1. Operations Management
Chapter 16 –
JIT and Lean Operations
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
Some additions and deletions have been made by Ömer Yağız to this slide set.

2. Outline Global Company Profile: Toyota Motor Corporation
Just-in-Time, the Toyota Production System, and Lean Operations
Eliminate Waste
Remove Variability
Improve Throughput

3. Outline – Continued Just-in-Time JIT Layout JIT Partnerships
Concerns of Suppliers
JIT Layout
Distance Reduction
Increased Flexibility
Impact on Employees
Reduced Space and Inventory

4. Outline – Continued JIT Inventory JIT Scheduling Reduce Variability
Reduce Inventory
Reduce Lot Sizes
Reduce Setup Costs
JIT Scheduling
Level Schedules
Kanban

5. Outline – Continued JIT Quality Toyota Production System
Continuous Improvement
Respect for People
Standard Work Practices
Lean Operations
Building a Lean Organization
Lean Operations in Services

6. Learning Objectives
When you complete this chapter you should be able to:
Define just-in-time, TPS, and lean operations
Define the seven wastes and the 5 Ss
Explain JIT partnerships
Determine optimal setup time

7. Learning Objectives
When you complete this chapter you should be able to:
Define kanban
Compute the required number of kanbans
Explain the principles of the Toyota Production System

8. Toyota Motor Corporation
Largest vehicle manufacturer in the world with annual sales of over 9 million vehicles
Success due to two techniques, JIT and TPS
Continual problem solving is central to JIT
Eliminating excess inventory makes problems immediately evident

9. Toyota Motor Corporation
Central to TPS is a continuing effort to produce products under ideal conditions
Respect for people is fundamental
Small building but high levels of production
Subassemblies are transferred to the assembly line on a JIT basis
High quality and low assembly time per vehicle

10. Toyota Prod System (TPS) became Lean Manuf System in the USA

11. Just-In-Time, TPS, and Lean Operations
JIT is a philosophy of continuous and forced problem solving via a focus on throughput and reduced inventory
TPS emphasizes continuous improvement, respect for people, and standard work practices
Lean production supplies the customer with their exact wants when the customer wants it without waste

12. Just-In-Time, TPS, and Lean Operations
JIT emphasizes forced problem solving
TPS emphasizes employee learning and empowerment in an assembly-line environment
Lean operations emphasize understanding the customer

13. JIT, TPS, and Lean All are basically used interchangeably
We will refer to all as “Lean Operations “ ; the textbook does the same.

14. Lean Operations
Doing more with less inventory, fewer workers, less space
Just-in-time (JIT)
smoothing the flow of material to arrive just as it is needed
“JIT” and “Lean Production” are used interchangeably
Muda
waste, anything other than that which adds value to the product or service

15. Origins of Lean Operations
Japanese firms, particularly Toyota, in 1970's and 1980's
Eiji Toyoda, Taiichi Ohno and Shigeo Shingo ( )
Geographical and cultural roots
Japanese objectives
“catch up with America” (within 3 years of 1945)
small lots of many models
Japanese motivation
Japanese domestic production in ,622 trucks, 1,008 cars
American to Japanese productivity ratio ---9:1
Era of “slow growth” in 1970's

16. Three major issues
Effective OM means managers must also address three issues:
eliminate waste
remove variability
improve throughput

17. Taiichi Ohno’s Seven Wastes
Overproduction (more than demanded)
Queues (idle time, storage, waiting)
Transportation (materials handling)
Inventory (raw, WIP, FG, excess operating supplies)
Motion (movement of people & equipment)
Overprocessing (work that adds no value)
Defective products (rework, scrap, returns, warranty claims)

18. Eliminate Waste
Waste is anything that does not add value from the customer point of view
Storage, inspection, delay, waiting in queues, and defective products do not add value and are 100% waste

19. Eliminate Waste
Other resources such as energy, water, and air are often wasted
Efficient, ethical, and socially responsible production minimizes inputs, reduces waste
Traditional “housekeeping” has been expanded to the 5 Ss

