Just in Time (JIT) Manufacturing and

Inventory Control System:

Learning objectives of the article:

• Define and explain the concept of just in time manufacturing and inventory control
system.
• What are advantages and disadvantages of just in time manufacturing system?

Traditionally manufacturers have forecasted demand for their products into the future and
then have attempted to smooth out production to meet that forecasted demand. At the
same time, they have also attempted to keep everyone as busy as possible producing
output so as to maximize "efficiency" and (hopefully) reduce costs. Unfortunately, this
approach has a number of major drawbacks including large inventories, long production
times, high defect rates, production obsolescence, inability to meet delivery schedules, and
(ironically) high costs. Non of this is obvious-if it were, companies would long ago have
abandoned this approach.

Managers at Toyota are credited with the insight that an entirely new approach, called just
in time (JIT) was needed.

• Definition of Just in time manufacturing

• Just-In-Time concept
• Benefits / Advantages of just in time manufacturing system
• Limitations / Disadvantages of Just in Time Manufacturing
• List of Companies that use just in time System

Definition and Explanation of Just in Time Manufacturing:

Just In Time (JIT) is a production and inventory control system in which materials are
purchased and units are produced only as needed to meet actual customer demand.

When Companies use Just in Time (JIT) manufacturing and inventory control system, they
purchase materials and produce units only as needed to meet actual customers demand. In
just in time manufacturing system inventories are reduced to the minimum and in some
cases are zero. JIT approach can be used in both manufacturing and merchandising
companies. It has the most profound effects, however, on the operations of manufacturing
companies which maintain three class of inventories-raw material, Work in process, and
finished goods. Traditionally, manufacturing companies have maintained large amounts of
all three types of inventories to act as buffers so that operations can proceed smoothly even
if there are unanticipated disruptions. Raw materials inventories provide insurance in case
suppliers are late with deliveries. Work in process inventories are maintained in case a work
station is unable to operate due to a breakdown or other reason. Finished goods inventories
are maintained to accommodate unanticipated fluctuations in demand. While these
inventories provide buffers against unforeseen events, they have a cost. In addition to the
money tied up in the inventories, expert argue that the presence of inventories encourages
inefficient and sloppy work, results in too many defects, and dramatically increase the
amount of time required to complete a product.

Just-In-Time Concept:
Under ideal conditions a company operating at JIT manufacturing system would purchase
only enough materials each day to meet that days needs. Moreover, the company would
have no goods still in process at the end of the day, and all goods completed during the day
would have been shipped immediately to customers. As this sequence suggests, "just-in-
time" means that raw materials are received just in time to go into production,
manufacturing parts are completed just in time to be assembled into products, and products
are completed just in time to be shipped to customers.

Although few companies have been able to reach this ideal, many companies have been
able to reduce inventories only to a fraction of their previous level. The result has been a
substantial reduction in ordering and warehousing costs, and much more efficient and
effective operations. In a just in time environment, the flow of goods is controlled by a pull
approach. The pull approach can be explained as follows. At the final assembly stage a
signal is sent to the preceding work station as to the exact amount of parts and materials
that would be needed over the next few hours to assemble products to fill customer orders,
and only that amount of materials and parts is provided. The same signal is sent back to
each preceding workstation so a smooth flow of parts and materials is maintained with no
appreciable inventory buildup at any point. Thus all workstations respond to the pull exerted
by the final assembly stage, which in turn respond to customer orders. As one worker
explained, "Under just in time system you don't produce any thing, any where, for any body
unless they ask for it some where downstream. Inventories are evil that we are taught to
avoid".

The pull approach described above can be contrasted to the push approach used in
conventional manufacturing system. In conventional system, when a workstation completes
its work, the partially completed goods are pushed forward to the next work station
regardless of whether that workstation is ready to receive them. The result is an
unintentional stockpiling of partially completed goods that may not be completed for days or
even weeks. This ties up funds and also results in operating inefficiencies. For one thing, it
becomes very difficult to keep track of where every thing is when so much is scattered all
over the factory floor.

An other characteristics of conventional manufacturing system is an emphasize on "keeping

every one busy" as an end on itself. This inevitably leads to excess inventories particularly
work in process inventories. In Just in time manufacturing, the traditional emphasize of
keeping everyone busy is abandoned in favor of producing only what customers actually
want. Even if that means some workers are idle.
Benefits / Advantages of Just in Time Manufacturing
System:
The main benefits of just in time manufacturing system are the following:

1. Funds that were tied up in inventories can be used elsewhere.

2. Areas previously used, to store inventories can be used for other more productive
uses.
3. Throughput time is reduced, resulting in greater potential output and quicker
response to customers.
4. Defect rates are reduced, resulting in less waste and greater customer satisfaction.

