intemational journal of

production economics

ELSEVIER Int. J. Production Economics 44 (1996) 97-103

Hybrid just-in-time logistics systems and information networks for effective management in perishable food industries

M. Iijima”?*, S. Komatsub, S. Katoh”

“Faculty of Economics, Yokkaichi University, 1200 Kayocho, Yokkaichi, 512, Japan bFaculty of Management Information Systems, Nagoya University of Commerce and Business Administration

‘Kanehatsu Systems Co. Ltd.

Abstract

Recently consumers’ preferences in commodities have been diversifying. So timely market quality and sales informa- tion needs to be gathered to reflect consumers’ preferences in the various food products handled by companies. Especially in food industries, effective logistics systems must be organized taking account of the restriction of short delivery times in order to distribute fresh food to consumers.

This paper discusses how to develop methods to achieve these results using an original hybrid Just-In-Time (JIT) logistics system balancing the two aspects of efficiency and variety of foods to develop effective management strategies operable on downsized personal computers. In order to develop these methods, we use as an illustration the example of Kanehatsu Foods Co. Ltd., (referred to below as K-company) a regional medium-scale but well-known food company in Japan.

Keywords: Just-in-time; Hybrid logistics system; Information networks; Perishable food; Management strategies

1. Introduction

Up until now JIT production systems have been the key to improved productive efficiency in many companies. But currently, consumers’ wants are tending to diversify. As new products are developed in response to this, production lot size becomes smaller and products’ life cycles become shorter. Accordingly, there is an urgent need to prevent a loss of production and sales efficiency, to reduce

* Corresponding author.

products stocks through determining optimal lead times, and to increase order volumes while keeping the number of operators to a minimum. At the same time, improved efficiency in the supply of goods also contributes to the effort to decrease CO2 and NO, pollution, which has been recog- nized as a priority in environmental policy recently. Computer network systems with bar-codes (Elec- tronic Kanban) are becoming a useful device for quick information gathering.

As the production and delivery times are rather short, there is a need to have stocks of semi-prod- ucts in line for anticipated future production. This means that forecasting errors are going to occur in

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98 M. Iijima et al. /ht. J. Production Economics 44 (1996) 97-103

anticipated production directives and quantities of existing finished products.

JIT is effective for making a logistics system including not only production management but also decisions concerning sales and distribution quantities to ensure customer satisfaction [ 11.

In recent studies, JIT manufacturing systems which combine “push-type” (MRP) and “pull-type” (Kanban) systems are called “hybrid production systems” [2,3]. This paper treats a hybrid logistics system coordinating sales with management.

In this study, we use as an illustration K-com- pany, a regional medium-scale but well-known per- ishable food company in Japan. K-company has accomplished effective personal computer (PC) networks in order to respond quickly to customers’ preference and other environmental changes.

The arrangement of computer networking tech- nologies is an important problem. The past history of the use of PC networks in the K-company in Table 1 is briefly as follows. In 1969, K-company decided to introduce its first office computer FACOM 230 with an 8KB main memory which was replaced by a FACOM V in 1977, a FACOM V850 in 1982, and then a FACOM K system in 1985. The on-line systems began to develop in 1982 in cooperation with the leading supermarket chain Ito Yokado, using JCA (Japan Chain Store Associ- ation) procedures that realized a daily delivery sys- tem. In 1985, benefiting from the introduction of a FACOM K system, K-company began to utilize total network systems, with its group companies, other cooperating firms, suppliers and financial companies. And in 1986, sales head office in the K-company started an order-entry system with the use of the FACOM K280 system.

2. Logistics in perishable foods industries

A few years ago, the supply of perishable foods was mainly supermarket centered but recently more food is sold in convenience stores, and the number of such stores has greatly increased.

In order to supply such kinds of small sale stores, it is necessary to make a logistics system as shown in Fig. 1. By using this system, it becomes possible to meet short delivery times by means of a JIT

Table 1 Brief history of Kanehatsu computer systems

Year Devices or systems introduced Main memory

1970-‘71

‘76 ‘77

‘78

‘79

1980

‘82

‘83

‘85-‘86

‘89

1990-‘94

Intro. of FACOM 230-10

FACOM V

Adopted fixed disk device.