20. The 5 Ss
The method of 5 S's is an important part of Lean. Named after five Japanese concepts, the 5 S's is a set of workplace organization or housekeeping rules for keeping the factory in perfect order. The method is regarded as a prerequisite for Lean. The 5 S's include:
Seiri - sorting, i.e., proper arrangement of all items, storage, equipment, tools, inventory and traffic Seiton - orderliness Seiso - cleanliness Seiketsu - standardization, and Shitsuke - self-discipline

21. The 5 Ss Sort/segregate – when in doubt, throw it out
Simplify/straighten – use methods analysis tools
Shine/sweep – clean daily
Standardize – remove variations from processes (SOP’s and checklists)
Sustain/self-discipline – review work and recognize progress

22. The 5 Ss Sort/segregate – when in doubt, throw it out
Simplify/straighten – methods analysis tools
Shine/sweep – clean daily
Standardize – remove variations from processes
Sustain/self-discipline – review work and recognize progress
Two additional Ss
Safety – build in good practices
Support/maintenance – reduce variability and unplanned downtime

23. Remove Variability
JIT systems require managers to reduce variability caused by both internal and external factors
Variability is any deviation from the optimum process
Inventory hides variability
Less variability results in less waste

24. Sources of Variability
Incomplete or inaccurate drawings or specifications
Poor production processes resulting in incorrect quantities, late, or non-conforming units
Unknown customer demands

25. Sources of Variability
Incomplete or inaccurate drawings or specifications
Poor production processes resulting in incorrect quantities, late, or non-conforming units
Unknown customer demands
Both JIT and inventory reduction are effective tools in identifying causes of variability

26. Improve Throughput
The time it takes to move an order from receipt to delivery
The time between the arrival of raw materials and the shipping of the finished order is called manufacturing cycle time
A pull system increases throughput

27. Improve Throughput
By pulling material in small lots, inventory cushions are removed, exposing problems and emphasizing continual improvement
Manufacturing cycle time is reduced
Push systems dump orders on the downstream stations regardless of the need

28. Just-In-Time (JIT) Powerful strategy for improving operations
Materials arrive where they are needed when they are needed
Identifying problems and driving out waste reduces costs and variability and improves throughput
Requires a meaningful buyer-supplier relationship

29. JIT and Competitive Advantage
Figure 16.1

30. JIT Logic
PULL….
Fab
Vendor
Sub
Final Assy
Customers 4

31. JIT and Competitive Advantage
Figure 16.1

32. JIT Partnerships
JIT partnerships exist when a supplier and purchaser work together to remove waste and drive down costs
Four goals of JIT partnerships are:
Removal of unnecessary activities
Removal of in-plant inventory
Removal of in-transit inventory
Improved quality and reliability

33. JIT Partnerships
Figure 16.2

34. Concerns of Suppliers
Diversification – ties to only one customer increases risk
Scheduling – don’t believe customers can create a smooth schedule
Changes – short lead times mean engineering or specification changes can create problems
Quality – limited by capital budgets, processes, or technology
Lot sizes – small lot sizes may transfer costs to suppliers

35. JIT Layout Reduce waste due to movement JIT Layout Tactics
Build work cells for families of products
Include a large number operations in a small area
Minimize distance
Design little space for inventory
Improve employee communication
Use poka-yoke devices
Build flexible or movable equipment
Cross-train workers to add flexibility
Table 16.1

36. Distance Reduction
Large lots and long production lines with single-purpose machinery are being replaced by smaller flexible cells
Often U-shaped for shorter paths and improved communication
Often using group technology concepts

37. Increased Flexibility
Cells designed to be rearranged as volume or designs change
Applicable in office environments as well as production settings
Facilitates both product and process improvement

38. Manufacturing Cell With Worker Routes
Machines
Enter
Worker 2
Worker 3
Worker 1
Exit
Key:
Product route
Worker route

39. Impact on Employees
Employees are cross trained for flexibility and efficiency
Improved communications facilitate the passing on of important information about the process
With little or no inventory buffer, getting it right the first time is critical

