they did not differentiate between medical and non-medical policies. Their perception averaged out six days for the required turnaround.

"Is this the average time or maximum time that you expect?" they were asked. "Maximum," they responded. It was clear therefore that the average must be less than six days. The importance of "variability" had struck home. For 99.7 percent delivery within the customer limit the metric was defined.

Therefore the average customer desire was less than 6 days and the current status was that of 64 days for non-medical policies and for medical policies it was 118 days. Therefore the problem was to reduce the non-medical policies from 64 to 6 days and medical policies from 118 to 6 days.

The performance requirement appeared daunting. Therefore the initial target taken in the Mission Sheet (project charter) was to reduce the turnaround by 50 percent -- to 32 and 59 days respectively.

Step 2. Analysis of the Problem

In a session the factors causing large turnaround times from the principles of JIT were explained. These were Input arrival patterns

Waiting times in process.o Batching of work.o Imbalanced processing line.o Too many handovers.o Non-value added activities, etc.

Processing times Scheduling Transport times Deployment of manpower

Typically it was found that waiting times constitute the bulk of processing turnaround times. Process Mapping (Value Stream Mapping in Lean) was undertaken. The aggregate results are summarized below:

Number of operations 84 Number of handovers 13

In-house processing time (estimated) 126 man-mins.Range of individual stage time 2 to 13 mins.

To check this estimate it was decided to collect data -- run two policies without waiting and record the time at each stage. The trial results amazed everyone: Policy No. 1 took 100 minutes and Policy No. 2 took 97 minutes. Almost instantly the mindset changed from doubt to desire: "Why can't we process every proposal in this way?"

Step 3. Generating Ideas

In the introductory program of TQM during the JIT session the advantages of flow versus batch processing had been dramatically demonstrated using a simple exercise. Using that background a balanced flow line was designed as follows:

1. Determine the station with the maximum time cycle which cannot be split up by reallocation 8 minutes.

2. Balance the line to make the time taken at each stage equal 8 minutes as far as possible.

3. Reduce the stages and handovers -- 13 to 8.

4. Eliminate non-value added activities -- transport -- make personnel sit next to each other.

5. Agree processing to be done in batch of one proposal.

Changing the mindset of the employees so they will accept and welcome change is critical to building a self-sustaining culture of improvement. In this case, the line personnel were involved in a Quality Mindset Program so that they understood the reasons for change and the concepts behind them and are keen to experiment with new methods of working. The line was ready for a test run.

Step 4. Testing the Idea

Testing in stages is a critical stage. It allows modification of ideas based upon practical experience and equally importantly ensures acceptance of the new methods gradually by the operating personnel.

Stage 1: Run five proposals flowing through the system and confirm results. The test produced the following results:

Average turnaround time: < 1 dayIn-house processing time: 76 mins.

There was jubilation in the team. The productivity had increased by 24 percent.

Stage 2: It was agreed to run the new system for five days -- and compute the average turnaround to measure the improvement. It was agreed that only in-house processing was covered at this stage and that the test would involve all policies at the CPC but only one branch as a model. This model, once proved, could be replicated at other branches.

The test results showed a significant reduction in turnaround:

1. For all non-medical policies from 64 to 42 days or 34%2. For policies of the model branch from 64 to 27 days of 60%

The Mission Sheet goal of 50 percent reduction had been bettered for the combined model branch and CPC. Further analysis of the data revealed other measures which could reduce the turnaround further. Overall reduction reached an amazing 75 percent. Turnaround, which had been pegged at 64 days, was now happening at 99.7 percent on-time delivery in 15 days.

Step 5. Implementing the Ideas

Regular operations with the new system was planned to commence. However, two weeks later it was still not implemented. One of the personnel on the line in CPC had been released by his department for the five-day trial to sit on the line but was not released on a regular basis. The departmental head had not attended the TQM awareness program and therefore did not understand why this change was required.

There were two options -- mandate the change or change the mindset to accept the change. Since the latter option produces a robust implementation that will not break down under pressures it was agreed that the group would summarize TQM, the journey and the results obtained in the project so far and also simulate the process with a simple exercise in front of the department head. This session was highly successful and led to the release of the person concerned on a regular basis.