1st fax-network sys. started.

5 workstations to deal with the

distributed processing system.

on-line processing started

for supermarket chains.

FACOM V850 2nd fax-network sys. realized.

FACOM K280

Order-entry system started.

POS system started between

K-Company and central retail

market in Nagoya. FACOM K670 series

8KB

24 KB

128 KB

256 KB

512 KB

1 MB

4MB

12 MB

Sales Heed Office

I 1 orders (host coepo; t-._+

H-----7 -7 v-o-v-

prsduction+inventorp + I-B” t ammgaent materials Q 4 ingredients. discarded or

kept in stock

-0eterisls or

- + _ v - v . . . . 0

distribution ~retailers+coesemers -vbolesale -~supemarkets

dealers I ,convenience

Fig. 1. Example of logistics system in food industry.

distribution system to be synchronized with sales. The routes of distribution to outlet stores are deter- mined as fixed delivery rounds that are difficult to change. For each store, the day’s sales are com- pared with past sales accounts in order to establish pre-accounts for the next day’s estimated sales. On the basis of this information, orders are then sent to the supplier food companies.

3. Buyers’ wants and characteristics of food industries

Food goes into people’s mouths and must there- fore answer to consumers’ wants. Customers follow

M. Iijima et al. /ht. J. Production Economics 44 (1996) 97-103 99

standard criteria such as freshness, good taste, and cheapness in purchasing daily food, and are espe- cially concerned about freshness, as indicated by the production date. Accordingly, the research and development of new products has been marketing oriented.

Everyday food is mainly bought by women and therefore in the design and development tasks in a company like Kanehatsu, all of the project mem- bers are women.

Some examples of new or modified products that take into account customers’ wants are shown in Table 2.

Some characteristics of food industries in contrast to other manufacturing industries are as follows

(1) Foods products stop selling well a short time after the production date.

(2) They must be taken off the shelf once the expiry date has passed.

(3) The same product may require a change of recipe to satisfy the taste of different regions.

(4) The information networks and distribution methods themselves may make a difference to sales, because the products are cheap and apt to imitate one another.

4. Management strategies and methods of production, and sales system with hybrid logistics

ln Japanese food marketing, most consumers tend to buy perishable foods according to produc- tion dates. It is therefore important to design a pro- duction and sales system which is able to ensure short delivery times. One of the methods of achiev- ing this is the ordering of information management in the form of personal computer networks and the forecasting of sales in order to synchronize produc- tion and delivery with them.

As shown in Fig. 2, production rate is first plan- ned with reference to past data, and then modified in accordance with total order information, which is collected 4 times in a day. If the modification in production quantity is large enough, the produc- tion planner makes a decision to change the lot size within a boundary limit capacity. The symbols in the figure are explained as follows.

Table 2

Representative high popularity foods

Foods

Kimpira

(burdock)

Kombu

(tangle)

Jako (small fish)

Fixed characteristics Modifications

Conservative Add meat and chicken

traditional foods

in Japan Reduce volume of salt

(10% -+ 3%)

Soften the texture and

enhance the taste

quantity order completed

exact

order O.*- L !T~ additional

/b. ’ production

.,/’ D, I., / ;

I // production 0, )I

prcduction,/ j forecast

1 start /‘,I’ -+,p / , ”

\ t production lead time t + 1 time-s

prcwluction dispatch

cumpleted /” A A

supply distribution customers

Fig. 2. Time series data from order to supply.

Anticipated demand quantity D,:,_ 1 on a day t is decided on the previous day (t - l), and small cha- nges in production rate are then determined by monitoring day t’s order quantity 0,. This quantity 0, is fixed by the K-company head office as the total quantity of orders gathered by the sales head office host computer and workstations from every customer and every sales office through on- line systems, telephone or fax information. The final production quantity is then established in order to reduce as far as possible the forecasting error 8,.

