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Is JIT really appropriate for American manufacturing?

Just-in-time (JIT) has become buzzword in manufacturing organizations. The JIT system is based on the concept of maximizing profit by reducing the cost of production. That is, an organization should be producing at higher rate while keeping the number of idle periods low and carrying little or no inventory tory.

It implies that JIT will result in the production of quality products with little or no waste in quantity. This can be accomplished by requiring the delivery of specified quality at the time needed. It requires the producers to work with customers and suppliers in order to know the requirements of each party.

Much has been written about the JIT system. However, the key elements of the JIT system include the following:

1. A fixed, steady rate of production.

2. Low inventories.

3. Small lot sizes.

4. Quick, low-cost setups.

5. Better layout.

6. Preventive maintenance and repair.

7. Multifunctional workers.

8. High quality levels.

9. A cooperative spirit.

10. Reliable vendors.

11. A pull system of moving goods.

12. Problem solving.

13. Continual improvement.

A successful JIT system requires that most of the above conditions be present in an organization. The elements specify that besides the technical requirements such as preventive maintenance and better layout etc., there should be close cooperation among workers, managers, suppliers and customers. The successful implementation of JIT, therefore, requires careful planning and better understanding of the JIT system. Unfortunately, most organizations take one aspect of the JIT system and expect to achieve its purported economic success. Many organizations do not understand the implications of the JIT system and may implement the system with costly consequences.

Purchasing

There is no doubt that, for some organizations, the proper implementation of JIT should have a positive economic impact on the organization. The proper adoption of JIT would affect production planning, scheduling, quality, inventory, purchasing, accounting, personnel, marketing and other aspects of the business. That is, the proper implementation of JIT requires changes in every aspect of the organization.

Unfortunately, it is purchasing that comes under microscopic scrutiny. It is estimated that more than 40 percent of the assets of an organization are tied up in inventory. Thus, purchasing tries to shift the responsibility of storage to suppliers. Invariably the reduction in inventory is achieved by requiring suppliers to produce the specified quality and quantity and ship them at the right time to the right place. In addition, most large customers also require their suppliers to assure the quality of the product they sell. In essence, they also shift the cost of quality control to the suppliers.

In other words, the users attempt to carry little or no inventory while expecting the suppliers to have the right quality available in the quantity when needed. The obvious implications of these shifts are that the suppliers have to absorb most of the cost of the customers, and, as a result, have to raise the prices to recoup their cost of operation. Thus, there is a fallacy that since the users do not carry inventory, the system as a whole carries little or no inventory. Therefore, it creates an impression that since the cost of operation is lower at the user's location, the cost of the product is lower for the customer.

The situation is further aggravated when the customers have to require the suppliers to bid for the job. As a result, the suppliers have to produce at the lowest cost possible or find ways to reduce cost by other means such as lowering quality. Thus, it has been found, as stated by Morgan, that "JIT production lines have some of the largest rework inventories in industry."

Cost of shipping

Further, JIT requires sending items in the right amount to the right place and at the right time. It means shipping a small variety of quantity frequently. In the literature, no one has calculated the cost of frequent shipping vs. storing a reasonable quantity. The frequent shipment requires a reliable transportation system. That is, a truck must leave the source of supply at the right time with the right amount in order to arrive at the door of the customer at the specified time. It is possible that in a majority of cases the truck would arrive at the right time with the right quality product; however, no one has calculated the cost of shutting down an operation due to the late arrival of a truck or receiving low quality product. This cost has to be included when calculating the savings resulting from carrying no inventory.

In addition, since most of the burden of the inventory is shifted to the supplier, the supplier must be compensated for these additional responsibilities. The prudent business person obviously will have to recover this cost or risk going out of business. Who pays for this additional cost? The question is then, is there really a reduction in cost or is it a mere shift of cost which has to be eventually recovered from someone? Morgan states that "inventory, whether it's in your shop or in the supplier's, eventually gets paid for - by you." That is, if a company wants delivery under the JIT system, it is expected to pay for the additional cost.

