BUSN 6110 Webster Fall 2012

Just-In-Time and Lean Production

JIT In Services Competition on speed & quality Multifunctional department store workers Work cells at fast-food restaurants Just-in-time publishing for textbooks - on demand publishing a growing industry Construction firms receiving material just as needed

What is JIT ? Producing only what is needed, when it is needed A philosophy An integrated management system JIT’s mandate: Eliminate all waste

Lean Operations: Best Implementation is Toyota Production System TPS is a production management system that aims for the “ideal” through continuous improvement Includes, but goes way beyond JIT. Pillars: Synchronization Reduce transfer batch sizes Level load production Pull production control systems (vs. push): Kanban Quality at source Layout: Cellular operations Continuous Improvement (Kaizen): through visibility & empowerment ....

Toyota’s waste elimination in Operations 1. Overproduction 2. Waiting 3. Inessential handling 4. Non-value adding processing 5. Inventory in excess of immediate needs 6. Inessential motion 7. Correction necessitated by defects

Flexible Resources Multifunctional workers General purpose machines Study operators & improve operations

The Push System Pre-planned issues of supplies/merchandise regardless of customer demand criteria Creates excess and shortages not efficient over the long run

The Pull System Material is pulled through the system when needed Reversal of traditional push system where material is pushed according to a schedule Forces cooperation Prevent over and underproduction

Kanban Production Control System Kanban card indicates standard quantity of production Derived from two-bin inventory system Kanban maintains discipline of pull production Production kanban authorizes production Withdrawal kanban authorizes movement of goods

Types of Kanbans Bin Kanban - when bin is empty replenish Kanban Square Marked area designed to hold items Signal Kanban Triangular kanban used to signal production at the previous workstation Material Kanban Used to order material in advance of a process Supplier Kanbans Rotate between the factory and suppliers

Components of Lead Time Processing time Reduce number of items or improve efficiency Move time Reduce distances, simplify movements, standardize routings Waiting time Better scheduling, sufficient capacity Setup time Generally the biggest bottleneck

Common Techniques for Reducing Setup Time Preset Buttons/settings Quick fasteners Reduce tool requirements Locator pins Guides to prevent misalignment Standardization Easier movement

Uniform Production Results from smoothing production requirements Kanban systems can handle +/- 10% demand changes Smooths demand across planning horizon Mixed-model assembly steadies component production

Quality at the Source Jidoka is authority to stop production line Andon lights signal quality problems Undercapacity scheduling allows for planning, problem solving & maintenance Visual control makes problems visible Poka-yoke prevents defects (mistake proof the system)

Kaizen Continuous improvement Requires total employment involvement Essence of JIT is willingness of workers to Spot quality problems Halt production when necessary Generate ideas for improvement Analyze problems Perform different functions

Goals of JIT Reduced inventory - where? Improved quality Lower costs Reduced space requirements Shorter lead time Increased productivity Greater flexibility Better relations with suppliers Simplified scheduling and control activities Increased capacity Better use of human resources More product variety Continuous Process Improvement

JIT Implementation Use JIT to finely tune an operating system Somewhat different in USA than Japan JIT is still evolving JIT as an inventory reduction program isn’t for everyone - JIT as a CPI program is! Some systems need Just-in- Case inventory

Reverse Logistics: Important or Irritant? The Reverse Logistics Association was founded in 2002 when research studies were completed which revealed that over $750 billion annually was being spent on reverse logistics processes in North America alone.

reverse logistics would not exist.” “In an ideal world, reverse logistics would not exist.” Jim Whalen, “In Through the Out Door,” Warehousing Management, March 2001

reverse logistics is seen “Now, more than ever, reverse logistics is seen as being important.” Dale Rogers, Going Backwards, 1999

Reverse vs. Forward Forecasting Distribution Centers Quality Disposition Marketing

Reverse Logistics - What is it? The Commercial Perspective Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Typical Reverse Logistics Activities Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory Recycling packaging materials/containers Reconditioning, refurbishing, remanufacturing Disposition of obsolete stuff Hazmat recovery

Why Reverse Logistics? Competitive advantage Customer service - Very Important: 57% - Important: 18% - Somewhat/unimportant:23% Bottom line profits

Reverse Logistics - New Problem? Sherman Montgomery Ward’s - 1894 Recycling/remanufacturing in 1940s World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff Salvage and reuse of clothing and shoes in the Pacific Theater World War II

Key Dates in Reverse Logistics World War II – the advent of refurbished automobile parts due to shortages 1982/1986 - Tylenol Scare - Johnson and Johnson - 31 million bottles of Tylenol 1991 - German ordinance that put teeth in environmental reverse pipeline Summer 1996 – UK Packaging and Packaging Waste Legislation 2001 – EU goal of 50-65% recovering or recycling of packaging waste

Reverse Logistics A US Army Perspective

Jan-Mar 2003 The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

Jane’s Defence Weekly “Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.”

The Commercial Perspective Reverse Logistics The Commercial Perspective

Mattel's expanded product recall of 19 million toys is pushing a lot of product back through the supply chain. Recall of 3912 items from Peanut Corporation of America Salmonella problems causing “constipation” of forward supply chains Dell recall of faulty laptop batteries - 2007 2010 – toys, pallets, Tylenol 2011 – 4 million Toyotas

Reverse Logistics Rate of returns? Cost to process a return? Time to get the item back on the shelf if resaleable?

Costs - above the cost of the item Merchandise credits to the customers. The transportation costs of moving the items from the retail stores to the central returns distribution center. The repackaging of the serviceable items for resale. The cost of warehousing the items awaiting disposition. The cost of disposing of items that are unserviceable, damaged, or obsolete.

Process inbound shipment at a major distribution center = 1.1 days Costs Process inbound shipment at a major distribution center = 1.1 days Process inbound return shipment = 8.5 days Cost of lost sales Wal-Mart: Christmas 2003 - returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers

More Costs Hoover - $40 Million per year Cost of processing $85 per item Unnamed Distribution Company - $700K items on reverse auction 2001 - over $60 billion in returns; $52 billion excess to systems; $40 billion to process

Is it a problem? Estimate of 2004 holiday returns: $13.2 billion % of estimated holiday returns: 25% If true, value of 2011 returns ~ $120 billion Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day) Personal Computers: approximately $95 per PC sold 79% of returned PCs have no defects Home Depot ~ $10 million in returns in the stores

More consequences Increased Customer Wait Times Loss of Confidence in the Supply System Multiple orders for the same items Excess supplies in the forward pipeline Increase in “stuff” in the reverse pipeline Constipated supply chain

Impact? Every resaleable item that is in the reverse supply chain results in a potential stock out or “zero balance” at the next level of supply. Creates a “stockout” do-loop

Results? This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring. More stocks = “larger logistics footprint” = the need for larger distribution centers and returns centers.

Reverse Logistics According to the Reverse Logistics Executive Council, the percent increase in costs for processing a return, as compared to a forward sale, “is an astounding 200-300%.” Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

Electronics Reverse Logistics $677 billion $132 billion 60 million – 12 million 100 million 20-50 million metric tons 2-5% 70 % 4 billion pounds 4 million pounds 75 pounds/40,000 pounds

“The truth is, for one reason or another, materials do come back and it is up to those involved in the warehouse to effectively recover as much of the cost for these items as possible.” - Whalen, “In Through the Out Door”

Impacts of Reverse Logistics Forecasting Carrying costs Processing costs Warehousing Distribution Transportation Personnel Marketing Customer Service Bottom line profits