Chapter 6

Just-in-time and lean thinking

Content

Just-in-timeKey issues

Just-in-timeJust-in-time: A definitionUses a systems approach to develop and operate a manufacturing systemOrganizes the production process so that parts are available when they are neededA method for optimizing processes that involves continual reduction of waste

Just-in-timeLittle JITthe application of JIT to logistics

Central themes surrounding Just-in-timeSimplicityQualityElimination of waste

Just-in-timePull schedulingA system of controlling materials whereby the use signals to the maker or provider that more material is needed.Push schedulingA system of controlling materials whereby makers and providers make or send material in response to a pre-set schedule, regardless of whether the next process needs them at the time.supplierbuyerPush: traditional wayPull: Just-in-time

Just-in-timeActivityPullPush/PullPush

Just-in-timeJust-in-time systemJIT Pyramid of key factors

Just-in-timeJust-in-time systemFactor 1The top of the pyramid is full capability for JIT supply supported by Level 2 and Level 3 operation.Factor 2Delay and inventory interact positively with each otherThe concept of KanbanFactor 3Defect delay inventory

Just-in-time systemFactor 3Defect delay inventoryInventory hides problems

Just-in-timeJust-in-time systemFactor 4

Preventive maintenanceFlexible production

Just-in-timeJust-in-time systemFactor 5Simply and visible process help to reduce inventory and could be better maintained.Factor 6Its more difficult to see the flow of a process with increased inventory.

Just-in-timeThe supply chain game planMaterial Requirements PlanningIndependent demandDependent demand

Just-in-timeThe supply chain game planIndependent demandDemand for a product that is ordered directly by customers.items are those items that we sell to customersDependent demandDemand for parts or subassemblies that make up independent demand products.items are those items whose demand is determined by other items

Just-in-timeCase: Automobile

Case: Cake

Just-in-timeDemand characteristics and planning approachesEconomic order quantities (EOQ)

Just-in-time

Assumptions in Economic Order Quantity ModelDemand is deterministic. There is no uncertainty about the quantity or timing of demand.Demand is constant over time. In fact, it can be represented as a straight line, so that if annual demand is 365 units this translates into a daily demand of one unit.A production run incurs a constant setup cost. Regardless of the size of the lot or the status of the factory, the setup cost is the same.Products can be analyzed singly. There is only a single product.

NotationD = Demand rate (in units per year).c = Unit production cost, not counting setup or inventory costs (in dollars per unit).A = Constant setup (ordering) cost to produce (purchase) a lot (in dollars).h = Holding cost (in dollars per unit per year)Q = Lot size (in units); this is the decision variable

Just-in-timeEOQ modelAverage inventory level

The holding cost per unit

The setup cost per unit

The production cost per unit

Just-in-timeEOQ model

Just-in-timePracticePam runs a mail-order business for gym equipment. Annual demand for the TricoFlexers is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic order quantity?

Just-in-timeDemand characteristics and planning approachesPeriodic order quantity (POQ) and target stock levelsEconomic order quantityHow much to order?When to order?Periodic order quantity

Just-in-timeEconomic order quantity with uncertain demand

Week No.DemandOrder quantityInventory endInventory startInventory holding11001,0009001,00095021000800900850320006008007004400020060040058001,00040020030061,0001,00040040040078001,0006004005008400020060040091000100200150102001,000900100500Sum4,1005,0005,1005,2005,150Average410500510520515

Just-in-timePeriodic order quantity (POQ) with uncertain demand

Week No.DemandOrder quantityInventory endInventory startInventory holding110020010020015021000010050320060040060050044000040020058001,8001,0001,8001,40061,000001,00050078001,2004001,20080084000040020091003002003002501020000200100Sum4,1004,1002,1006,2004,150Average410410210620415

Just-in-timeTarget stock level (TSL)

Periodic order quantity = Target stock level Stock on hand Stock on order

TSL = cycle stock + safety stock

Just-in-time

Just-in-timeJIT and material requirements planning (MRP)Material requirements planning (MRP) - A methodology for defining the raw material requirements for a specific item, component, or sub-assembly ordered by a customer, or required by a business process. MRP systems will usually define what is needed, when it is needed, and by having access to current inventories and pre-existing commitment of that inventory to other orders to other customers, will indicate what additional items need to be ordered to fulfill this order.

Just-in-timeFeature of MRPMRP is based on JIT Pull scheduling logicMRP is good at planning, but weak at controlJIT is good at control, but weak at planningTPS Vs. FPS

Just-in-timeTakt time: The maximum time allowed to produce a product in order to meet demand.Jidoka: Autonomation ()Heijunka: A system of production smoothing designed to achieve a more even and consistent flow of work.()Kaizen: Improvement

Heijunka box

Content

Lean thinkingKey issues

Lean thinkingFordism: Henry Ford 1863-1947 The father of mass productionTaylorism: Frederick Taylor 1856-1915 The father of scientific managementToyota: Taiichi Ohno The father of Toyota Production System

Lean thinkingLean thinking refers to the elimination of waste in all aspects of a business and thereby enriching value from the customer perspective.Muda means waste, specifically any human activity which absorbs resources but creates no value.

