Kanban/Just-in-Time Systems
Kanban and just-in-time systems have become much more important in manufacturing and logistics operations in recent years. Kanban, also known as the Toyota Production System (TPS), was developed by Toyota Motor Company during the 1950s and 1960s. The philosophy of Kanban is that parts and materials should be supplied at the very moment they are needed in the factory production process. This is the optimal strategy, from both a cost and service perspective. The Kanban system can apply to any manufacturing process involving repetitive operations.
Just-in-time (JIT) systems extend Kanban, linking purchasing, manufacturing, and logistics. The primary goals of JIT are to minimize inventories, improve product quality, maximize production efficiency, and provide optimal customer service levels. It is basically a philosophy of doing business.
JIT has been defined in several ways, including the following:
1. As a production strategy, JIT works to reduce manufacturing costs and to improve quality markedly by waste elimination and more effective use of existing company resources.
2. A philosophy based on the principle of getting the right materials to the right place at the right time.
3. A program that seeks to eliminate nonvalue-added activities from any operation with the objectives of producing high-quality products (i.e. "zero defects"), high productivity levels, and lower levels of inventory, and developing long term relationships with channel members.
At the heart of the JIT system is the notion that waste should be eliminated. This is in direct contrast to the traditional "just-in-case" philosophy in which large inventories or safely stocks are held just in case they are needed. In JIT, the ideal lot size or EOQ is one unit, safely stock is considered unnecessary, and any inventory should be eliminated.
Many firms have successfully adopted the JIT approach. Companies in industries such as metal products, automobile manufacturing, electronics, and food and beverage have implemented JIT and realized a number of benefits, including:
1. Productivity improvements and greater control between various production stages.
2. Diminished raw materials, work in process, and finished goods inventory.
3. A reduction in manufacturing cycle times.
4. Dramatically improved inventory turnover rates.
In general, JIT produces benefits for firms in four major areas: improved inventory turns, better customer service, decreased warehouse space, and improved response time. In addition, reduced distribution costs, lower transportation costs, improved quality of supplier products, and a reduced number of transportation carriers and suppliers can result from the implementation of JIT.
Problems Associated with Implementation JIT
It has some inherent problems which fall into three categories: production scheduling (plant), supplier production schedules, and supplier locations.
When leveling of the production schedule is necessary due to uneven demand, firms will require higher levels of inventory. Items can be produced during slack periods even though they may not be demanded until a later time, finished goods inventory has a higher value because of its form utility; thus, there is a greater financial risk resulting from product obsolescence, damage, or loss.
However, higher levels of inventory, coupled with a uniform production schedule, can be more advantageous than a fluctuating schedule with less inventory. In addition, when stockout costs are great because of production slowdowns or shutdowns. JIT may not be the optimal system. JIT reduces inventory levels to the point where there is little if any safety stock, and parts shortages can adversely affect production operations.
Supplier production schedules are a second problem with JIT. Success of a JIT system depends on suppliers' ability to provide parts in accordance with the firm's production schedule. Smaller, more frequent orders can result in higher ordering costs and must be taken into account when calculating any cost savings due to reduced inventory levels. When a large number of small lot quantities are produced, suppliers incur higher production and setup costs. Generally, suppliers will incur higher costs, unless they are able to achieve the benefits associated with implementing similar systems with their suppliers.
Supplier locations can be a third problem. As distance between the firm and its suppliers increases, delivery times may become more erratic and less predictable. Shipping costs increase as less than truckload (LTL) movements are made. Transit tune variability can cause inventory stockouts that disrupt production scheduling; when this is combined with higher delivery costs on a per unit basis, total costs may be greater than the savings in inventory carrying costs.
JIT II applies JIT concepts to the purchasing function by having a representative of the supplier locale at the buying organization's facility. Developed by Bose Corporation, this approach improves mutual understanding between the buyer and supplier, reduces waste and redundancy of efforts, improves supplier responsiveness, and creates a positive working environment.