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6 - Just-In-time and Lean Thinking
6 - Just-In-time and Lean Thinking
Content
Just-in-time
Lean thinking
Quick response
Just-in-time
Key issues
1
What are the implications of Just-in-time for logistics?
How can just-in-time principles be applied to other forms of material control such as reorder point and material requirements planning?
Just-in-time
Just-in-time: A definition
Uses a systems approach to develop and operate a manufacturing system Organizes the production process so that parts are available when they are needed A method for optimizing processes that involves continual reduction of waste
Just-in-time
Little JIT
the application of JIT to logistics
Just-in-time
Pull scheduling
A system of controlling materials whereby the use signals to the maker or provider that more material is needed.
buyer
Pull: Just-in-time
Push scheduling
A system of controlling Push: traditional way materials whereby makers and providers make or send material in response to a pre-set schedule, supplier regardless of whether the next process needs them at the time.
Just-in-time
Activity
Pull
Demand uncertainty Computer
Push/Pull
Book/CD
Grocery
Scale economics
Push
Just-in-time
Just-in-time system
JIT Pyramid of key factors
Level 1 Just-in-time 1
Level 2
Level 3
Minimum 2 Minimum 6 inventory delay 3 4 Minimum Minimum 5 Simplicity defects downtime and visibility
Just-in-time
Just-in-time system
Factor 1
The top of the pyramid is full capability for JIT supply supported by Level 2 and Level 3 operation.
Factor 2
Delay and inventory interact positively with each other The concept of Kanban
Factor 3
Defect delay inventory
Just-in-time system
Factor 3
Defect delay inventory
Inventory
hides problems
Machine downtime Bad design Unreliable supplier Poor quality Inefficient layout
Just-in-time
Just-in-time system
Factor 4
Preventive maintenance Breakdowns Planned maintenance Changeover Flexible production Machine downtime Safety stocks
Just-in-time
Just-in-time system
Factor 5
Simply and visible process help to reduce inventory and could be better maintained.
Factor 6
Its more difficult to see the flow of a process with increased inventory.
Just-in-time
The supply chain game plan
Demand management Forecasts Orders
Bill of materials
Logistics execution
Work orders
Make Deliver
Just-in-time
The supply chain game plan
Independent demand
Demand for a product that is ordered directly by customers. items are those items that we sell to customers
Dependent demand
Demand for parts or subassemblies that make up independent demand products. items are those items whose demand is determined by other items
Just-in-time
Case: Automobile
Case: Cake
Just-in-time
Demand characteristics and planning approaches
Economic order quantities (EOQ)
Stock Recorder quantity Usage rate
Reorder point
Just-in-time
Assumptions in Economic Order Quantity Model
Demand is deterministic. There is no uncertainty about the quantity or timing of demand. Demand is constant over time. In fact, it can be represented as a straight line, so that if annual demand is 365 units this translates into a daily demand of one unit. A production run incurs a constant setup cost. Regardless of the size of the lot or the status of the factory, the setup cost is the same. Products can be analyzed singly. There is only a single product.
Notation
D = Demand rate (in units per year). c = Unit production cost, not counting setup or inventory costs (in dollars per unit). A = Constant setup (ordering) cost to produce (purchase) a lot (in dollars). h = Holding cost (in dollars per unit per year)
Just-in-time
EOQ model
Q Average inventory level 2Q
The holding cost per unit 2
A The setup cost per unit Q
hQ 2D
Just-in-time
EOQ model
hQ A Y (Q) c ( total cos t per unit ) 2D Q dY (Q) h A 2 0 dQ 2D Q 2 AD Q (economic order quantity) h
*
Just-in-time
Practice
Pam runs a mail-order business for gym equipment. Annual demand for the TricoFlexers is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic order quantity?
Q
*
Just-in-time
Demand characteristics and planning approaches
Periodic order quantity (POQ) and target stock levels
How much to order? Economic order quantity
When to order?