40. Reduced Space and Inventory
With reduced space, inventory must be in very small lots
Units are always moving because there is no storage

41. Inventory
Inventory is at the minimum level necessary to keep operations running
JIT Inventory Tactics
Use a pull system to move inventory
Reduce lot sizes
Develop just-in-time delivery systems with suppliers
Deliver directly to point of use
Perform to schedule
Reduce setup time
Use group technology
Table 16.2

42. Holding, Ordering, and Setup Costs
Holding costs - the costs of holding or “carrying” inventory over time
Ordering costs - the costs of placing an order and receiving goods
Setup costs - cost to prepare a machine or process for manufacturing an order

43. Cost (and range) as a Percent of Inventory Value
Holding Costs
Category
Cost (and range) as a Percent of Inventory Value
Housing costs (building rent or depreciation, operating costs, taxes, insurance)
6% (3 - 10%)
Material handling costs (equipment lease or depreciation, power, operating cost)
3% ( %)
Labor cost
3% (3 - 5%)
Investment costs (borrowing costs, taxes, and insurance on inventory)
11% (6 - 24%)
Pilferage, space, and obsolescence
3% (2 - 5%)
Overall carrying cost
26%
Table 12.1

44. Cost (and range) as a Percent of Inventory Value
Holding Costs
Category
Cost (and range) as a Percent of Inventory Value
Housing costs (building rent or depreciation, operating costs, taxes, insurance)
6% (3 - 10%)
Material handling costs (equipment lease or depreciation, power, operating cost)
3% ( %)
Labor cost
3% (3 - 5%)
Investment costs (borrowing costs, taxes, and insurance on inventory)
11% (6 - 24%)
Pilferage, space, and obsolescence
3% (2 - 5%)
Overall carrying cost
26%
Holding costs vary considerably depending on the business, location, and interest rates. Generally greater than 15%, some high tech items have holding costs greater than 50%.
Table 12.1

45. Inventory Models for Independent Demand
Need to determine when and how much to order
Basic economic order quantity
Production order quantity
Quantity discount model

46. Basic EOQ Model Important assumptions
Demand is known, constant, and independent
Lead time is known and constant
Receipt of inventory is instantaneous and complete
Quantity discounts are not possible
Only variable costs are setup and holding
Stockouts can be completely avoided

47. Inventory Usage Over Time
Inventory level
Time
Average inventory on hand Q 2
Usage rate
Order quantity = Q (maximum inventory level)
Minimum inventory
Figure 12.3

48. Minimizing Costs Objective is to minimize total costs
Annual cost
Order quantity
Curve for total cost of holding and setup
Setup (or order) cost curve
Minimum total cost
Optimal order quantity (Q*)
Holding cost curve
Table 11.5

49. Number of units in each order Setup or order cost per order
The EOQ Model
Annual setup cost = S D Q
Q = Number of pieces per order
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year
Annual setup cost = (Number of orders placed per year)
x (Setup or order cost per order)
Annual demand
Number of units in each order
Setup or order cost per order =
= (S) D Q

50. The EOQ Model Q = Number of pieces per order
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year
Annual holding cost = (Average inventory level)
x (Holding cost per unit per year)
Order quantity 2
= (Holding cost per unit per year)
Annual setup cost = S D Q
= (H) Q 2
Annual holding cost = H Q 2

51. The EOQ Model 2DS = Q2H Q2 = 2DS/H Q* = 2DS/H
Q = Number of pieces per order
Q* = Optimal number of pieces per order (EOQ)
D = Annual demand in units for the inventory item
S = Setup or ordering cost for each order
H = Holding or carrying cost per unit per year
Optimal order quantity is found when annual setup cost equals annual holding cost D Q
S = H 2
Solving for Q*
2DS = Q2H
Q2 = 2DS/H
Q* = 2DS/H
Annual setup cost = S D Q
Annual holding cost = H Q 2

