1. Just-in Time Management Supplier Partnerships B7801 April 17, 1998
Supplier management issues
Supplier Development Outreach Program: Video: The case for Toyota
JIT

2. Supplier Partnerships: Organizational Culture and Strategy Issues
Feeling of trust
Management attitude/outlook for the future
Strategic fit
Top management compatibility
Compatibility across levels and functions of buyer and supplier firms
Supplier's organizational structure &personnel
Organizational culture and strategy. This is difficult to evaluate; much is gut feeling and personality fits among the individuals in each firm.

3. Supplier Partnerships: Technology Issues
Assessment of current manufacturing facilities/capabilities
Assessment of future manufacturing capabilities
Supplier's design capabilities
Supplier's speed in development
Technology issues. The buying firm is looking for a supplier who has high technological capability and the ability to help in designing the buying firm's new products.

4. Supplier Partnerships: Other Factors
Safety record of the supplier
Business references
Supplier's customer base

5. Supplier Development
Outreach Program:
The case for Toyota

6. Supply management statistics
Purchased inputs as percentage of total manufacturing costs (‘87)
Japan 69%
U.S. 58%
External sourcing percentages at the big three (Dyer 1993)
GM 30%
Ford 50%
Chrysler 70%
Percentage of major corporations pursuing outsourcing initiatives (A.T. Kearney survey) % %

7. Practical mechanisms for achieving cooperation
Reputation for “honest dealing” (e.g. past behavior of the buyer/supplier)
Proximity/personnel relationships
Preferred supplier programs
numerical performance ratings (“score cards”)
delivery performance
quality
cost
signals how suppliers will be viewed in upcoming negotiations
“Soft” penalties for poor performance (e.g. less business in subsequent rounds)
Equity ownership

8. Changing role of purchasing
Competitive bidding
solicit large number of bids
“winner takes all” contracts
Cooperative supplier management
learn suppliers costs
monitor supplier performance
signal prospect of future business
disseminate best practices among supplier pool
develop new supplier capabilities as needed

9. Just-In-Time Production Systems
JIT
Underlying philosophy is
elimination of waste and variability
through synchronized “pull”
type production systems

10. JIT Purchasing--Requirements
Reduced lot sizes
Frequent and reliable delivery schedules
Reduced and highly reliable lead times
Consistently high quality levels for purchased materials
The ultimate objectives should be a single reliable source for each item and the consolidation of several items from each supplier. The result is far fewer suppliers in total. U.S. companies that have implemented JIT purchasing through fewer suppliers have obtained the following benefits:
1. Consistent quality. Involving suppliers during the early stages of product design can consistently provide high-quality products.
2. Savings on resources. Minimum investment and resources, such as buyer's time, travel, and engineering are needed when using a limited number of suppliers.
3. Lower costs. The overall volume of items purchased is higher, which eventually leads to lower costs.
4. Special attention. The suppliers are more inclined to pay special attention to the buyer's needs, since the buyer represents a large account.
5. Saving on tooling. Buyers often provide tools to their suppliers. Concentrating on only one supplier therefore saves a great deal of tooling costs.
6. The establishment of long-term relationships with suppliers encourages loyalty and reduces the risk of an interrupted supply of parts to the buyer plant; this may be the most important benefit of all.
The most critical demands placed on the purchasing department to make JIT work are (1) reducing the number of suppliers and (2) locating suppliers who are nearby.

11. JIT Purchasing--Suppliers
Fewer, nearby suppliers
Repeat business
Support suppliers’ competitiveness
Clusters of remote suppliers
Limit competitive bidding to new parts
Resist vertical integration
Encourage suppliers to implement JIT purchasing

12. Just-In-Time Management philosophy Pull system though the plant
WHAT IT IS
Employee participation
Industrial engineering/basics
Continuing improvement
Total quality control
Small lot sizes
WHAT IT REQUIRES
Attacks waste
Exposes problems and bottlenecks
Achieves streamlined production
WHAT IT DOES
Stable environment
WHAT IT ASSUMES

13. JIT: Part Philosophy - Part Technique
“Big JIT” (Lean Production)
Focus on elimination of all sources of waste and variability through synchronized “pull” type operation systems.
“Little JIT”
Focuses more narrowly on scheduling goods inventories and providing service resources where and when needed
JIT can be viewed colloquially as "big JIT" and "little JIT." Big JIT (often termed lean production') is the philosophy of operations management that seeks to eliminate waste in all aspects of a firm's production activities: human relations, vendor relations, technology, and the management of materials and inventories. Little JIT focuses more narrowly on scheduling goods inventories and providing service resources where and when needed. For example, companies such as Manpower Temporary Services and Pizza Hut essentially use pull signals to fill openings for replacement workers or Big Foot pizzas, respectively. However, they do not necessarily integrate operations around other aspects of the JIT philosophy.