Step 6. Follow-up

The process was run for one month with regular checks. The results obtained were marginally better and average time reduced to 11 days.

Customer reaction: Sales management and sales agents (internal customers) clearly noticed the difference. For instance one sales manager reported that a customer had received a policy within a week of giving a proposal and was so amazed that he said, "If you give such service I will give you the next policy also!"

Adoption of a similar process at the CPC and the model branch for medical policies has already reduced the average turnaround time by 70 percent -- from 118 days to 37 days. The corresponding all-India reduction was from 118 days to 71 days -- a 60 percent reduction.

The project objective of 50 percent in the first stage has been achieved.

A quality improvement story was compiled by the project Leader for training and motivating all employees.

JIT and BeyondJust-In-Time inventory systems have come a long way through out the years improving the efficiency of purchasing in many companies. But as with most things there is always room for improvement and growth. JIT inventory systems have evolved over the years with many new and exciting twists. Competition in the business world is shifting from being between company and company to supply chain and supply chain. This is why JIT is evolving in many different ways. JIT II is one such evolution of the efficiency of JIT. 

JIT II is a way to improve the customer-supplier relationship. JIT II uses systems integration which allows sharing of information so that the relationship is more like a partnership. Essentially this equals more and more visibility throughout the supply chain, which equals better responsiveness and lower costs, the two main goals of supply chain management. 

JIT II, a customer-supplier partnership concept pioneered at Bose Corporation and now practiced by major companies and their suppliers, can aid in cutting both design and response lead time. This is accomplished through systems integration, which seeks ways to improve coordination between different functional areas, as well as bridges the gap between customer and supplier. 

With JIT II the suppliers have a person within the customer’s organization full time acting as a purchasing department employee for the customer firm. JIT II has really impacted the following areas: the

administration of the purchasing function, logistics, concurrent engineering and value analysis and material stores and support services. In each of these areas the lead time reductions are greater with JIT II than with conventional JIT. 

The administrative benefits of JIT II are due to the fact that the supplier is constantly available in-house. JIT II reduces administrative costs for both the customer and supplier because the purchasing costs are not all on the customer and the supplier gets all the business from that specific customer as it wants as long as things go well. Because the supplier is always present JIT II permits concurrent engineering and value analysis to take place on an ongoing basis, not just during sporadic sales calls. 

JIT II is not the end of the evolution of just in time systems it is actually just the beginning. ERP is another result that spawns from the premise behind JIT II. The main difference between the two is that JIT II is not computer system based and ERP is based on a computer system that helps ensure the visibility of all functional areas within a company as well as within its supply chain. 

ERP helps organizations reduce supply chain inventories due to the added visibility throughout the entire supply chain. A major advantage of an ERP system is that it allows managers to make better more informed decisions that effect the entire supply chain. As ecommerce and global operations continue to grow a need for visibility and data exchange between suppliers, customers and foreign offices has emerged. Thus driving ERP more to the forefront but with ERP comes decreased inventories as well as responsiveness that is the major idea of JIT systems.

Conclusion

Hence we can see that to have a Total JIT manufacturing system, a company-wide commitment, proper materials, quality, people and equipments must always be made available when needed. In addition; the policies and procedures developed for an internal JIT structure should also be extended into the company's supplier and customer base to establish the identification of duplication of effort and performance feedback review to continuously reduced wastage and improve quality.

By integrating the production process; the supplier, manufacturers and customers become an extension of the manufacturing production process instead of independently isolated processes where in fact in clear sense these three sets of manufacturing stages are inter-related and dependent on one another.

Once functioning as individual stages and operating accordingly in isolated perspective; the suppliers, manufacturers and customers can no longer choose to operate in ignorance. The rules of productivity standards have changed to shape the economy and the markets today; every company must be receptive to changes and be dynamically responsive to demand.

In general, it can be said that there is no such thing as a KEY in achieving a JIT success; only a LADDER; where a series of continuous steps of dedication in doing the job right every time is all it takes.