Lean thinkingNine wastesWatching a machine runWaiting for partsCounting partsOverproductionMoving parts over long distanceStoring inventoryLooking for toolsMachine breakdownsRework

ConsistentProcessDesiredResultsInconsistentProcessInconsistentResultsTraditional = People doing whatever they can to get resultsLean = People using standard process to get resultsLean thinking

Lean thinkingRole of lean practicesSmall-batch productionReduce total cost across a supply chain, such as removing the waste of overproduction.Rapid changeoverRely on developments in machinery and product designProvide the flexibility to make possible small-batch production that responds to customer needs

Lean thinkingDesign strategyLean product designA reduction in the number of parts they contain and the materials from which they are madeFeatures that aid assembly, such as asymmetrical parts that can be assembled in only one wayRedundant features on common, core parts that allow variety to be achieved without complexity with the addition of peripheral partsModular designs that allow parts to be upgraded over the product lifeLean facility design

Lean thinkingDesign strategyLean product designLean facility designModular design of equipment to allow prompt repair and maintenanceModular design of layout to allow teams to be brought together with all the facilities they needSmall machines which can be moved to match the demand for themOpen systems architectures that allow equipment to fit together and work when it is moved and connected to other items

Case studyBarriers to knowledge transfers within suppliers plants (Dyer and Hatch, 2006)Network constraintsCustomer policies or constraints imposed by customersExample: One supplier was required by GM to use large (45) reusable containers. When filled with components, these containers weighed 200~300 pounds. By comparison, Toyota had the supplier use small (23) reusable containers weighing 40 pounds when filled.

Case study

Case studyBarriers to knowledge transfers within suppliers plants (Dyer and Hatch, 2006)Internal process rigiditiesU.S. customers production process involved a high level of automation or large capital investment in heavy equipment. The large machines and equipment were bolted or cemented into the floor, hence increased the costs of change. These process rigidities resulted in plant managers waiting until the vehicle model change before implementing a new process.Toyotas production network is designed as a dynamic system, and the flexibility to modify the system is built into the processes and procedures.

Content

Vendor-managed inventoryKey issue

Vendor-managed inventoryConventional Inventory ManagementCustomermonitors inventory levelsplaces ordersVendormanufactures/purchases productassembles orderloads vehiclesroutes vehiclesmakes deliveriesYou call We haul

Vendor-managed inventoryProblems with Conventional Inventory ManagementLarge variation in demands on production and transportation facilitiesworkload balancingutilization of resourcesunnecessary transportation costsurgent Vs. non-urgent orderssetting priorities

Vendor-managed inventoryVendor-managed inventoryCustomertrusts the vendor to manage the inventoryVendormonitors customers inventorycustomers call/fax/e-mailremote telemetry unitsset levels to trigger call-inYou rely We supplycontrols inventory replenishment & decideswhen to deliverhow much to deliverhow to deliver

Vendor-managed inventoryVMIAn approach to inventory and order fulfillment in the way that supplier, not the customer, is responsible for managing and replenishing inventory.

Vendor-managed inventorybuyersellerVMI data flowNumber of items in stockConsumption of previous periodAny other specific customer- or item-related parametersNumber of items as orderedNumber of items in back-orderAcknowledgement

Vendor-managed inventoryVMI does not stand forThe passing of the customers consumption history for a specific item, from the customer over to the supplier, who on the basis hereof, will follow-up the customers stock level and at the moment of the stock having reached a specific threshold, generates a purchasing order so as to replenish the stock.VMI in fact stands forGranting inspection of the sales profile of a specific item to the supplier, who on the basis hereof, will optimize the replenishment policy and ensure the pre-defined service level towards the end users of his customer.

Vendor-managed inventoryAdvantages of VMICustomerThe stock as such disappears from the companys balance sheet and this way clears the way for a higher amount of working capital.Customer only have to supervise the stocks, instead of drawing up a detailed analysis for the placing of orders.Reduce the time interval between receiving goods and making them available for consumption or sales.Stocks with customer will be reduced, because the uncertainty due to variability in the suppliers periods of delivery will drop.

Vendor-managed inventoryAdvantages of VMIVendormore freedom in when & how to manufacture product and make deliveriesbetter coordination of inventory levels at different customersbetter coordination of deliveries to decrease transportation cost (reduce the rush-order and related high cost)

Vendor-managed inventoryPotential problems in setting up a VMI systemUnwillingness to share dataSeasonal productsInvestment and restructuring costsCustomer vulnerabilityLack of standard procedures (between different customers)System maintenance

Case studyPraxairs BusinessPlants worldwide44 countriesUSA 70 plantsSouth America 20 plantsProduct classespackaged productsbulk productslease manufacturing equipmentDistribution1/3 of total cost attributed to distribution

Case studyPraxairs Business------Bulk productsDistribution750 tanker trucks100 rail cars1,100 driversdrive 80 million miles per yearCustomers45,000 deliveries per month to 10,000 customersVariation4 deliveries per customer per day to 1 delivery per customer per 2 monthsRouting varies from day to day

Case studyVMI Implementation at PraxairConvince management and employees of new methods of doing businessConvince customers to trust vendor to do inventory managementPressure on vendor to perform - Trust easily shakenPraxair currently manages 80% of bulk customers inventories

Case studyVMI Implementation at Praxair Praxair receives inventory level data viatelephone calls: 1,000 per dayfax: 500 per dayremote telemetry units: 5,000 per dayForecast customer demands based onhistorical datacustomer production schedulescustomer exceptional use eventsLogistics planners use decision support tools to planwhom to deliver towhen to deliverhow to combine deliveries into routeshow to combine routes into driver schedules

Case studyBenefits of VMI at PraxairBefore VMI, 96% of stockouts due to customers calling when tank was already empty or nearly emptyVMI reduced customer stockouts

Case studyWhats needed to make VMI workInformation management is crucial to the success of VMIinventory level datahistorical usage dataplanned usage schedulesplanned and unplanned exceptional usageForecast future demandDecision making: need to decide on a regular (daily) basiswhom to deliver towhen to deliverHow much to deliverhow to combine deliveries into routeshow to combine routes into driver schedules

Content

Quick responseThe application of quick response in apparel industryDevelopment lead time have been compressedProduction lead time are shorterZara case