14. Waste Reduction (“Big JIT”)

15. Pull System (“Little JIT”)
Fab
Vendor
Sub
Fab
Vendor
Final Assy
Customers
Sub
Fab
Vendor
JIT (just-in-time) is an integrated set of activities designed to achieve high-volume production using minimal inventories of raw materials, work in process, and finished goods. Parts arrive at the next workstation "just in time" and are completed and move through the operation quickly. Just-in-time is also based on the logic that nothing will be produced until it is needed. The exihibit above illustrates the process. Need is created by the product being pulled toward the user. When an item is sold, in theory, the market pulls a replacement from the last position in the system—final assembly in this case. This triggers an order to the factory production line where a worker then pulls another unit from an upstream station in the flow to replace the unit taken. This upstream station then pulls from the next station further upstream and so on back to the release of raw materials. To enable this pull process to work smoothly, JIT demands high levels of quality at each stage of the process, strong vendor relations, and a fairly predictable demand for the end product.
Fab
Vendor

16. Waste--Operations (1) Waste from overproduction
(2) Waste of waiting time
(3) Transportation waste
(4) Inventory waste
(5) Processing waste
(6) Waste of motion - setup reduction
(7) Waste from product defects
This definition of JIT leaves no room for surplus or safety stock. No safety stocks are allowed because if you cannot use it now, you do not need to make it now. That would be waste. Hidden inventory in stores, transit systems, carousels, and conveyors are key targets for inventory reduction.

17. Minimizing Waste: Group Technology
Departmental Specialization
Saw
Saw
Saw
Grinder
Grinder 3 1 2
Heat Treat 4
Group technology, while invented in the United States, was most successfully employed in Japan. Instead of transferring jobs from one department to another to specialized workers, the Japanese consider all operations required to make a part and group those machines together. The exhibit above illustrates the difference between the clusters of various machines grouped into work centers for parts versus departmental layouts. The group technology cells eliminate movement and queue (waiting) time between operations, reduce inventory, and reduce the number of employees required. Workers, however, must be flexible to run several machines and processes. Due to their advanced skill level, these workers have increased job security. 6
Lathe
Lathe
Lathe
Press
Press
Press 5

18. Minimizing Waste: Group Technology
Group technology cells
Press
Lathe
Grinder A 1 2 B
Saw
Heat Treat

19. Minimizing Waste: Quality at the Source
Self-inspection
Automated inspection
Line-stopping empowerment
Quality at the source means do it right the first time and, when something goes wrong, stop the process or assembly line immediately. Factory workers become their own inspectors, personally responsible for the quality of their outputs. Workers concentrate on one part of the job at a time so quality problems are uncovered. If the pace is too fast, if the worker finds a quality problem, or if a safety issue is discovered, the worker is obligated to push a button to stop the line and turn on a visual signal. People from other areas respond to the alarm and the problem. Workers are empowered to do their own maintenance and housekeeping until the problem is fixed.
This quality at the source includes autonomation or automated inspection. Japanese prefer to have quality inspections performed by automation or robotics because it is faster, easier, repeatable, and suitable for jobs too redundant for a worker to perform.

20. Inventory Hides Problems
Work in
process
queues
(banks)
Change
orders
Engineering design
redundancies
Vendor
delinquencies
Scrap
Design
backlogs
Machine
downtime
Decision
Inspection
Paperwork
backlog
If the water in a pond represents inventory, the rocks represent problems that could occur in a firm. A high level of water hides the problems (rocks). Management assumes everything is fine, but as the water level drops in an economic downturn, problems are presented. If you force the water level down on purpose (particularly in good economic times), you can expose and correct problems before they cause worse problems. JIT manufacturing exposes problems otherwise hidden by excess inventories and staff.

21. Minimizing Waste: JIT Production
Produce
what is needed
when it’s needed
NOTHING MORE!
JIT means producing what is needed when needed and no more. Anything over the minimum amount necessary is viewed as waste, since effort and material expended for something not needed now cannot be utilized now. This is in contrast to relying on extra material just in case something goes wrong. Exhibit 6.3 shows JIT requirements and assumptions.
JIT has been applied to repetitive manufacturing but does not require large volumes and is not limited to processes that produce the same parts over and over. JIT can be applied to any repetitive segments of a business regardless of where they appear. Under JIT the ideal lot size is one. A worker completes the task and passes it on to the next worker for processing. While workstations may be geographically dispersed, the Japanese minimize transit time and keep transfer quantities small—typically one-tenth of a day's production is a lot size. Vendors even ship several times a day to their customers to keep lot sizes small and inventory low. When all queues are driven to zero, inventory investment is minimized, lead times are shortened, firms can react faster to demand changes, and quality problems are uncovered.