52. An EOQ Example Determine optimal number of needles to order
D = 1,000 units
S = $10 per order
H = $.50 per unit per year
Q* =
2DS H
Q* =
2(1,000)(10)
0.50
= 40,000 = 200 units

53. Expected number of orders
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units Q* = 200 units
S = $10 per order
H = $.50 per unit per year
= N = =
Expected number of orders
Demand
Order quantity D Q*
N = = 5 orders per year
1,000
200

54. Expected time between orders Number of working days per year
An EOQ Example
Determine optimal number of needles to order
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders per year
H = $.50 per unit per year
= T =
Expected time between orders
Number of working days per year N
T = = 50 days between orders
250 5

55. An EOQ Example Determine optimal number of needles to order
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders per year
H = $.50 per unit per year T = 50 days
Total annual cost = Setup cost + Holding cost
TC = S H D Q 2
TC = ($10) ($.50)
1,000
200 2
TC = (5)($10) + (100)($.50) = $50 + $50 = $100

56. Robust Model The EOQ model is robust
It works even if all parameters and assumptions are not met
The total cost curve is relatively flat in the area of the EOQ

57. An EOQ Example Management underestimated demand by 50%
D = 1,000 units Q* = 200 units
S = $10 per order N = 5 orders per year
H = $.50 per unit per year T = 50 days
1,500 units
TC = S H D Q 2
TC = ($10) ($.50) = $75 + $50 = $125
1,500
200 2
Total annual cost increases by only 25%

58. An EOQ Example Actual EOQ for new demand is 244.9 units
D = 1,000 units Q* = units
S = $10 per order N = 5 orders per year
H = $.50 per unit per year T = 50 days
1,500 units
Only 2% less than the total cost of $125 when the order quantity was 200
TC = S H D Q 2
TC = ($10) ($.50)
1,500
244.9 2
TC = $ $61.24 = $122.48

59. Lead time for a new order in days Number of working days in a year
Reorder Points
EOQ answers the “how much” question
The reorder point (ROP) tells when to order
ROP =
Lead time for a new order in days
Demand per day
= d x L
d = D
Number of working days in a year

60. Reorder Point Curve Q* Inventory level (units) Slope = units/day = d
Time (days) Q*
Slope = units/day = d
ROP (units)
Lead time = L
Figure 12.5

61. Number of working days in a year
Reorder Point Example
Demand = 8,000 iPods per year
250 working day year
Lead time for orders is 3 working days
d = D
Number of working days in a year
= 8,000/250 = 32 units
ROP = d x L
= 32 units per day x 3 days = 96 units

62. Production Order Quantity Model
Used when inventory builds up over a period of time after an order is placed
Used when units are produced and sold simultaneously

63. Production Order Quantity Model
Inventory level
Time
Part of inventory cycle during which production (and usage) is taking place
Demand part of cycle with no production
Maximum inventory t
Figure 12.6

64. Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
t = Length of the production run in days
= (Average inventory level) x
Annual inventory holding cost
Holding cost per unit per year
= (Maximum inventory level)/2
Annual inventory level
= –
Maximum inventory level
Total produced during the production run
Total used during the production run
= pt – dt

65. Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
t = Length of the production run in days
= –
Maximum inventory level
Total produced during the production run
Total used during the production run
= pt – dt
However, Q = total produced = pt ; thus t = Q/p
Maximum inventory level
= p – d = Q 1 – Q p d
Holding cost = (H) = – H d p Q 2
Maximum inventory level

66. Production Order Quantity Model
Q = Number of pieces per order p = Daily production rate
H = Holding cost per unit per year d = Daily demand/usage rate
D = Annual demand
Setup cost = (D/Q)S
Holding cost = HQ[1 - (d/p)] 1 2
(D/Q)S = HQ[1 - (d/p)] 1 2
Q2 =
2DS
H[1 - (d/p)]
Q* =
2DS
H[1 - (d/p)] p