E, = ID,:,-, - 0,I. (1)

If E, is a large value, the company must increase or decrease production to compensate. The operation proceeds as follows.

Assuming that M is the maximum possible in- crement in production quantity, then in case of overordering, 0, - D,:,_ 1 30,

if M < E, then make additional quantity M

100 M. Iijima et aLlInt. J. Production Economics 44 (1996) 97-103

(E, - M) is the remaining shortfall which is im- especially pre-cooked foods, have small production

possible to fill; lot sizes. if e,@4 then make additional quantity E,. In case of underordering, D,:,_l - O,gO, then

discard quantity a,. 5.2. Manufacturing process Fig. 2 shows the time series of products inclu-

ding the whole period from the time of ordering, through production, to the time of purchase by customers.

The main process line produces vegetable and potato salad and consists of batch-wise operation units, such as boiling vat, masher, vacuum chiller, mixer, and continuous wrapping machine, as shown in Fig. 3 block flow diagram - vegetable and potato salad process. 5. Processes and results in the case of K-company

5. I. Conditions for use of JIT in K-company ‘s sys tern

The bulk of the production of K-company consists of fresh daily dishes, boiled beans and fish boiled down with soy, and the amount of sales, including sales by affiliated companies, is about 43 billion yen or 430 million dollars per year

c41. The following conditions are required for the

effective use of JIT. (1) The initial production plan is drawn up on

a weekly basisEach day’s production is calculated from a comparison of orders and quantities of stock. But unsold fresh daily dishes are discarded because they are perishable.

(2) There are three main production lines. Standardized production of salad is carried on for each of several varieties such as “vegetable and potato salad”, “spaghetti salad”, “macaroni salad”,

“spring salad”, and so on. Some of the products,

In the line, peeled fresh potato, procured from an outside supplier, is boiled, mashed, chilled, mixed with other vegetables and seasonings and inspected at the outlet of the mixer.

Running side by side with the main process line, a subprocess line processes other vegetables to be mixed with the mashed potato and consists of a washer, cutter, blancher and chiller. The veg- etables are washed, cut, blanched, chilled and mixed with the mashed potato.

In addition, a line with a washing and peeling machine for potatoes is installed in case the peeled potato is insufficient to meet with the orders for potato salad.

Seasonings are added and mixed with potato and other vegetables in the mixer, to produce final products, which include 2000 to 3000 kinds of potato salad as regular items. The process handles 1600 tons/y of fresh potato, produces 3000 tons/y of products and has 2 h lead time of production, from boiling vat to wrapping

machine.

Fig. 3. Block flow diagram vegetable and potato salad process.

M. Iijima et al. JInt. J. Production Economics 44 (1996) 97-103

5.3. Computer network and information flow [S]

To manage the manufacturing of perishable food, a computer network system is integrated with the production network among the main company, subsidiary companies, subcontract companies and other outside suppliers. The computer network col- lects customer orders and make them penetrate to every part of the production network.

cus(tel,fru.cwline) j . . . . . . . . . . . . . . . . . . . . . . . .

The computer network is basically designed with necessary capabilities to store customer orders, to manage types and recipes of product and to receive all customer orders via on-line. Unfortunately, there are still some customer orders which are re- ceived via telephone or facsimile and not via on-line according to the convenience of the customers.

Fig. 4. Computer network and information flow.

The computer network in K-company is using an original VAN (value added networks) which con- sists of two host computer systems at the sales head office and production center and workstations dis- tributed to sales branch offices and subsidiary and subcontract firms, as shown in Fig. 4. These host computers and workstations, supplied by Fujitsu Co. Ltd. have major features as outlined in Table 3.

Table 3 Computers on network

Code No. Main memory CPU External

capability’“’ memory

(s) (MB)

The information in the network is basically transferred via public telephone line except the con- nections among sales head office, production head office and K-Pack, which are located on the same site as K-company head office.

Some of the customer orders are collected at sales branch offices and transferred to sales head office and the others are sent directly to sales head office via telephone, fax and on-line.