As a result of advantages such as those cited above, more companies are embracing just
in time manufacturing system each year. Most companies find, however, that simply
reducing inventories is not enough. To remain competitive in an ever changing and ever
competitive business environment, must strive for continuous improvement.

Real Business Examples:

PCs Just In Time Management:
Del Computer Corporation has finally tuned its Just-in-Time system so that an order for a
customized personal computer that comes in over the internet at 9 AM. can be on a delivery
truck to the customer by 9 P.M. In addition, Dell's low cost production system allows it to
under price its rivals by 10% to 15%. This combination has made Dell the envy of the
personal computer industry and has enabled the company to grow at five times the industry
rate. How does the company's just in time system deliver lower costs? "While machines
from Compaq and IBM can languish on dealer shelves for two months Dell does not start
ordering components and assembling computers until an order is booked. That may sound
like no biggie, but the price of PC parts can fall rapidly in just a few months. By ordering
right before assembly, Dell figures it s parts, on average, are 60 days newer than those in
an IBM or Compaq machine sold at the same time. That can translate into a 6% profit
advantage in components alone."

Source: Gray McWilliams, "Whirlwind on the web, "Business Week, April 7, 1997.

Slashing Process Time:

American Standards uses cell manufacturing to cut inventories and reduce manufacturing
time. At its plant, England, it used to take as long as three weeks to manufacture a vacuum
pump and another week to process the paper work for an order. Therefore customers had
to place orders in advance. "Today Leeds has switched to manufacturing cells that do every
thing from lathing to assembly in quick sequence. The result is a break through in speed.
Manufacturing a pump now takes six minutes."

Source: Shawn Tully, "Raiding a company's Hidden Cash," Fortune, August 22, 1994, PP 82-87.

Disadvantages of Just in Time Manufacturing System:

Implementing thorough JIT procedures can involve a major overhaul of your business
systems - it may be difficult and expensive to introduce.

JIT manufacturing also opens businesses to a number of risks, notably those associated
with your supply chain. With no stocks to fall back on, a minor disruption in supplies to your
business from just one supplier could force production to cease at very short notice.

Real Business Example:

Toyota the Developer of JIT System
Just-in-time manufacturing system has many advantages, but they are
vulnerable to unexpected disruptions in supply. A production line can
quickly come to a halt if essential parts are unavailable. Toyota, the
developer of JIT, found this out the hard way. One Saturday, a fire at
Aisin seiki Company's plant in Aichi Prefecture stopped the delivery of all break parts to
Toyota. By Tuesday, Toyota had to close down all of its Japanese assembly line. By the time
the supply of break parts had been restored, Toyota had lost an estimated $15 billion in
sales.

Source: "Toyota to Recalibrate ,'" International Herald Tribune, February 8, 1997.

List of Companies that use just in time (JIT):

• Harley Davidson
• Toyota Motor Company

• General Motors
• Ford Motor Company

• Manufacturing Magic

• Hawthorne Management Consulting

• Strategy Manufacturing Inc.