Just-in-time
Economic order quantity with uncertain demand
Week No. 1 2 3 4 5 Demand 100 100 200 400 800 Order quantity 1,000 0 0 0 1,000 Inventory end 900 800 600 200 400 Inventory start 1,000 900 800 600 200 Inventory holding 950 850 700 400 300
6
7 8 9 10 Sum Average
1,000
800 400 100 200 4,100 410
1,000
1,000 0 0 1,000 5,000 500
400
600 200 100 900 5,100 510
400
400 600 200 100 5,200 520
400
500 400 150 500 5,150 515
Just-in-time
Periodic order quantity (POQ) with uncertain demand
Week No. 1 2 3 4 5 Demand 100 100 200 400 800 Order quantity 200 0 600 0 1,800 Inventory end 100 0 400 0 1,000 Inventory start 200 100 600 400 1,800 Inventory holding 150 50 500 200 1,400
6
7 8 9 10 Sum Average
1,000
800 400 100 200 4,100 410
0
1,200 0 300 0 4,100 410
0
400 0 200 0 2,100 210
1,000
1,200 400 300 200 6,200 620
500
800 200 250 100 4,150 415
Just-in-time
Target stock level (TSL)
constant
Periodic order quantity = Target stock level Stock on hand Stock on order TSL = cycle stock + safety stock
Just-in-time
supplier
Distribution center
retailer
Just-in-time
JIT and material requirements planning (MRP)
Material requirements planning (MRP) - A methodology for defining the raw material requirements for a specific item, component, or sub-assembly ordered by a customer, or required by a business process. MRP systems will usually define what is needed, when it is needed, and by having access to current inventories and pre-existing commitment of that inventory to other orders to other customers, will indicate what additional items need to be ordered to fulfill this order.
Just-in-time
Feature of MRP
MRP is based on JIT Pull scheduling logic MRP is good at planning, but weak at control JIT is good at control, but weak at planning
Just-in-time
Takt time: The maximum time allowed to produce a product in order to meet demand. Jidoka: Autonomation () Heijunka: A system of production smoothing designed to achieve a more even and consistent flow of work.() Kaizen: Improvement
Heijunka box
Content
Just-in-time
Lean thinking
Quick response
Lean thinking
Key issues
1
What are the principles of lean thinking?
How can the principles of lean thinking be applied to cutting waste out of supply chains?
Lean thinking
Taylorism: Frederick Taylor
1856-1915 The father of
mass production Toyota: Taiichi Ohno The father of Toyota Production System
Lean thinking
Lean thinking refers to the elimination of waste in all aspects of a business and thereby enriching value from the customer perspective.
1. Specify value muda 4. Let customer pull 5. Perfection muda 2. Identify value stream muda
Muda means waste, specifically any human activity which absorbs resources but creates no value.
Lean thinking
Nine wastes
1. Watching a machine run 2. Waiting for parts 3. Counting parts 4. Overproduction 5. Moving parts over long distance 6. Storing inventory 7. Looking for tools 8. Machine breakdowns 9. Rework
Lean thinking
Inconsistent Process
Inconsistent Results
Consistent Process
Desired Results
Lean thinking
Role of lean practices
Small-batch production
Reduce total cost across a supply chain, such as removing the waste of overproduction.
Rapid changeover
Rely on developments in machinery and product design Provide the flexibility to make possible smallbatch production that responds to customer needs
Lean thinking
Design strategy
Lean product design
A reduction in the number of parts they contain and the materials from which they are made Features that aid assembly, such as asymmetrical parts that can be assembled in only one way Redundant features on common, core parts that allow variety to be achieved without complexity with the addition of peripheral parts Modular designs that allow parts to be upgraded over the product life
Lean thinking
Design strategy
Lean product design Lean facility design
Modular design of equipment to allow prompt repair and maintenance Modular design of layout to allow teams to be brought together with all the facilities they need Small machines which can be moved to match the demand for them Open systems architectures that allow equipment to fit together and work when it is moved and connected to other items
Case study
Barriers to knowledge transfers within suppliers plants (Dyer and Hatch, 2006)
Network constraints
Customer policies or constraints imposed by customers Example: One supplier was required by GM to use large (45) reusable containers. When filled with components, these containers weighed 200~300 pounds. By comparison, Toyota had the supplier use small (23) reusable containers weighing 40 pounds when filled.
Case study
Case study
Barriers to knowledge transfers within suppliers plants (Dyer and Hatch, 2006)
Internal process rigidities
U.S. customers production process involved a high level of automation or large capital investment in heavy equipment. The large machines and equipment were bolted or cemented into the floor, hence increased the costs of change. These process rigidities resulted in plant managers waiting until the vehicle model change before implementing a new process. Toyotas production network is designed as a dynamic system, and the flexibility to modify the system is built into the processes and procedures.
