1 1. Some Thoughts on Production Management 2. What is Just-In-Time ? 3. How does EOQ Impact JIT ? 4. Motivation For EOQ 5. Impacts of Reducing Inventory 6. Requirements For JIT Implementation 7. Implementation of JIT 8. Things to Remember Topics To Be Covered

2 Thoughts on Production Management (Fact or Myth?) Large Batch Sizes Improve Production Efficiency. Fewer tool changes saves time Repetitive manual actions are most efficient Having large amounts of inventory helps smooth production flow Meet unanticipated demand Supports production system when a machine breakdown occurs Demand can be met when lead time varies Promotes Inefficiency Buffers cover up problems Statements are True, given that: Competition is limited Technology is dated Processes are NOT optimized

3 Productivity Issues Inventory Lowering the level of inventory will reveal more Productivity Issues. Success in JIT requires addressing the productivity issues while lowering inventory. JIT and Inventory Reduction

4 Impacts of Reducing Inventory Lower storage capacity requirements. Less money tied up in inventory. Less ability to accommodate unanticipated events. Address through increased flexibility Requires higher degree of accuracy & implementation of prediction methods. Exposes production issues. inefficient processes equipment maintenance problems vendor reliability excessive scrap rate excessive rework rate product design problems Can we reduce inventory without a corresponding manufacturing change? Allows focus on “true” constraints of production flow.

5 What is Just - In - Time ? Simple Definition: A system that provides materials, parts and services when they are needed and result in zero inventory. Simple Definition implies that JIT is simply a matter of manufacturing producing or receiving parts in a timely fashion. (JIT is more of an Event) Simple Definition does not address how this timely delivery and minimal inventory is achieved. The obtaining of a zero inventory is not feasible in most cases. Better or Preferred Definition: JIT is a collection of methods and attitudes that foster continuous process improvement that results in minimal inventory while having the flexibility to respond to changes in market conditions. JIT is not: 1. A physical system 2. An inventory control system 3. A management approach for manufacturing 4. Only applicable to procured items

6 JIT Goals Focused on a Balanced System Eliminate Disruptions Make the system flexible by reducing setup times & lead times Eliminate Waste, Especially excess inventory Reduction in Waste Excess inventory Overproduction Waiting time Unnecessary transporting Processing waste Inefficient work method Product defects

7 JIT Foundations Product Design Standard parts Modular design Highly capable production system Process Design Small lot sizes Setup time reduction Manufacturing cells Limited Work - In- Process (WIP) Quality improvement Production Flexibility Use of Preventive Maintenance, Cross-train workers, Small sublots, Off-line buffer, Reserve capacity Little inventory storage

8 JIT Foundations (con’t) Personnel/ Organization Elements View workers as assets Cross trained workers Continuous improvement Cost accounting Leadership / Project Management Manufacturing Planning & Control Level loading Pull system instead of Push system Visual system (Kanban) Close vendor relationships Reduced transacting process Preventive maintenance & housekeeping

9 Activity Based Costing Form of Cost Accounting Track traceable hours per job Machine setups, inspection, machine hours, direct labor costs movement of materials. Part cost based on % of activities they consume. Vendor relationships Multi-tiered Quality (Inspection) Quantity Delivery Time Sole Source vs Multisource Pricing Transaction types Logistics Balancing Quality Change JIT Foundations (con’t) JIT II Empowering suppliers to assume some of the responsibilities of a company’s buyer

10 Push Vs Pull System MRP 1234 Inputs Outputs Push System MRP 1234 Inputs Outputs Pull System How do these two systems differ in terms of : Communication, machine downtime, changes in demand, Level loading

11 How Does EOQ Impact JIT ? EOQ model focuses on savings due to the balance between holding and order/setup costs. (Quantity Driven) EOQ model is a function of Demand (D) Ordering/Setup Costs (S) Holding Costs (h) Production Rate (P) If EOQ factors remain constant the optimal order size remains constant. Which EOQ factors has the most impact on JIT? Why? How can you change the EOQ factor(s) to support JIT philosophy? Equipment example(s) Process example(s) Is a “one unit” batch size feasible? Why or Why not? Production Quantity vs Transfer Quantities Can they be different?

12 Part APart BPart C Final Paint Finished part Batch Sizing Same Concept for Mixed Model Sequencing Irv Sam Walt Ethel

13 Motivation For JIT What are the Benefits of JIT? Lower inventory costs. Lower cycle time. higher customer satisfaction. more flexibility. fewer losses of opportunity costs. producing defect free & well-designed products. What Obstacles Must be overcome? Variability in processes Variability in delivery High setup times High processing times Products not well designed for efficient manufacturing Use of Inferior materials Inefficient or improper manufacturing system design Improperly trained employees Communication in manufacturing systems Management may not be committed or willing to devote resources Workers & management may not display cooperative spirit Suppliers may resist change resource commitment, long term commitment, small delivery sizes, shift of quality burden, engineering changes.

14 Converting to a JIT System 1. Make sure top management is committed and aware of resource requirements. 2. Study operations carefully, decide which parts will need effort. 3. Obtain Support & cooperation of workers training, setup reduction options, maintenance of equipment, cross training, cooperation, problem solving, communication of what JIT is and why, reassurance about job security. 4. Begin by trying to reduce setup times under current systems 5. Gradually convert operations. Begin at end and work backwards Do not begin to reduce inventory until major problems resolved in each area. 6. Convert suppliers to JIT 7. Be prepared to encounter obstacles to conversion

15 Downside of Conversion 1. Time to convert 2. Cost 3. Small lot sizes 4. Transacting costs 5. Traffic congestion

16 JIT in Services 1. Eliminate disruptions 2. Make system flexible 3. Reduce setup times & processing times 4. Eliminate waste 5. Minimizing Work-In-process 6. Simplify the process

17 Things to Remember…. The problem did not occur over night so be patient on gaining results. Change is always viewed with skepticism. (cultural barrier) One can learn from failure as well as success. Defining pilot project with a well defined set of metrics helps in assessment of the benefits gained from JIT.