22. Minimizing Waste: Uniform Plant Loading
This does not mean building a single product.
We need to maintain a stable mix of products,
and firm monthly schedules
Uniform Plant Loading Smoothing the production flow to dampen the reaction waves that normally occur in response to schedule variations is called uniform plant loading. When a change is made in a final assembly, the changes are magnified throughout the line and the supply chain. The only way to eliminate the problem is to make adjustments as small as possible by setting a firm monthly production plan for which the output rate is frozen. (This is how a company addresses the need for a stable demand environment noted in Exhibit 6.3.)

23. Scheduling example Four different forecast for four different products
B 300
C 200
D 100

24. Lumpy Master Production Schedule
Week
Product A B C D
Totals

25. Smooth Master Production Schedule
Week
Product A B C D
Totals

26. Setup Time Reduction Shift internal elements to external
Learning and training
Better tools
Product standardization, product line simplification
Equipment automation
Common sense solutions

27. Setup reduction: an industrial example

28. HOW-TO: Design Flow Process
Link operations
Balance workstation capacities
Relayout for flow
Emphasize preventive maintenance
Reduce lot sizes
Reduce setup/changeover time
JIT requires the plant layout to be designed to ensure a balanced work flow with a minimum of work-in-process inventory. Each workstation is part of a production line, whether or not a physical line actually exists. Capacity balancing is done using the same logic for an assembly line and operations are linked through a pull system. In addition, the system designer must have a vision of how all aspects of the internal and external logistics system tie to the layout.
Preventive maintenance is emphasized to ensure that flows are not interrupted by downtime or malfunctioning equipment. Operators perform much of the maintenance because they are most familiar with their machines and because machines are easier to repair as JIT operations favor several simple machines rather than one large complex one.
The reductions in setup and changeover times previously discussed are necessary to achieve a smooth flow. Exhibit 6.9 shows the relationship between lot size and setup costs. Under a traditional approach, setup cost is treated as a constant, and the optimal order quantity is shown as six. Under the kanban approach of JIT, setup cost is treated as a variable and the optimal order quantity is reduced. In the exhibit, the order quantity has been reduced from six to two under JIT by employing setup-time-saving procedures. This organization will ultimately strive for a lot size of one.

29. HOW-TO: Total Quality Control
Worker responsibility
Measure Statistical Quality Control
Enforce compliance
Fail-safe methods
Automatic inspection
JIT and TQC have merged in theory and practice. Total quality control (TQC) is the practice of building quality into the process and not identifying quality by inspection. It also refers to the theory of employees assuming responsibility for the quality of their own work. When employees are responsible for quality, JIT works at its best since only good-quality products are pulled through the system. When all products are good, no "just-in-case" extra inventory is needed.

30. HOW-TO: Stabilize Schedule
Level schedule
Underutilize capacity
Establish freeze windows
As noted earlier, JIT firms require a stable schedule over a lengthy time horizon. This is accomplished by level scheduling, freeze windows, and underutilization of capacity. A level schedule is one that requires material to be pulled into final assembly in a pattern uniform enough to allow the various elements of production to respond to pull signals. It does not necessarily mean that the usage of every part on an assembly line is identified hour by hour for days on end; it does mean that a given production system equipped with flexible setups and a fixed amount of material in the pipelines can respond.
Underutilization of capacity is a controversial feature of JIT. Excess or underutilized capacity is realized as excess inventory buffers are removed from a system. The safety stocks and early deliveries were used as a hedge against production problems like poor quality, machine failures, and unanticipated bottlenecks in traditional manufacturing. Under JIT, excess labor and machines provide the hedge. The excess capacity in labor and equipment that results is much cheaper than carrying excess inventory. During idle periods personnel can be put to work on other activities such as special projects, work group activities, and workstation housekeeping.
The term freeze window refers to that period of time during which the schedule is fixed and no further changes are possible.