A recent study by the Association for Manufacturing Excellence suggests exactly these conclusions. They found that in order to meet the JIT requirements of the customers, the suppliers hold unusually large inventory and ship them as required.

Obviously, this suggests that the burden has been shifted to the suppliers. This condition forces the suppliers to plan ahead for their customers, a difficult, if not impossible, process for any organization to accomplish. Further, in order to meet the deadline, the suppliers try to obtain the forecasts of their customers for their production planning and scheduling of shipments.

In a survey of the U.S. manufacturers, 47 percent of those surveyed indicated serious problems with their suppliers. Some of the problems indicated were:

1. Suppliers will not commit to JIT unless given greater incentive for their effort.

2. Lack of communication between the parties.

3. Suppliers felt that they were required to do more while compete for a job on the basis of lowest bid.

These studies indicate that there is little understanding of the JIT system.

Changes in accounting

In addition to the problems discussed so far, JIT requires changes in the accounting system. That is, since the customers require frequent delivery, should the customer send a purchase order before the delivery is made, as required under the conventional accounting system, or should the goods be shipped without a standard purchase order? Further, should the customers be billed every time goods are shipped, or should the supplier wait until a certain quantity has been shipped before billing? Regardless, the accounting system has to change to allow for these changes, which might increase cost for the suppliers and customers because of increased paperwork and delayed or frequent payment.

Frequent delivery means increased freight cost. The freight cost also increases because of the frequent shipment of small quantities. This arrangement does not allow for economies of scale of a single large shipment. Thus, the freight cost per unit would go up. One of the suggested ways for reducing freight costs is to consolidate shipment. This would require much more coordination. Another approach requires building suppliers locally or requiring the suppliers to relocate. Both have inherent difficulties. Either approach could create monopolistic control of the suppliers over the customer or the customer over the suppliers. Either of the situations may not be economically desirable.

Production scheduling

JIT is also a technique for material organization and production scheduling. Products are divided into similar groups for routing. They are produced on dedicated, specialized equipment. The specialized equipment can be easily switched from one product to another. This reduces the set-up time and allows for the production of smallsize batches. Further, since JIT is based on a pull system, work is completed only when needed at the next station. This should result in short delay and transit time, low stock, low scrap and rework. However, it requires a short lead time and a quick delivery system. The technique of JIT is not feasible for companies that produce seasonal product. For example, under the JIT system, the lawn mower manufacturers and their retailers are expected to wait until the spring to produce and order lawn mowers. Obviously, companies have to stay idle or come up with seasonally substitutable products to keep the business operating.

What about emergency demand conditions? For example, a snow blizzard could increase demand for snow blowers and snow shovels. How would the business meet this surge in demand? A JIT system is not capable of meeting more than the usual smooth demand conditions. Obviously, inventories must be carried in such situations. Mito says that the complete elimination of inventory will cause shortages and other problems. Thus, reducing inventory to zero is impractical. Further, Shingo states that companies that operate with tight capacity end up carrying large inventory in order to meet unexpected demand conditions. The tight capacity also results in lower maintenance, causing quality and breakdown problems.

Human relations concerns

Another requirement of JIT is close coordination among the personnel of the organization as well as the suppliers and customers. As a result, the success of the system is based on the people working together. It emphasizes team effort.

In a study of organizations with the JIT system, the authors found that the successful implementation of JIT requires: communication skills, management commitment, worker commitment and appropriate performance evaluation. Further, the communication skills require a clear definition of communication lines between management and workers, between the workers, between the organization and the suppliers, and the organization and the customers. In addition, the communication lines must be open continuously and improved constantly. The authors of the study concluded that behavioral and human relations concerns are of primary importance to the success of' JIT. Their conclusions are consistent with the findings of other authors such as Peters who found that systems fail because of the lack of trust and cooperation among the participants.

Will it work in America?

