1 Session 20 Just-in-Time Systems Toyota’s JIT system –JIT elements –Kanban cards –Kanban system rules –Two card and kanban system rules –Toyota MPS policy JIT in purchasing JIT modifications to MRP Planning Impact of the kanban system Concluding principles

2 Toyota’s Production system

3 Kanban Cards

4 Kanban System Rules Each container of parts must have a kanban card. The parts are always pulled. The using department must come to the providing department and not vice versa. No parts may be obtained without a conveyance kanban card. All containers contain their standard quantities and only the standard container for the part can be used. No extra production is permitted. Production can only be started on receipt of a production kanban card. Container sizes are kept small and standard, e.g., no container should have more than 10% of a day’s requirements.

5 Flow of Kanban Cards

6 Toyota MPS policy One year production plan MPS is a three month final assembly schedule MPS first month is frozen MPS stated in daily buckets The daily schedule is equal for each day in the month A level, stable MPS schedule is critical

7 JIT Purchasing Stable schedules critical Prune the number of vendors Don’t shift the burden of inventory to the vendors Help vendors implement JIT in their operations Keep the relationship with vendors simple

8 JIT Modifications to MRP Planning Develop the MRP record for the faucet subassembly (part no. 356) shown in the following bill of material. The refrigerators are assembled at the rate of 480/period, lead time is one period. there's no safety stock, lot size is 500, and 200 units are in inventory at the moment. (Note: The faucet subassembly is only used on every fourth refrigerator.)

9 Faucet Subassembly MRP Record

10 Phantoming Suppose that the faucet subassembly has been “phantomed” (i.e. the faucet would be assembled onto the refrigerator directly from the bracket, faucet, and tubing parts). a.What would the bill of material look like now? b.Construct the phantom MRP record and compare it to the initial MRP record for this item. c.Construct the MRP record for the bracket (lot size = 200 no safety stock, 250 on hand, lead time = 2 periods).

11 Faucet Subassembly– “Phantomed”

12 Faucet Subassembly– “Phantomed” b.MRP record for facet subassembly, Part No. 356, as a phantom bill of material.

13 Faucet Subassembly– “Phantomed” c.MRP record for Bracket

14 Impact of the Kanban System The Bragg Company is considering implementing a JIT program using kanbans to signal the movement and production of product. They want to evaluate the cost savings in inventory investment for a sample component. Their current production philosophy calls for producing 5,000 units at a time and the average usage is 200 units per day. They are considering using kanbans with a container size of 100 units, no safety stock, and manufacturing lead time is 10 days. The cost of the sample component is $140.

15 Impact of the Kanban System a.What is the company's current investment in WIP? (Assume average inventory is Q/2.) Unit cost$ Lot Size (Q)5000 units Q/2 x $ = 5,000/2 x $ = $350,000

16 Impact of the Kanban System b.What will be the company's investment in WIP if it goes to the proposed JIT system? What is the percentage decrease or increase WIP investment? Lead Time10 days Unit cost$ Usage 200 Container Size 100 Safety stock 0 Kanbans kanbans x 100 units x $140.00= $280, $350, $280, x 100= 20% $350,000.00

17 Impact of the Kanban System c.Process engineers have told management that they can reduce lead time from 10 days to 5 days if they convert to the proposed JIT system and spend $100,000 on process improvement. Is it worth the additional investment compared to part b? Lead Time5 days Unit cost$ Usage 200 Container Size 100 Safety stock 0 Kanbans kanbans x 100 units x $ = $140, (vs. $280,000 for 10 day LT) Since it cost $100,000 to make the improvement which will lead to a $140,000 reduction in WIP investment it is worthwhile.

18 Concluding principles Stabilizing leveling the production schedules are prerequisites to effective JIT systems. Achieving very short lead times supports better customer service and responsiveness. Reducing hidden factory costs can be at least as important as reducing costs more usually attributed to factory operations. Implementing the whole person concept reduces distinctions between white- and blue-collar workers and taps all persons' skills for improving performance. JIT is not incompatible with MRP-based systems. Firms can evolve toward JIT from MRP-based systems, adopting JIT as much or as little as they want, with an incremental approach.