Content
Just-in-time
Lean thinking
Quick response
Vendor-managed inventory
Key issue
Vendor-managed inventory
Conventional Inventory Management
Customer
monitors inventory levels
places orders
Vendor
manufactures/purchases product assembles order loads vehicles routes vehicles
makes deliveries
Vendor-managed inventory
Problems with Conventional Inventory Management
Large variation in demands on production and transportation facilities workload balancing utilization of resources
Vendor-managed inventory
Vendor-managed inventory
Customer
trusts the vendor to manage the inventory
Vendor
monitors customers inventory customers call/fax/e-mail remote telemetry units set levels to trigger call-in controls inventory replenishment & decides when to deliver how much to deliver You rely We how to deliver
supply
Vendor-managed inventory
VMI
An approach to inventory and order fulfillment in the way that supplier, not the customer, is responsible for managing and replenishing inventory.
Vendor-managed inventory
Number of items as ordered Number of items in back-order
buyer
Acknowledgement
seller
Number of items in stock Consumption of previous period Any other specific customer- or item-related parameters
Vendor-managed inventory
VMI does not stand for
The passing of the customers consumption history for a specific item, from the customer over to the supplier, who on the basis hereof, will follow-up the customers stock level and at the moment of the stock having reached a specific threshold, generates a purchasing order so as to replenish the stock.
Vendor-managed inventory
Advantages of VMI
Customer
The stock as such disappears from the companys balance sheet and this way clears the way for a higher amount of working capital. Customer only have to supervise the stocks, instead of drawing up a detailed analysis for the placing of orders. Reduce the time interval between receiving goods and making them available for consumption or sales. Stocks with customer will be reduced, because the uncertainty due to variability in the suppliers periods of delivery will drop.
Vendor-managed inventory
Advantages of VMI Vendor
more freedom in when & how to manufacture product and make deliveries better coordination of inventory levels at different customers better coordination of deliveries to decrease transportation cost (reduce the rush-order and related high cost)
Vendor-managed inventory
Potential problems in setting up a VMI system
Unwillingness to share data Seasonal products Investment and restructuring costs Customer vulnerability Lack of standard procedures (between different customers) VMI Essentials System maintenance Trust Accurate information provided on a timely basis Inventory levels that meet demands Confidential information kept confidential Technology Automated electronic messaging systems to exchange sales and demand data, shipping schedules
Case study
Praxairs Business
Plants worldwide
44 countries USA 70 plants South America 20 plants
Product classes
packaged products
bulk products
lease manufacturing equipment
Distribution
1/3 of total cost attributed to distribution
Case study
Praxairs Business------Bulk products
Distribution
750 tanker trucks 100 rail cars 1,100 drivers
Customers
45,000 deliveries per month to 10,000 customers
Variation
4 deliveries per customer per day to 1 delivery per customer per 2 months
Case study
VMI Implementation at Praxair
Convince management and employees of new methods of doing business Convince customers to trust vendor to do inventory management Pressure on vendor to perform - Trust easily shaken Praxair currently manages 80% of bulk customers inventories
Case study
VMI Implementation at Praxair
Praxair receives inventory level data via telephone calls: 1,000 per day fax: 500 per day remote telemetry units: 5,000 per day Forecast customer demands based on historical data customer production schedules customer exceptional use events Logistics planners use decision support tools to plan whom to deliver to when to deliver how to combine deliveries into routes how to combine routes into driver schedules
Case study
Benefits of VMI at Praxair
Before VMI, 96% of stockouts due to customers calling when tank was already empty or nearly empty VMI reduced customer stockouts
10 5 0 before VMI after 2 yrs Jan Mar May July Sept Nov
Case study
Whats needed to make VMI work
Information management is crucial to the success of VMI
inventory level data historical usage data planned usage schedules planned and unplanned exceptional usage
Forecast future demand Decision making: need to decide on a regular (daily) basis
whom to deliver to when to deliver How much to deliver how to combine deliveries into routes how to combine routes into driver schedules
Content
Just-in-time
Lean thinking
Quick response
Quick response
The application of quick response in apparel industry
Development lead time have been compressed Production lead time are shorter
Zara case