1. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-1 Operations Management Just-in-Time and Lean Systems Chapter 16

2. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-2 Building on TQM Note our goal in TQM was to eliminate variance from our processes  Perfect JIT requires perfect quality  Pursuing JIT (particularly reducing inventory) exposes problems which can then be eliminated

3. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-3 Lean Production Lean Production supplies customers with exactly what the customer wants, when the customer wants, without waste, through continuous improvement. Just – in – Time Management philosophy of continuous and forced problem solving that supports lean production.

4. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-4 Waste is “anything other than the minimum amount of equipment, materials, parts, space, and worker’s time, which are absolutely essential to add value to the product.” — Shoichiro Toyoda President of Toyota © 1995 Corel Corp. Waste

5. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-5  Overproduction  Waiting  Transportation  Inefficient processing  Inventory  Unnecessary motion  Product defects © 1995 Corel Corp. Types of Waste

6. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-6  Waste reduction  Things that do not add value from the customer perspective  Variability reduction  Any deviation from the optimum process that delivers perfect product on time, every time  Pull vs. Push  Pull systems where material is produced only as needed / when requested Key Elements of Just-in-Time

7. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-7 A method in which production of the item begins in advance of customer needs Push Method  Allows closer control of inventory and production  Requires high repeatability in production process  Helps to expose problems Pull Method A method in which customer demand activates production of the item

8. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-8  Suppliers  Layout  Inventory  Scheduling  Preventive Maintenance  Quality Production  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

9. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-9  Suppliers  reduced number of vendors  supportive supplier relationships  quality deliveries on time  Layout  Inventory  Scheduling  Preventive Maintenance  Quality Production  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

10. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-10 Goals of JIT partnerships Elimination of unnecessary activities Elimination of in-plant inventory Elimination of in-transit inventory Elimination of poor suppliers Diversification Poor customer scheduling Frequent engineering changes Quality assurance Small lot sizes Physical proximity Concerns of Suppliers

11. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-11 Streamlined Production Flow with JIT Traditional Flow Customers Suppliers Customers Suppliers Production Process (stream of water) Inventory (stagnant ponds) Material (water in stream)

12. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-12  Suppliers  Layout  work-cell layouts with testing at each step of the process  group technology  movable, changeable, flexible machinery  high level of workplace organization and neatness  reduced space for inventory  delivery directly to work areas  Inventory  Scheduling  Preventive Maintenance  Quality Production  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

13. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-13 Process LayoutWork Cell Saw Lathe Grinder Heat Treat Lathe Saw Heat Treat Grinder Press 1 1 2 3 4 5 2 6 Saw Press Work Cell vs. Process Layout

14. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-14  Suppliers  Layout  Inventory  small lot sizes  low setup times  specialized bins for holding set number of parts  Scheduling  Preventive Maintenance  Quality Production  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

15. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-15  Firms hold inventory to:  decouple activities  provide a buffer (safety stock) for supplier reliability, quality problems, etc.  From a Just-in-Time perspective, inventory is being used to mask problems rather than solve them Inventory Just-in-Case

16. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-16 Scrap Unreliable suppliers Capacity imbalance Inventory hides problems Inventory Level

17. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-17 To Lower Inventory, Reduce Lot Sizes On-hand inventory 51015202530 Time (hours) 100 – 75 – 50 – 25 – 0 – Lot size = 100 Average cycle inventory = 50 Lot size = 50 Average cycle inventory = 25

18. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-18 Customer orders 10 Lot size = 5 Lot 1 Lot 2 Lot size = 2 Lot 1Lot 2Lot 3Lot 4Lot 5 Reducing Lot Sizes Increases the Number of Lots

19. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-19 …Which Increases Inventory Costs Lot Size Cost Holding Cost Total Cost Setup Cost Optimal Lot Size Smaller Lot Size

20. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-20 Unless Setup Costs are Reduced Lot Size Cost Holding Cost Total Cost Setup Cost Original optimal lot size New optimal lot size

21. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-21  Suppliers  Layout  Inventory  Scheduling  zero deviation from schedules  level schedules  suppliers informed of schedules  Kanban techniques  Preventive Maintenance  Quality Production  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

22. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-22 A Large-Lot Approach Time AAABBBBBB C C Large Lots vs. Small Lots AABBCA Small-Lot Approach Time ACBB C A

23. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-23 A Large-Lot Approach Time AAABBBBBB C C Large Lots vs. Small Lots AABBCA Small-Lot Approach Time ACBB C A Small lots: reduce inventory increase flexibility to meet customer demands (cut lead times) help achieve a uniform operating system workload

24. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-24Kanban  Japanese word for card – may be a card, flag, empty container, space on shelf, etc.  Authorizes production from downstream operations  Pulls material through plant  Used often with fixed-size containers  Add or remove containers to change production rate

25. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-25Kanban  Japanese word for card – may be a card, flag, empty container, space on shelf, etc.  Authorizes production from downstream operations  Pulls material through plant  Used often with fixed-size containers  Add or remove containers to change production rate Pull systems: reduce inventory increase flexibility to meet customer demands (cut lead times) help achieve a uniform operating system workload make problems immediately evident

26. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-26  Suppliers  Layout  Inventory  Scheduling  Preventive Maintenance  scheduled  daily routine  operator involvement  Quality Production  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

27. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-27 Breakdown  Non-routine inspection & servicing  Remedial  Basis for doing  Equipment failure Types of Maintenance

28. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-28 Preventive  Routine inspection & servicing  Prevents failures  Bases for doing  Time: Every day  Usage: Every 300 pieces  Inspection: Control chart deviations Breakdown  Non-routine inspection & servicing  Remedial  Basis for doing  Equipment failure Types of Maintenance

29. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-29 Maintenance Commitment Cost Preventive Maintenance Cost Tot Total Maintenance Cost Breakdown Cost Optimal Traditional View of Maintenance Full-Cost View of Maintenance Cost Optimal Total costs Full cost of breakdowns Preventive maintenance costs

30. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-30  Suppliers  Layout  Inventory  Scheduling  Preventive Maintenance  Quality Production  statistical process control  quality suppliers  quality within firm  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

31. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-31  JIT exposes quality problems by reducing inventory  JIT limits the number of defects produced with small lots  JIT requires TQM  Statistical process control  Worker involvement  Inspect own work  Quality circles  Fail-safe methods  Immediate feedback Quality JIT QUALITY

32. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-32  Suppliers  Layout  Inventory  Scheduling  Preventive Maintenance  Quality Production  Employee Empowerment  empowered and cross-trained employees  training support  few job classifications to ensure flexibility of employees  Commitment JIT Contribution to Competitive Advantage

33. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-33  Suppliers  Layout  Inventory  Scheduling  Preventive Maintenance  Quality Production  Employee Empowerment  Commitment  support of management, employees, and suppliers JIT Contribution to Competitive Advantage

34. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-34  Suppliers  Layout  Inventory  Scheduling  Preventive Maintenance  Quality Production  Employee Empowerment  Commitment JIT Contribution to Competitive Advantage

35. © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 16-35 JIT Contribution to Competitive Advantage – Results  Queue and delay reduction speeds throughput, frees assets, and wins orders  Quality improvement reduces waste and wins orders  Cost reduction increases margin or reduces selling price  Variability reduction reduces waste and wins orders  Rework reduction reduces waste and wins orders FASTER BETTER CHEAPER