6. lean scm
DESCRIPTION
SCMTRANSCRIPT
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JIT SCM
If Supply Chain Management is
the Answer, What's the Question?
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Introduction
Shift in manufacturing business processes in practically every industrial setting.
JIT thinking paradigm now includes the purchasing function.
JIT concepts have had a significant effect on the profitability in almost all industrial
settings.
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Introduction
The key JIT principles focus on people, postponement, efficiency, and the
elimination of waste.
All of these key business principles have a direct effect on the supply chain function.
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JIT Conceptual Framework
6-4
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Practices Essential for JIT Implementation
1. Uniform production
2. Quick set times
3. Small lot sizes
4. Short lead times
5. Preventive maintenance
6. Multifaceted workforce
7. Supplier development
8. Kanban production control
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On The Other Hand, The Japanese..
JIT is Toyotas manufacturing philosophy to minimize waste,
JIT production system is a subsystem controlled by kanban.
The kanban-controlled JIT production system has been erected based on the premise of minimizing work-in-process inventories (waste) by reducing or eliminating discrete batches.
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Supported By:
1. Smoothing of production,
2. Standardization of jobs,
3. Reduction of setup times,
4. Improvement of activities,
5. Design of machine layout,
6. Automation of processes.
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Significance Of JIT SCM
Material cost as a proportion of total cost of the end product has risen sharply and is
as high as 80 percent in some instances.
The role in a manufacturing organization has become increasingly important.
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Significance Of JIT SCM
Focuses on reducing both raw materials and work-in-process inventories.
Provide a firm with component parts and raw materials.
Requires that the right materials are provided to work stations at the right time
Ensure that high-quality products are provided on time, at a reasonable price.
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FOR JIT PURCHASING TO WORK.
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Reduced Order Quantities
Small lot sizes.
Long and infrequent production runs have in the past been considered beneficial for
the overall productivity of a manufacturing
organization.
However, long production runs usually lead to high levels of raw-material and
finished-goods inventories.
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On-Time Delivery Schedules
Supplier performance can be measured more accurately under the JIT SCM
In order to obtain small lot sizes for production, the order quantity size needs
to be reduced and corresponding delivery
schedules need to be made more
frequent.
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Reduced Lead Times
To be able to maintain low inventory levels, it is critical that replenishment lead
times be as short as possible.
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COMPARISON BETWEEN TRADITIONAL AND JIT PURCHASING APPROACHES
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Traditional
Purchasing
JIT-Purchasing
Order quantities Based on trade-offs
between ordering
and carrying costs
Based on small lot
sizes for production
Delivery schedules Infrequent, primarily
because of high
ordering costs
involved
Frequent because
of small lot sizes
and low ordering
costs
Delivery windows Relatively wide Very narrow
Delivery lead times Relatively long and
relaxed
Stringent and
reduced significantly
Parts quality
Responsibility of the
quality function in
the organization
Responsibility of
supplier
Supplier base Fairly broad Considerably
smaller
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High Quality of Incoming Materials
Japanese manufacturers attempt to reduce incoming material inspection as
much as possible.
In order to eliminate the associated receiving inspection costs, a very high
emphasis is placed on the quality of
incoming materials under the JIT system.
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Reliable Suppliers
Since there is no buffer stocks, unreliable supply, in terms of delivery time and quality of incoming material, may lead to frequent problems in production.
Purchasing function has been preoccupied with trimming the overall supplier base in quest of so called superior suppliers.
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JIT SCM BENEFITS
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Reduced Inventory Levels
Associated inventory holding costs.
Firms like Toyota have been able to reduce inventory levels to such an extent
that their inventory turnover ratios have
gone up to over 60 times per year,
compared to corresponding ratios of 5 to 8
reported by most American manufacturers.
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Improved Lead-Time Reliability
Delivery lead times are shorter.
Lead-time reliability is better
Higher levels of customer service
Lower safety stock requirements for the company.
Reduced working capital requirements for the firm.
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Scheduling Flexibility
Reduced purchasing lead times and setup times.
