Operations Management BA 301 – Spring 2003 Just-in-Time Systems Supplement 12

Who developed “Just-in Time”? What we know today as “Just-in-Time” is known in Japan as the “Toyota Production System”. The developers at Toyota were: 1. Taiichi Ohno – Shop Manager & VP 2. Eiji Toyoda – President 3. Shigeo Shingo - Consultant

Management philosophy of continuous and forced problem solving The production system is intentionally stressed in order to identify problems Supplies and components are ‘pulled’ through system to arrive where they are needed when they are needed. What is Just-in-Time today?

JIT Systems JIT systems were originally designed to reduce inventory levels at Toyota Motor Company. Toyoda understood that the Japanese were short on: –Capital to finance inventory –Storage space for inventory Toyoda launched a campaign to “eliminate waste” and inventory was the primary contributor to the “waste”.

Attacks waste –Anything not adding value to the product From the customer’s perspective Exposes problems and bottlenecks caused by variability –Deviation from optimum Achieves streamlined production –By reducing inventory What Does Just-in-Time Do?

Inventory Waiting Transportation Inefficient processing Over Production Unnecessary motion Product defects © 1995 Corel Corp. Types of Waste

The Ten Elements of JIT 1. Workers are cross-trained to use small, general- purpose machines. 2. Small general purpose machines are grouped into “cellular layouts” to process a “family” of parts. 3. Pull Production System produces parts and sub- assemblies only when needed by the next “customer”. This was designed after a US Supermarket. 4. Kanban Production Control – Workers are signaled to produce a fixed quantity for their customer by a signal (kanban). 5. Small-Lot Production – Required because of restrictions on both space and financial capital. Stressed system and exposed problems which were then solved.

The Ten Elements of JIT 6. Quick Setups – In order to produce in small-lots, machines have to be changed over frequently. Shingo’s “SMED” 7. Uniform Production Levels – Some type of each automobile is made each day and the system can be adjusted just before it begins. 8. Quality at the Source – Workers produce in small lots and inspect their own output. They are also empowered to halt the production process (Jidoka) when they discover problems. 9. Total Productive Maintenance – An advancement over “breakdown or preventive maintenance”. 10. Supplier Networks – Develop long-term relationships with a small number of suppliers, who are located near the manufacturing facility and practice JIT themselves.

Traditional View: inventory exists in case problems arise JIT objective: Eliminate inventory JIT requires –Small lot sizes (“order sizes”) –Low setup time –Containers for fixed number of parts JIT inventory: Minimum inventory to keep system running Inventory

Scrap Work in process inventory level (hides problems) Unreliable Vendors Capacity Imbalances Lowering Inventory Attacks “Waste”

Scrap Reducing inventory reveals problems so they can be solved. Unreliable Vendors Capacity Imbalances WIP Lowering Inventory Attacks Waste

Scrap Reducing inventory reveals problems so they can be solved. Unreliable Vendors Capacity Imbalances WIP Lowering Inventory Reduces Waste

Reducing Inventory results in Streamlined Production Flow with JIT Traditional Flow Customers Suppliers Customers Suppliers Production Process (stream of water) Inventory (stagnant ponds) Material (water in stream)

JIT Inventory Tactics Reduce the level of work-in-process (WIP) inventory by: Reducing lot size (How much you fabricate each time) But this will cost setup costs to increase unless you are able to: Reduce setup time

Shigeo Shingo Toyota Motor Company Toyota Camry front left doors: D = 300,000 Cost = $100 I = 25% WDPY = 300 d = 1,000 p = 4000 Setup time = 6 hours Setup labor cost = $500 per hour Calculate POQ and Annual Cost POQ = 9798 Annual Cost = $183,712 Shingo decides to attack “waste” by reducing WIP inventory Creates “SMED” process.

Steps to Reduce Setup Time: Shingo’s “Single Minute Exchange of Dies (SMED) Initial Setup Time Separate setup into preparation, and actual setup, doing as much as possible while the machine/ process is running (save 240 minutes) Move material closer and improve material handling (save 90 minutes) Standardize and improve tooling (save 20 minutes ) 360 min 120 min 30 min 10 min 5 min Use one-touch system to eliminate adjustments (save 10 minutes) One-touch system to minimize adjustments (save 5 min) Standardizing work procedures (save 2 min)) Step 1 Step 2 Step 3 Step 5 3 min Step 4

Shigeo Shingo Toyota Motor Company Using the “SMED” improvement process, Shingo reduced the setup time to three (3) minutes. What is the new POQ? 400 What is the new Annual Cost? $7,500 How much was saved on Toyota front left doors alone? $179,962

Toyota Camry - Front Left Doors Time Inventory Level Lot Size 9798 Lot Size 400 Old: Average inventory = 3674 New: Average inventory = 150 Average inventory = (Lot size)/2

Computer Motherboard Platform (A-62) D=3000/year; H=$5/unit/year; p=30; d=10 Based on a set up time of 2 hours and a labor cost of $100/hour, the set up cost is $200. The POQ was calculated to be 600 units. Average Inventory = 200 units Annual Inventory Holding Cost = $1000 Annual Set up Cost = $1000 Total Annual Costs = $2000 If Set up time could be reduced to 15 minutes, how much $ could be saved?

Computer Motherboard Platform (A-62) Calculate POQ with setup time =15 min. Setup cost = $25 POQ = sq rt ((2*3000*25)/(5*0.67))=212 Average Inventory = 141 Annual Inventory Holding Cost =$354 Annual Setup Cost =$354 Total Annual Cost =$708 Total Annual Savings =$1292