31. HOW-TO: Work with Vendors
Vital Few
Evaluation & certification
Proximity
Reduce lead times
Frequent deliveries
JIT Technology transfer
Inter-firm teams
Just as customers and employees are key components of the JIT system, vendors are also important to the process. If a firm shares its projected usage requirements with its vendors, they have a long-run picture of the demands that will be placed on their production and distribution systems. Some vendors are linked on-line with a customer to share production scheduling and input needs data. This permits them to develop level production systems. Confidence in the supplier or vendor's delivery commitment allows reductions of buffer inventories. Maintaining stock at a JIT level requires frequent deliveries during the day. Some suppliers even deliver to a location on the production line and not at a receiving dock. When vendors adopt quality practices, incoming receiving inspections of their products can even be bypassed.
(See box titled "Saturn.")

32. HOW-TO: Improve Product Design
Standard product configuration
Standardize and reduce number of parts
Process design with product design
A component of quality is improved product design. Standard product configurations, fewer parts, and standardized parts are important elements in JIT. These design modifications reduce variability in the end item or in the materials that go into the product. Besides improving the producibility of a product, product design activities can facilitate the processing of engineering changes. Often these engineering changes are introduced in batches in a JIT system rather than one change at a time.

33. Applying JIT Concepts Organize Problem-Solving Groups
Upgrade Housekeeping
Upgrade Quality
Clarify Process Flows
Revise Equipment and Process Technologies
Organize Problem-Solving Groups Honeywell is extending its quality circles from manufacturing into its service operations. Other corporations as diverse as First Bank/ Dallas, Standard Meat Company, and Miller Brewing Company are using similar approaches to improve service.
Upgrade Housekeeping Good housekeeping means more than winning the clean broom award. It means that only the necessary items are kept in a work area, that there is a place for everything, and that everything is clean and in a constant state of readiness. The employees clean their own areas.
Upgrade Quality The only cost-effective way to improve quality is to develop reliable process capabilities. Process quality is quality at the source—it guarantees first-time production of consistent and uniform products and services.
Clarify Process Flows Clarification of the flows, based on the JIT themes, can dramatically improve the process performance. e.g., Federal Express Corporation changed air flight patterns from origin-to-destination to origin-to-hub where the freight is transferred to an outbound plane heading for the destination. This revolutionized the air transport industry.
Revise Equipment and Process Technologies Revising technologies involves evaluation of the equipment and processes for their ability to meet the process requirements, to process consistently within tolerance, and to fit the scale and capacity of the work group.
Speedi-Lube converted the standard service station concept to a specialized lubrication and inspection center by changing the service bays from drive-in to drive-through and by eliminating the hoists and instead building pits under the cars where employees have full access to the lubrication areas on the vehicle.

34. Applying JIT Concepts Level the Facility Load
Eliminate Unnecessary Activities
Reorganize Physical Configuration
Introduce Demand-Pull Scheduling
Develop Supplier Networks
Level the Facility Load Service firms synchronize production with demand. They have developed unique approaches to leveling demand so they can avoid making customers wait for service. e.g., CompuServe sells time for less during the evening.
Eliminate Unnecessary Activities A step that does not add value is a candidate for elimination. A step that does add value may be a candidate for reengineering to improve the process consistency or to reduce the time to perform the tasks. e.g., A hospital discovered that during an operation significant time was spent waiting for an instrument that was not available when the operation began. It developed a checklist of instruments required for each category of operation.
Reorganize Physical Configuration Work area configurations frequently require reorganization during a JIT implementation. Often manufacturers accomplish this by setting up manufacturing cells to produce items in small lots, synchronous to demand. These cells amount to "microfactories" inside the plant. e.g., Some hospitals—instead of routing patients all over the building for tests, exams, X-rays, and injections—are reorganizing their services into work groups based on the type of problem. Teams that treat only trauma are common, but other work groups have been formed to treat less immediate conditions like hernias. These amount to microclinics within the hospital facility.
Introduce Demand-Pull Scheduling Due to the nature of service production and consumption, demand-pull (customer-driven) scheduling is necessary for operating a service business. Moreover, many service firms are separating their operations into "back room" and "customer contact" facilities. e.g., The original Wendy's restaurants were set up so cooks could see cars enter the parking lot. They put a preestablished number of hamburger patties onto the grill for each car. This pull system was designed to have a fresh patty on the grill before the customer even placed an order.
Develop Supplier Networks Supplier networks in the JIT context refer to the cooperative association of suppliers and customers working over the long term for mutual benefit.

35. Benefits of JIT Reduced inventories Reduced lead times
Simplified production control
Better quality
Increased labor efficiency & effectiveness
Increased space utilization
Lower overall costs
Better working conditions
Improved flexibility
Increased responsiveness

36. Common obstacles to JIT implementation
Management complacency
Short-term vision
Inability to recognize waste
Focus on surface rather than source
Inventory perceived as convenient
Unions
Suppliers
“Theory X” management