Prevents confusion in the manufacturing plant
Unique competitive advantages to manufacturing firms since they are
capable of adapting to changes in the
environment more quickly.
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Improved Quality
High-quality incoming materials result in savings associated with reduced rework
and scrap
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Reduced Costs of Parts
As cooperation and relationships between suppliers and manufacturers build up in a
JIT system, so do the opportunities to
conduct an extensive value analysis and
focus on reducing the cost of parts
purchased.
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Constructive Synergies with Suppliers
Because of smaller lot sizes and frequent delivery schedules, suppliers are in a
position to receive quick feedback
regarding any potential manufacturing or
design problems.
Manufacturing is in a position to implement engineering changes quicker because of
the reduced inventory levels.
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Cost Decreases
Reduces physical inventory level
Reduced insurance premiums associated with the storage of inventory.
Reduced inventory holding costs
Reduced labor cost in store rooms and material handing costs.
Reduced clerical and administrative costs.
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Cost Decreases
Reduced waste from the manufacturing process.
Reduced obsolescence costs.
Reduced deprecation of handling and storage equipment.
Each of the cost savings will result in a leaner more profitable operation.
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PROBLEMS WITH IMPLEMENTATION
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Lack of Cooperation from Suppliers
The suppliers see little incentive in adopting the JIT approach when the
primary benefits of the program go to the
buyer
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What You Need To Give
1. A long-term business agreement
2. A fair return on supplier investment
3. Adequate time for thorough planning
4. Accurate demand functions
5. Correct and firm specifications
6. Parts designed to match suppliers process capability
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What You Need To Give
7. Smoothly timed order releases
8. A fair profit margin
9. Fair dealings with regard to price
10.A minimum number of change orders
11.Prompt payment of invoices
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Lack of Top Management Support
Implementation of the JIT philosophy requires a cultural change in the
organization.
Cannot be implemented successfully without total support from top
management.
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Lack of Employee Readiness and Support
Resistance is encountered because the employees are required to change their long-standing work habits, or because they interpret the new system as being a threat to their jobs.
JIT system requires most employees to assume more problem-solving responsibilities on the job, which may lead to additional frustration.
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Lack of Support from Design Engineering Personnel
Design engineering is responsible for making technical specifications for the
materials a company buys.
SCM does not receive adequate support from engineering functions, and, as a
result, often unable to advise suppliers on
material quality design options.
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Low Product Quality
If suppliers fail to provide materials of adequate quality on a regular basis,
production slow-downs and stoppages will
occur regularly.
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Lack of Communication
Integration of important functional areas
Lack of proper communication among these areas poses a major obstacle
Purchasing function in an organization must assume the responsibility of calling
on top management regularly for
leadership and support.
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Role of Culture
The need to have harmony in organizations provides for better manufacturersupplier relationships at Toyota and Honda.
Severance of a business relationship between manufacturer and supplier has a strong stigma associated with it, which both manufacturers and suppliers try to avoid as much as possible.
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Critical Analysis of the JIT Concept
Many companies turned to JIT looking for a relatively painless financial surgery that
would yield substantial short-term benefits.
Over the years, these companies have come to realize the tremendous effort and
commitment required to make a JIT
system run smoothly.
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Critical Analysis of the JIT Concept
The practitioners painted an extremely romantic picture of JIT emphasizing
simplicity and efficiency, along with a state
of affairs where employee morale would
be high and relations between buyers and
suppliers would be completely
harmonious.
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Critical Analysis of the JIT Concept
It takes time to change attitudes of the workforce and nurture long-term
relationships with suppliers.
JIT systems work best when its smooth production and low inventory requirements
are aimed at meeting a relatively stable
product demand.
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Critical Analysis of the JIT Concept
Demand patterns are not stable for all products. In order to induce a relatively
stable demand, companies using JIT
manufacturing often consolidate their
product lines.
Not all marketing strategies are compatible with the JIT system.
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Final Note
Key word in supply chain management is management, and when relationships
aren't managed properly (or at all), then
there really isn't much of a supply chain.
What you've got instead is a mad free-for-all, and ultimately, a lot of unhappy
customers.