Unfortunately, as is well known, the American management style is not prone to teamwork. In most cases, management makes decisions about the processes, the design and planning. Genuine teamwork in production requires that meaningful decisions must be made by or in cooperation with workers who perform the work. This teamwork requires capable management for development and continued improvement as well as security of jobs for workers for them to put their effort in the future of the organization. All of these are lacking in American organizations. Zipkin states," ... JIT gurus conjure a rather romantic vision of manufacturing, one that inspires readers - who are often senior managers, far removed from factory floor - to demand wholly unrealistic goals from subordinates on the line."

Many people are touting the "good" things of JIT. However, Morgan said, "often, though, they are celebrating the papering over a future problem."

JIT systems require good production and shop floor control procedures. According to Gettlemen, "management will have to know what they are going to produce and when, and then execute some very precise flow and control." He further says, "successful JIT programs do not countenance sloppiness or ambiguities as what is on the factory floor. Forcing fundamental improvement is the real JIT payoff." Further, Zipkin states, "... that sharp reduction in inventory buffers may lead to a regimented work flow and high levels of stress among employees."

As is obvious, JIT is not another robot that can be purchased and put into an operation. It is a new method for restructuring the organization, and it is not easy to accomplish. The biggest difficulty in restructuring is giving the decision making power to those who are directly involved in performing the work. However, decisions require that appropriate up-to-date information be made available to the decision-maker. This may not be possible in the present organizational structure, which specifies departmental control over functions.

Conclusion

JIT is the most discussed topic in the literature. Professionals are excited about the concept due to its successful use in Japanese business organizations. The most important reasons for its success, however, are the culture, the geography and the business environment in which JIT has been adopted. It will be unfortunate to expect that any system that has proven successful in other countries will invariably work successfully in another country. Just as a building cannot be built without a foundation, or a building cannot stand for long without a solid foundation, so can a system fail or be costly without a suitable environment. Thus, unless an organization understands the basic requirements of the JIT system, the system will most likely fail or will be more costly than the already tested and tried systems. Shingo states, "some people imagine that Toyota has put on a smart new set of clothes, the kanban system, so they go out and purchase the same outfit and try it on. They quickly discover that they are much too fat to wear it." Hall states, "All the companies that have given (JIT) more than lip service have experienced struggle and frustration." Zipkin states that JIT is a Japanese system and has to be adopted with modifications so that it fits the American culture. Before adopting the JIT system, one should ask the question: does it fit my organization's philosophy and culture?

For further reading

Production/Operations Management, William J. Stevenson, Publisher Ansari, A., and Batoul Modarress, "Just-in-time Purchasing," Journal of Purchasing and Material Management, Summer 1986, Vol. 22, No. 2. Balsmeier, Phillip W., Just-in-time: Implications and Application for Purchasing," Arkansas Business and Economic Review, Spring 1988, Vol. 21, No. 2. Gettlemen, Ken, "From the Pen of Ren," Modern Machine Sho May 1991, pp. 6-8. Hall, Robert, Zero Inventories," 1983, Dow-Jones Irwin, Homewood, Il. Helms, Marilyn M., et all, "Meeting the Human Resources Challenges of JIT through Management Development," Journal of Management Development, Summer 1990. Mito, Setsuo, and Tiaichi Ohno," Just-In-TIME for Today and Tomorrow," Productivity Press, 1988, Cambridge. Morgan, Jim, "JIT: Far too often the celebration's premature," Purchasing, September 12, 1991. Peters, T., Thriving on Chaos, Alfred A. Knopf, New York. Raia, Ernest, "Just-in-time USA," Purchasing, February 13 1986 Vol. 100, No. 3. Sheridan, John H., Ignoring the Real Promise of JIT?" Industry Week, March 6, 1989. Shingo, Shigeo, "A Study of the Toyota Production System from and Industrial Engineering Viewpoint," Productivity Press, 1989, Cambridge. Zipkin, Paul H., "Does Manufacturing Need a JIT Revolution?", Harvard Business Review, January-February, 1991.
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Title Annotation:just-in-time inventory
Author:Shahabuddin, Syed
Publication:Industrial Management
Date:May 1, 1992
Words:2426
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