Lean Systems and JIT

Lean Production Lean Production can be defined as an integrated set of activities designed to achieve high-volume production using minimal inventories (raw materials, work in process, and finished goods) Lean Production also involves the elimination of waste in production effort Lean Production also involves the timing of production resources (i.e., parts arrive at the next workstation “just in time”) Adding value 3

Overview of JIT Toyota Production System (post-WWII) reducing costs, eliminating waste, and improving productivity Just-in-Time (1980s) way of planning operations reduces variability of demand enhances responsiveness conducts value-adding operations as close to consumption as possible

JIT and Lean Management Big JIT (also called Lean Management) is a 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 inventory Little JIT focuses more narrowly on scheduling goods inventory and providing service resources where and when needed Question: If you had a 7 a.m. flight out of Newark, what time would you leave Allentown? A 7 p.m. flight? Is there a difference in elapsed time? Why? 3

The Toyota Production System Based on two philosophies: 1. Elimination of waste 2. Respect for people Toyota Production System Video 5

Toyota Production System’s Four Rules All work shall be highly specified as to content, sequence, timing, and outcome Every customer-supplier connection must be direct, and there must be an unambiguous yes-or-no way to send requests and receive responses The pathway for every product and service must be simple and direct Any improvement must be made in accordance with the scientific method, under the guidance of a teacher, at the lowest possible level in the organization 21

Waste in Operations Waste from overproduction Waste of waiting time Transportation waste Inventory waste Processing waste Waste of motion Waste from product defects Underutilization of people 6

Exercise Take an activity from a job or personal life (e.g. a sport, study, Muhlenberg processes, a class) Identify areas of waste Identify opportunities for eliminating waste and improving the performance Write down and share with the class

Minimizing Waste: Inventory Hides Problems Example: By identifying defective items from a vendor early in the production process the downstream work is saved Work in process queues (banks) Change orders Engineering design redundancies Vendor delinquencies Scrap Design backlogs Machine downtime Decision Inspection Paperwork backlog Example: By identifying defective work by employees upstream, the downstream work is saved 14

Here the customer starts the process, pulling an inventory item from Final Assembly… JIT Demand-Pull Logic Customers Sub Fab Vendor Final Assembly Then sub-assembly work is pulled forward by that demand… The process continues throughout the entire production process and supply chain 4

SUPPLY CHAIN AND E-COMMERCE CONSIDERATIONS IN JIT Supplier structural improvements reduced inventory at suppliers results in lower fixed costs suppliers provide small quantities with frequent deliveries Supplier infrastructural improvements emphasis on win-win relationship Customer structural improvements design for manufacturability and procurement establish EDI systems to remove demand uncertainty reduce inventories of purchased materials Customer infrastructural improvements frequent small orders eliminate just-in-case inventories smoother demand patterns

SCHEDULING AND CAPACITY MANAGEMENT IN JIT SYSTEMS JIT planning and control: relies on a level master schedule prefers excess capacity to excess inventory works with suppliers and customers to reduce complexity & uncertainty improves system’s responsiveness to customer requirements Level master schedule: same mix of product-service bundles created repeatedly for period for which the master schedule is frozen Independent demand inventory models balance order and holding costs economics are just as valid for JIT systems

JIT in Services (Examples) Organize Problem-Solving Groups Upgrade Housekeeping Upgrade Quality Clarify Process Flows Revise Equipment and Process Technologies Level the Facility Load Eliminate Unnecessary Activities Reorganize Physical Configuration Introduce Demand-Pull Scheduling Develop Supplier Networks 30

Supplier Networks: Trends In Supplier Policies 1. Locate near to the customer 2. Consider establishing small warehouses near to the customer or consolidating warehouses with other suppliers 3. Use standardized containers and make deliveries according to a precise delivery schedule 4. Become a certified supplier and accept payment at regular intervals rather than upon delivery

Potential Supplier Concerns with JIT Purchasing Desire for diversification -- concerned about all business stemming from single customer. Poor customer scheduling -- concerned that customer will be unable to develop smooth, consistent schedule. Engineering changes -- concerned that customer will promulgate frequent engineering changes with inadequate lead time. Quality assurance -- production with zero defects may be considered unrealistic. Small lot sizes -- many suppliers are unaccustomed to working with small lot sizes. Proximity -- delivery of small lot sizes over long distances may not be economical.

Critique of JIT Contrast pragmatic JIT vs. romantic JIT Pragmatic JIT focuses on concrete details of production process use practical tools to address problems continuous improvement Romantic JIT appeals to “revolutionary rhetoric” cutting inventories is a prompt to reform against tradeoffs HBR: Does Manufacturing Need a JIT Revolution? By Paul Zipkin

Critique of JIT Problems System of beliefs and collection of methods Successes due to genius of Ohno and Shingo (of Toyota) – they did make tradeoffs Moves inventories to suppliers but does not reduce overall Workers in JIT environments under high levels of pressure -- burn out! HBR: Does Manufacturing Need a JIT Revolution? By Paul Zipkin