Chapter 15 Just-In-Time and Lean Production

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

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

.... 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

Basic Elements of JIT 1.Flexible resources 2.Cellular layouts 3.Pull production system 4.Kanban production control 5.Small-lot production 6.Quick setups 7.Uniform production levels 8.Quality at the source 9.Total productive maintenance 10.Supplier networks

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

Other Important Points Only make what you need only buy what you need,when you need it SMED – single minute exchange of dies continuous process improvement as the level of the water lowers, new problems or inefficiencies are identified

Reducing waste: Increase Problem Visibility Lower the Water to Expose the Rocks Scrap & Rework Missed Due Dates Too Much Space Late Deliveries Poor Quality Machine Downtime Engineering Change Orders Long queues Too much paperwork 100% inspection Inventory

Waste in Operations

Flexible Resources Multifunctional workers Multifunctional workers General purpose machines General purpose machines Study operators & improve operations 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 Material is pulled through the system when needed Reversal of traditional push system where material is pushed according to a schedule Reversal of traditional push system where material is pushed according to a schedule Forces cooperation Forces cooperation Prevent over and underproduction Prevent over and underproduction

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

A Sample Kanban

The Origin of Kanban a) Two-bin inventory systemb) Kanban inventory system Reordercard Bin 1 Bin 2 Q - R Kanban R R Q = order quantity R = reorder point - demand during lead time

Types of Kanbans

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

Determining Number of Kanbans where N = number of kanbans or containers d = average demand over some time period L = lead time to replenish an order S = safety stock C = container size No. of Kanbans = average demand during lead time + safety stock container size N = dL + S C

Determining the Number of Kanbans d = 150 bottles per hour L = 30 minutes = 0.5 hours S = 0.10(150 x 0.5) = 7.5 C = 25 bottles Round up to 4 (to allow some slack) or down to 3 (to force improvement) N= = = = 3.3 kanbans or containers dL + S C (150 x 0.5)

Small-Lot Production Requires less space & capital investment Requires less space & capital investment Moves processes closer together Moves processes closer together Makes quality problems easier to detect Makes quality problems easier to detect Makes processes more dependent on each other Makes processes more dependent on each other In theory:

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

SMED Principles 1.Separate internal setup from external setup 2.Convert internal setup to external setup 3.Streamline all aspects of setup 4.Perform setup activities in parallel or eliminate them entirely

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

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

Visual Control

In use at Harley-Davidson and at Opal Plant - Russelsheim

Visual Control

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

Total Productive Maintenance (TPM) Breakdown maintenance Breakdown maintenance Repairs to make failed machine operational Repairs to make failed machine operational Preventive maintenance Preventive maintenance System of periodic inspection & maintenance to keep machines operating System of periodic inspection & maintenance to keep machines operating TPM combines preventive maintenance & total quality concepts TPM combines preventive maintenance & total quality concepts Commercial industry answer to PMCS

TPM Requires Management to: Design products that can be easily produced on existing machines Design products that can be easily produced on existing machines Design machines for easier operation, changeover, maintenance Design machines for easier operation, changeover, maintenance Train & retrain workers to operate machines Train & retrain workers to operate machines Purchase machines that maximize productive potential Purchase machines that maximize productive potential Design preventive maintenance plan spanning life of machine Design preventive maintenance plan spanning life of machine

Supplier Policies 1.Locate near to the customer 2.Use small, side loaded trucks and ship mixed loads 3.Consider establishing small warehouses near to the customer or consolidating warehouses with other suppliers 4.Use standardized containers and make deliveries according to a precise delivery schedule (preferably reusable, standard size containers) 5.Become a certified supplier and accept payment at regular intervals rather than upon delivery

Goals of JIT 1.Reduced inventory - where? 2.Improved quality 3.Lower costs 4.Reduced space requirements 5.Shorter lead time 6.Increased productivity 7.Greater flexibility 8.Better relations with suppliers 9.Simplified scheduling and control activities 10.Increased capacity 11.Better use of human resources 12.More product variety 13.Continuous Process Improvement

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

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

Reverse Logistics: Important or Irritant? Estimated $100 billion industry in 2006

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

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

Reverse Logistics - What is it? The Army’s Definition The return of serviceable supplies that are surplus to the needs of the unit or are unserviceable and in need of rebuild or remanufacturing to return the item to a serviceable status

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 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 Tylenol Scare - Johnson and Johnson German ordinance that put teeth in environmental reverse pipeline Summer 1996 – UK Packaging and Packaging Waste Legislation first real study of reverse logistics in the US - University of Nevada, Reno 2001 – EU goal of 50-65% recovering or recycling of packaging waste

Reverse Logistics A US Army Perspective

Operation Iraqi Freedom The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

Military Operations and Excess “In battle, troops get temperamental and ask for things which they really do not need. However, where humanly possible, their requests, no matter how unreasonable, should be answered.” George S. Patton, Jr.

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.”

From GAO Audit Report Does this create a problem?

From GAO Audit Report

Reverse Logistics The Commercial Perspective

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.

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 returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers PalmOne - 25% return rate on PDAs

More Costs Hoover - $40 Million per year Cost of processing $85 per item Unnamed Distribution Company - $700K items on reverse auction 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 2004/2005 holiday returns: 25% Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day) Electronics: $10 Billion annually in returns Personal Computers: $1.5 Billion annually = approximately $95 per PC sold 79% of returned PCs have no defects Home Depot ~ $10 million in returns in the stores alone Local Wal-Mart ~ $1 million a month in returns

Is it a Problem? European influence – spread to US - Green Laws Estee Lauder - $60 million a year into land fills FORTUNE 500 Company - $200 million over their $300 million budget for returns Same Provider - 40,000 products returned per month; 55% no faults noted K-Mart - $980 million in returns 1999 Warranty vice paid repairs

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.

Dawes’ Six Symptoms of a Problem 1. Returned merchandise or supplies arrive faster than they are processed or disposed of. 2. There are large amounts of returned inventory held in the distribution center or warehouse. 3. There are unidentified or unauthorized returns. 4. There is a lengthy processing cycle time for returned goods. Dr. Richard Dawes, University of San Francisco

Six Symptoms (Continued) 5. The total cost of the returns process is unknown. 6. Customers lose confidence in the repair activities.

Reverse Logistics reverse logistics is: The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics. Reverse logistics is more than reusing containers and recycling packaging materials. It includes redesigning packaging to use less material, or reducing the energy and pollution from transportation are important activities.

Reverse Logistics For "industrial equipment" the return rate is over 8% and the total revenue impacted by returns is $105.6 billion in 2005, in just the U.S. alone. For computers and network equipment, the return rate reaches as high as 20%, for a 2005 total of $65.8 billion, up from $61.4 billion in 2004.

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 %. “In the U.S. alone, the cost is an annual $100 billion.” Forbes, March 2005 Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

“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”

RFID and Returns Visibility Tracking Component tracking Data Warehouse on what, why, when Altered products Not for every product

Impacts of Reverse Logistics Forecasting Carrying costs Processing costs Warehousing Distribution Transportation Personnel Marketing

Next Week Reverse Logistics, Chapter 14, 16, 3