K6700/10 16 MB 16 1128

K6500 8MB 21 920

K670 16 MB 23 1818

K650 4MB 37 202-401

K1500 8MB 17 130

K150 6MB 78 80-130

KlOO 512 KB 96 20-43

KlOR 512 KB 113 20-43

a Denote ‘time in second’ required for translating standard

COBOL program.

The sales head office distributes production or- ders four times a day via on-line to production head office, production subsidiaries, production af- filiates and the food preparation center, and other suppliers via fax.

tured by K-company itself, while the sales head office controls the products manufactured by out- side companies.

For example, the sales offices receive a total of 11 173 orders a day from 7188 customers and dis- patch them to suppliers as follows: 5268 orders to production head office, 1024 to K-Pack, 304 to Yutaka Daily, 221 to K-Tsukemono, 58 to K-processing center and 4298 to other outside sup- pliers. The flow of information is 2.86 MB per day, since an order requires 256 bytes.

One of the major network systems for the K-company group is the “Customer store supply network”. This network is for the gathering of or- der information from customers. This is mainly carried out in accordance with JCA procedure, and is resumed in Table 4.

5.4. Evaluation of manufacturing systems

The production head office deals with the recipes This manufacturing information network system and packaging procedures of products manufac- based on JCA procedure started in 1982 and has

102 M. Iijima et aLlInt. .I Production Economics 44 (1996) 97-103

Table 4

Example of regional customers within the network

Region Supermarkets Convenience stores

Tokyo

Nagoya

Ito Yokado

JUSCO Tokyo Center

Yamanaka

Fujiya

Seven-Eleven Mini-stop

Osaka

Yokkaichi

Fukuoka

Izumiya

lchigokan

Nichiseikyo

gradually been spreading. We can evaluate this system as follows. Its use serves to:

(1) increase the number of items handled. In 1987, the total number of items treated by the computer system was 80000/month,but in 1994, it has grown to 280000/month. The number of people operating the computer system has decreased from 52 in 1987 to 42 in 1994. The external memory’s capacity has increased from 900 MB to 1.8 GB, that is about double. In this period, K-company introduced of POS (point of sales) network systems. Effects of POS were the shortening of overtime work in the production department of about 70 persons, from 60 h to within 10 h per person * month. In the K-logistics company, the workforce was de- creased from 60 to 4.5 by the use of a POS system. Another merit is the reduction of delivery mistakes. As of this together represents a great gain in efficiency.

(2) Establish a logistics system which cor- responds to diversification of sales items. Espe- cially, this makes it possible to respond to customer preference in pre-cooked foods in con- venience stores. Corresponding with wide geo- graphical spread of the Japanese regions, two main factories have been opened, one in Shizuoka for major convenience store chain Seven-Eleven, and the other in Fukuoka for the southern parts of Japan.

(3) Maintain the short manufacturing and deliv- ery times through the use of hybrid systems. The total of all orders can be found in a short time, but average order volumes become too small and the

number of order items too many to shorten the logistics period effectively. A system of this type can be thought of as a pull system, while correct fore- casting in the use of POS systems makes it possible to use a push system in parallel. Thus the hybrid logistics systems in K-company are the fruits of a combination between push-type and pull-type systems and PC networks.

6. Conclusion

This paper reaches the following conclusions concerning the use of network systems in perish- able food supply:

1. Sales networking, especially with convenience chain stores has spread so as to necessiate informa- tion systems embracing customer stores.

2. It is therefore now possible to set timely sup- plements in production to meet precise customer demand.

3. Very precise forecasts can be made of demand, leading to a minimization of discards of unsold goods (only 0.7% on average).This is because the orders from outlying regions whose quantities tend to vary, can be captured relatively early in the day, so that the total forecasting error can be minimized. Further, it is even possible to increase efficiency in the production of long-life products by utilizing unused ingredients in them.

Acknowledgements

We thank D. Dykes, professor at Yokkaichi Uni- versity, for his useful comments, and S. Yamada, a manager at Kanehatsu Systems Co. Ltd., other staff of Kanehatsu group companies and S. Mizuno, a graduate student of NUCBA, for their cooperation.

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