67. Production Order Quantity Example
D = 1,000 units p = 8 units per day
S = $10 d = 4 units per day
H = $0.50 per unit per year
Q* =
2DS
H[1 - (d/p)]
= or 283 hubcaps
Q* = = ,000
2(1,000)(10)
0.50[1 - (4/8)]

68. Production Order Quantity Model
Note:
d = 4 = = D
Number of days the plant is in operation
1,000
250
When annual data are used the equation becomes
Q* =
2DS
annual demand rate
annual production rate
H 1 –

69. Reduce Variability Inventory level Process downtime Scrap Setup time
Late deliveries
Quality problems
Figure 16.3

70. Reduce Variability Inventory level Process downtime Scrap Setup time
Quality problems
Late deliveries
Figure 16.3

71. Reduce Lot Sizes Q1 When average order size = 200
200 –
100 –
Inventory
Time
Q1 When average order size = 200
average inventory is 100
Q2 When average order size = 100
average inventory is 50
Figure 16.4

72. Reduce Lot Sizes
Ideal situation is to have lot sizes of one pulled from one process to the next
Often not feasible
Can use EOQ analysis to calculate desired setup time
Two key changes necessary
Improve material handling
Reduce setup time

73. Lot Size Example D = Annual demand = 400,000 units
d = Daily demand = 400,000/250 = 1,600 per day
p = Daily production rate = 4,000 units
Q = EOQ desired = 400
H = Holding cost = $20 per unit
S = Setup cost (to be determined)
Q =
2DS
H(1 - d/p)
Q2 =
2DS
H(1 - d/p)
S = = = $2.40
(Q2)(H)(1 - d/p) 2D
(3,200,000)(0.6)
800,000
Setup time = $2.40/($30/hour) = 0.08 hr = 4.8 minutes

74. Reduce Setup Costs High setup costs encourage large lot sizes
Reducing setup costs reduces lot size and reduces average inventory
Setup time can be reduced through preparation prior to shutdown and changeover

75. Lower Setup Costs Holding cost Sum of ordering and holding costs Cost
Lot size
Holding cost T1 S1
Sum of ordering and holding costs T2 S2
Setup cost curves (S1, S2)
Figure 16.5

76. Reduce Setup Times Initial Setup Time
90 min —
60 min —
45 min —
25 min —
15 min —
13 min — —
Step 1
Separate setup into preparation and actual setup, doing as much as possible while the machine/process is operating
(save 30 minutes)
Step 2
Move material closer and improve material handling (save 20 minutes)
Step 3
Standardize and improve tooling (save 15 minutes)
Use one-touch system to eliminate adjustments (save 10 minutes)
Step 4
Step 5
Training operators and standardizing work procedures (save 2 minutes)
Figure 16.6
Repeat cycle until subminute setup is achieved
Step 6

77. JIT Scheduling
Schedules must be communicated inside and outside the organization
Level schedules
Process frequent small batches
Freezing the schedule helps stability
Kanban
Signals used in a pull system

78. JIT Scheduling Better scheduling improves performance
JIT Scheduling Tactics
Communicate schedules to suppliers
Make level schedules
Freeze part of the schedule
Perform to schedule
Seek one-piece-make and one-piece move
Eliminate waste
Produce in small lots
Use kanbans
Make each operation produce a perfect part
Table 16.3

79. Level Schedules
Process frequent small batches rather than a few large batches
Make and move small lots so the level schedule is economical
“Jelly bean” scheduling
Freezing the schedule closest to the due dates can improve performance

80. Scheduling Small Lots JIT Level Material-Use ApproachB C
JIT Level Material-Use Approach A C B
Large-Lot Approach
Time
Figure 16.7

81. Kanban Kanban is the Japanese word for card
The card is an authorization for the next container of material to be produced
A sequence of kanbans pulls material through the process
Many different sorts of signals are used, but the system is still called a kanban

