Inventory
Management/JIT
and Lean
Manufacturing
Brad Bourque
Corey Lyons
Outline
Chapter Outline
JIT, Production systems, and Lean operations
• JIT – Just In Time
• JIT Layout
• JIT Inventory
• JIT Scheduling
• JIT Quality
What is JIT Manufacturing?
• A production strategy that strives to improve a business return on
investment by reducing work-in-process (WIP) Inventory and
associated carrying costs.
- Pull Items when needed
- Less Inventory
When Implementing JIT:
• Materials arrive where they
are needed, when they are
needed
• Identifying problems and
driving out waste reduces
costs and variability and
improves throughput
• Requires maintaing meaningful
buyer-supplier relationship
JIT/Lean Operations
Good production systems require that managers address three
issues that are pervasive and fundamental to operations
management:
• eliminate waste
• remove variability
• improve throughput
Main Benefits & Advantages of
JIT:
• Funds that were tied up in inventories can be used elsewhere.
• Areas previously used to store inventories can be used for
other more productive uses.
• Throughput time is reduced, resulting in greater potential
output and quicker response to customers.
• Defects are reduced, resulting in less waste and greater
customer satisfaction.
[Link]
Reduction in (WIP) has many Advantages
• Reduces set-up times in the material flow process
• Increases supplier Quality
• Goods (Inventory) from the warehouse to the floor flows
smoother
• Consistently receive and then supply goods
• Allows employees to work more efficiently
• Better scheduling and forecasting
Eliminate Waste
Waste is anything that does not add value from the customer point of
view:
• Storage, inspection, delay, waiting in queues, and defective products
do not add value and are 100% waste
Example Ohno’s 7 Wastes from TPS – Toyota Production Systems
• Overproduction
• Queues – lines or buildup
• Transportation
• Inventory
• Motion
• Over processing
• Defective products
Eliminate Waste
Other resources; energy, water, and air are often wasted
5 Ss Model: “Lean Production Checklist”
• Sort/segregate – when in doubt, throw it out
• Simplify/straighten – methods analysis tools
• Shine/sweep – clean daily
• Standardize – remove variations from processes
• Sustain/self-discipline – review work and recognize progress
• Safety – build in good practices
• Support/maintenance – reduce variability and unplanned
downtime
Remove Variability
JIT systems require managers to reduce variability caused by
both internal and external factors:
• Variability is any deviation from the optimum process that
delivers perfect product on time, every time
• Inventory hides variability, so JIT eliminates unnecessary
inventory and removes the variability
• Less variability results in less waste & more value to each step
of the production process
Sources of Variability
Variability is another word for problem in the manufacturing
industry.
• Incomplete or inaccurate drawings or specifications for
product(s):
- Takes away useful time and delays production
• Poor production processes result in incorrect quantities, and
late, or non-conforming units
• Unknown customer demands
Improve Throughput
The time it takes to move an order from receipt to delivery
• Time between the arrival of raw materials and the shipping of
the finished order is called the manufacturing cycle time
• A pull system increases throughput by pulling items when
needed
• By pulling material in small lots, inventory cushions are
removed
- Allows funds to be used elsewhere
- emphasizes the need for continual improvement
• Manufacturing cycle time is reduced
JIT and Competitive Advantage
JIT and Competitive Advantage
JIT Partnerships
• JIT partnerships exist when a supplier and purchaser work
together to remove waste and drive down costs
Four goals of JIT partnerships are:
• Removal of unnecessary activities
• Removal of in-plant inventory
• Removal of in-transit inventory
• Improved quality and reliability
* Consistency
JIT Partnerships
Suppliers Concerns
• Diversification – ties to only one customer increases risk
• Scheduling – don’t believe customers can create a smooth
schedule
• Lead time – engineering or specification changes can create
problems with short lead times
• Quality – limited by capital budgets, processes, or technology
• Lot sizes – small lot sizes may transfer costs to suppliers
* Share preferences and meet mutually on requirements
JIT Layout
JIT Layout Tactics – Reduces Waste Movement
• Build work cells for families of products
• Include a large number operations in a small area
• Minimize distance
• Design little space for inventory
• Improve employee communication
• Use poka-yoke devices – automatic or impossible to make
mistake
• Build flexible or movable equipment
• Cross-train workers to add flexibility
Distance Reduction
• Large lots and long production lines with single-purpose
machinery are being replaced by smaller flexible cells
• Often U-shaped for shorter paths and improved
communication
• Often using group technology concepts
Increase Flexibility
• Cells designed to be rearranged as volume or designs change
• Applicable in office environments as well as production
settings
• Facilitates both product and process improvement
Impact on Employees
• Employees may be cross trained for flexibility and efficiency
• Improved communications facilitate the passing on of
important information about the process
• With little or no inventory buffer, getting it right the first time
is critical
Reduced Space and Inventory
• With reduced space, inventory must be in very small lots
• Units are always moving because there is no storage
Inventory is at the minimum level necessary to keep
operations running
• Use a pull system to move inventory
• Reduce lot sizes
• Develop just-in-time delivery systems with suppliers
• Deliver directly to point of use
• Perform to schedule
• Reduce setup time
• Use group technology
Reduce Setup Costs
• High setup costs encourage large lot sizes
• Reducing setup costs reduces lot size and reduces average
inventory
• Setup time can be reduced through preparation prior to
shutdown and changeover
JIT Scheduling
Better scheduling improves performance – (each days
production meets the demand for that day)
• Schedules must be communicated inside and outside the
organization
• Level schedules:
- Process frequent small batches rather than few large
batches – (Jelly Bean Scheduling)
- Freezing the schedule helps stability
• Kanban
- Signals used in a pull system
- Kanban is not an inventory control system; it is a
scheduling system that helps determine what to produce,
when to produce it, and how much to produce.
JIT Scheduling – Small Lots
JIT Scheduling
Kanban system – (TPS)
• - Signals used in a pull system
• - Kanban is not an inventory control system; it is a
scheduling system that helps determine what to produce,
when to produce it, and how much to produce.
Kanban
• Usually each card controls a specific quantity or parts
• Multiple card systems may be used if there are several components or different
lot sizes
Kanban Replenishment Cycle
JIT Quality
Depends on Strong relationships
• JIT cuts the cost of obtaining good quality because JIT exposes
poor quality
• Because lead times are shorter, quality problems are exposed
sooner
• Better quality means fewer buffers and allows simpler JIT
systems to be used
The Advantages Of JIT - Continued
• [Link]
Inventory Management
• The objective of inventory management is to strike a balance
between inventory investment and customer service
• One of the most expensive assets of many companies
representing as much as 50% of total invested capital
• Operations managers must balance inventory investment &
WIP with customer service