• Just-in-time or JIT means producing goods and services exactly when they are needed,
like for example. A new company opens that is producing steering shaft for automobiles.
The company, under the JIT system, will set up the machines to produce the jobs in a row
from those who collect the metals at one end, all of the way to those who ship the product
at the other end of the factory. The people at each station, as they receive the product,
take the job order, perform their duties on the product, and then transfer the product out
to the next station after their work is completed. Along the way, the product is screened
for infirmities, and if they exist, the line is stopped until the defect is repaired. In the end,
the shipping agent will receive the product and ship it to the customer. All along the
way, the production never began until the order came in and then the goods were
produced from that point on out, and not sitting in inventory waiting on the already
finished good.
• L’Oreal, the world’s largest toiletries and cosmetics group, initiated was to reduce the
set-up times on the line which produces hair colorant from 2.5 hours to only 8 minutes.
These new change-over times mean that the company can now justify even prior to
change in set-up times, batch sizes was 30,000 Units; now batches as small as 2000 to
3000 units can be produced cost effectively (Slack and Chambers, Harland and Harrison,
and Johnston , 1998).
• The underlying principle of JIT is one of continuous waste elimination and hence it is
universally applicable. Obviously, the manner in which JIT principles are applied across
different industries will vary. For example, in process industries, potential applications of
JIT philosophy would include implementation vendor development and JIT purchasing.
Furthermore the fundamental concept behind JIT manufacturing is getting the right
product to the right place at the right time. This is achieved by correctly timing the
supply chain so that as soon as a batch is processed, there is a new batch waiting to be
processed. A steady flow of unfinished goods through the various production levels
eliminates the need for extra materials to be kept in storage. In addition, JIT also
eliminates waste associated with labor and time. JIT is key element in leading to lean
production or lean system, which meant to turn higher productivity in an organization.
Lean systems utilize the pull, push or combination of both method of workflow. The push
method is applicable when the production of the item begins in advance of customer
needs. In push system, the emphasis shifts to using the information about customers,
suppliers and production to mange materials flows. Batches of raw materials are planned
to arrive at a factory about when needed to make batches or parts and sub-assemblies.
These assemblies are made and delivered to final assembly about when needed and
finished products are assembled and shipped about when needed by customers.
• “Catch up with America in three years, otherwise the automobile industry of Japan will
not survive”. After 2nd world war, Toyota Motor Company’s Chief Engineer, Taiichi
Ohno began to examine the American industry and found that American manufacturers
made great use of economic order quantities, the concept of lot and batch, before
 switching to another job, Ohno decided that waste that happened in America would have
to be decreased if he were to develop a technique for Japan, as what he describe as “war
on waste” so he proposed decreasing waste by making it were items only move through
production when they are demanded, “Jidoka” which is the Japanese concept or quality
program where inspection for problems would occur and stop the process until they were
repaired, thereby reducing waste. Jidoka was a great system in order to prevent cost of
quality by stopping at early stage of defects, and not only that, the system is also educates
the entire employees from top to down in production line in identifying the cause and
solutions. (Ettlie, 1990)
• 3M, manufacturing planners work with customer planners to develop strategies for each
customer segment. Changes in the manufacturing flow process lead to shorter cycle
times, meaning improved responsiveness to customers. (Lambert and Cooper, 2000).
IBM uses continuous flow manufacture; Hewlett-Packard Company uses stockless
production at one plant and repetitive manufacturing system at another, while many other
companies use lean production. Synchronized material flow is still another term used.
(Schonberger, 1998). JIT system improves the quality of the responsibility of every
worker and not just quality control inspectors, reduce scrap and rework, reduce cycle
times, lower setup times, smoothen production flow, decrease inventory of raw materials,
work-in-progress and finished goods, incur cost savings, force higher productivity,
increase worker participation, attracts a more skilled workforce, makes organization and
employees able and wiling to switch roles, reduces space requirements, and improves
relationships with suppliers. Since its introduction in Japan, and later introduced in the
United States.Operations-based JIT concepts were correlated with both the product and
process focused quality initiatives, these two constructs interacted. Inventory-based JIT
concepts also interacted with product focused quality initiatives, suggesting that JIT
practices, implemented to manage inventory, also enhanced quality. Reducing lot sizes,
setup times and the supplier base, buying from JIT suppliers, and engaging in preventive
maintenance are all well-documented operations practices for improving quality levels
Therefore, the managerial implication here is that manufacturing firms should not ignore
JIT practices and concepts. Thus the strengths of JIT system is that it does reduce
overproduction, time spent waiting, transportation and movement of products, processing
time, inventory levels, and/or defects that are produced in a plant. These processes
thereby increase the profitability of an organization and make it leaner.
• Improved transportation infrastructure is also reduces just-in-time (JIT) production costs.
JIT is a means of raising productivity and lowering costs for manufacturing. It relies on
tightly scheduled and frequent deliveries of supplies to reduce inventory needs and costs.
The success of JIT relies on being able to deliver, on the part of the companies, an
assured quality and quantity of goods without delay. The main thrust of JIT is a ‘Quick
Response Strategy’ to a swiftly changing market through organizational flexibility. JIT
thus advocates the organizational ability to deliver high quality products, respond rapidly
to changes in demand and be more cost-competitive. Therefore, it leads to higher
productivity in an organization. For example, Steve Millward is manufacturing director
for the Rainford Group in Coventry is the supplier of mobile telecommunication base
station structures to cellular companies in US, the company enjoys the rapid growth when
steve increased his focus on JIT operations toward the lean system, he re-arrange the
layout in the assembly areas so that the product flows along a defined assembly path,
with the provision Kanban (Japanese version of JIT), boxes between each operating
station. it means that one stage in the process will not progress a product until the next
stage really does need it. This will effectively control the level of work-in-progress on the
line, ensuring that the line will work at the pace of the slowest section. It will produce
goods only when they are actually needed, also using leveled scheduled in order to keep
the production rates of each model steady and to provide some predictability in the cells.
This analysis required to design the operation for JIT control involves balancing the level
of activities at each station, so as not to create any bottle-necks. In this direction Rainford
Group can see clear benefits and opportunity to be productive. However, issues in JIT
system can be its streamlines processes and reduces any risky last minute changes, which
might be profitable. It is clearly understood that risk and profitability are inversely
proportional to each other, in that the less risk (which JIT virtually eliminates because of
the lack of uncertainty and that element of surprise and change), the less return the
organization can potentially receive. It makes an organization less able to maneuver and
change as it may be deemed profitable. What hampers successful JIT implementation is
the lack of clarity and priority leading to confusion and wasteful expenditure of
organizational energy. (Galloway and Azhashemi and Rowbotham, 2000)