82. Kanban User removes a standard sized container
Signal is seen by the producing department as authorization to replenish
Signal marker on boxes
Figure 16.8
Part numbers mark location

83. A REAL KANBAN

84. Kanban Production Control System
Machine Center
Assembly Line
Storage
Production
Kanban
Withdrawal

85. Dual Kanbans Process A Process B Flow of work Flow of kanban WX
Process A
Process B X X
B’s Input
B’s Output
A’s Input
A’s Output W
Container with withdrawal kanban
Flow of work P
Container with production kanban
Flow of kanban

86. Dual Kanbans P P X X X W P Process A Process B Flow of work
B’s Input
B’s Output
A’s Input
A’s Output W
Container with withdrawal kanban
Flow of work P
Container with production kanban
Flow of kanban

87. Purchased Parts Supplier
Kanban
Work cell
Kanban
Finished goods
Customer order
Final assembly
Raw Material Supplier
Ship
Kanban
Kanban
Sub-assembly
Kanban
Kanban
Purchased Parts Supplier
Kanban
Figure 16.9

88. More Kanban
When the producer and user are not in visual contact, a card can be used
When the producer and user are in visual contact, a light or flag or empty spot on the floor may be adequate
Since several components may be required, several different kanban techniques may be employed

89. More Kanban Usually each card controls a specific quantity or parts
Multiple card systems may be used if there are several components or different lot sizes
In an MRP system, the schedule can be thought of as a build authorization and the kanban a type of pull system that initiates actual production

90. More Kanban
Kanban cards provide a direct control and limit on the amount of work-in-process between cells
If there is an immediate storage area, a two-card system can be used with one card circulating between the user and storage area and the other between the storage area and the producer

91. The Number of Kanban Cards or Containers
Need to know the lead time needed to produce a container of parts
Need to know the amount of safety stock needed
Number of kanbans
(containers)
Demand during Safety lead time + stock
Size of container =

92. Number of Kanbans Example
Daily demand = 500 cakes
Production lead time = 2 days
(Wait time +
Material handling time +
Processing time)
Safety stock = 1/2 day
Container size = 250 cakes
Demand during lead time = 2 days x 500 cakes = 1,000
Number of kanbans = = 5 1,
250

93. Advantages of Kanban
Allow only limited amount of faulty or delayed material
Problems are immediately evident
Puts downward pressure on bad aspects of inventory
Standardized containers reduce weight, disposal costs, wasted space, and labor

94. Quality Strong relationship
JIT cuts the cost of obtaining good quality because JIT exposes poor quality
Because lead times are shorter, quality problems are exposed sooner
Better quality means fewer buffers and allows simpler JIT systems to be used

95. JIT Quality Tactics Use statistical process control Empower employees
Build fail-safe methods (poka-yoke, checklists, etc.)
Expose poor quality with small lot JIT
Provide immediate feedback
Table 16.4

96. Toyota Production System
Continuous improvement
Build an organizational culture and value system that stresses improvement of all processes
Part of everyone’s job
Respect for people
People are treated as knowledge workers
Engage mental and physical capabilities
Empower employees

97. Toyota Production System
Standard work practice
Work shall be completely specified as to content, sequence, timing, and outcome
Internal and external customer-supplier connection are direct
Product and service flows must be simple and direct
Any improvement must be made in accordance with the scientific method at the lowest possible level of the organization

98. Lean Operations
Different from JIT in that it is externally focused on the customer
Starts with understanding what the customer wants
Optimize the entire process from the customer’s perspective

99. Building a Lean Organization
Transitioning to a lean system can be difficult
Lean systems tend to have the following attributes
Use JIT techniques
Build systems that help employees produce perfect parts
Reduce space requirements

100. Building a Lean Organization
Develop partnerships with suppliers
Educate suppliers
Eliminate all but value-added activities
Develop employees
Make jobs challenging
Build worker flexibility

101. JIT in Services
The JIT techniques used in manufacturing are used in services
Suppliers
Layouts
Inventory
Scheduling