Supply Chain Management

Just-in-Time and Lean Production Systems

Ultimate goal = minimize waste

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, Toyota © 1995 Corel Corp.

What is Just-in-Time?

• Management philosophy of continuous and forced problem solving

• Supplies and components are ‘pulled’ through system to arrive where they are needed when they are needed.

• Push system: material is pushed into downstream workstations regardless of whether resources are available

• Pull system: material is pulled to a workstation just as it is needed

Lean Production

• Lean Production supplies customers with exactly what the customer wants, when the customer wants, without waste, through continuous improvement.

What Does Just-in-Time Do? • 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

Types of Waste

• Overproduction

• Waiting

• Transportation

• Inefficient processing

• Inventory

• Unnecessary motion

• Product defects © 1995

Corel

Corp.

Waste Reduction (%)

82%

50%

50%

30%

30%

20%

40%

0% 20% 40% 60% 80% 100%

Work-in-Process

Inventory

Raw Material

Inventory

Lead Time

Space

Finished Goods

Inventory

Scrap

Setup Time

JIT Reduced Waste at Hewlett-Packard

Variability Occurs Because...

• Employees, machines, and suppliers produce units that do not conform to standards, are late, or are not the proper quantity

• Engineering drawings or specifications are inaccurate

• Production personnel try to produce before drawings or specifications are complete

• Customer demands are unknown

Suppliers

Preventive

Maintenance

Layout

Inventory

Scheduling

Quality

Employee

Empowerment

JIT

Just-in-Time Success Factors

Streamlined Production

Flow with JIT

Traditional Flow

Customers Suppliers

Customers

Suppliers

Production Process (stream of water)

Inventory (stagnant ponds) Material

(water in

stream)

Inventory

• Traditional: inventory exists in case problems arise

• JIT objective: eliminate inventory

• JIT requires – Small lot sizes – Low setup time – Containers for fixed number of parts

• JIT inventory: Minimum inventory to keep system running

Scrap

Work in process inventory level

(hides problems)

Unreliable

Vendors

Capacity

Imbalances

Lowering Inventory Reduces Waste

Scrap

Reducing inventory reveals

problems so they can be solved.

Unreliable

Vendors

Capacity

Imbalances

WIP

Lowering Inventory Reduces Waste

Scrap

Reducing inventory reveals

problems so they can be solved.

Unreliable

Vendors

Capacity

Imbalances

WIP

Lowering Inventory Reduces Waste

Customer

orders 10

Lot size = 5

Lot 1 Lot 2

Lot size = 2

Lot 1 Lot 2 Lot 3 Lot 4 Lot 5

Reducing Lot Sizes Increases the Number of Lots

…Which Increases Inventory Costs

Lot Size

Cost

Setup Cost

Optimal

Lot Size

Smaller

Lot Size

Unless Setup Costs are Reduced

Lot Size

Cost

Setup Cost

Original optimal lot size

New optimal

lot size

Frequent Orders can Reduce Average Inventory

Time

Inve

ntor

y 10

0 20

0 Q1 When average order size = 200,

average inventory is 100

Q2 When average order size = 100,

average inventory is 50

Lower Total Cost Requires Small Lot Sizes and Lower Setup Costs

Lot size

Sum of ordering

and holding cost

T1

T2

S2

S1

Cos

t