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CHAPTER 16J I T A N D L E A N O P E R AT I O N S 243

C H A P T E R

JIT and Lean Operations

DISCUSSION QUESTIONS ProfileinChapter9)todrivingdowninventoryatArnoldPalmer


Hospital(seethevideocasestudyinthischapter).
1.JITisaphilosophyofcontinuousandforcedproblemsolving.
12.Virtually all lean techniques have application in both
Itisacontinuousprogramthatreplacesaseriesoffadprograms.
manufacturingandservices.TheleantechniquesofJIT,layout
2.Aleanproducer isacompanythatadoptsaphilosophyof (workcells),inventoryreduction,andtightschedulinghavefew
minimizing waste, striving for perfection through continuous boundaries.
learning,creativity,andteamwork.
3.The Toyota Production System (TPS) has three core ETHICAL DILEMMA
components: continuous improvement, respect for people, and Whataretheethicalissues? Studentsmaydisagree,butthere
standard work practices. TPS is the standard for repetitive maynotbeanethicalissueforMegaMart.Theremaybeanissue
manufacturing. ofbeingnicetoagoodsupplier,butthatisnotnecessarilyan
4.Levelschedulesprocessfrequentsmallbatchesratherthana ethical issue. MegaMart is interested in an efficient (and
fewlargebatches;thesmallbatchesarealwayschanging.They consistently administered) supplier network that drives down
matchonedaysdemandtoonedayswork. costsforitscustomers.Thatisastrongethicalargumentinitself.
5.JITallowsforsafetystockandintransitinventory(butno (SeetheworkofMichaelPorterandhisfiveforcesmodelfirms
morethannecessary).Whereexternal,unpredictableissuessuch competenotonlyviarivalrywithdirectcompetitorsbutalsowith
as weather arise, more safety stock is necessary. Consignment newentrants,substituteproducts/services,buyers,andsellers.)
inventoryisalsouseful.Beyondthat,JITisatriskforeventssuch Astheseller,whatdoyoudo?Ifthepurchasedproductis
asweatherandworkstoppages. special and unique enough, MegaMart may be more flexible
concerningthe RFID implementationschedule.MegaMartmay
6.Qualityrelates toJIT: JITcuts thecost ofobtaining good alsobewillingtohelpwithexpertiseorrecommendationofgood
quality; JIT improves quality; and better quality means fewer economical RFID vendors. In a free competitive world, your
buffersandthereforeabetter,easiertouseJITsystem. association withMegaMart isa voluntaryassociation between
7.TPScontributestocompetitiveadvantagethrough:suppliers, buyer and seller and you can, of course, walk away. Other
layout, inventory, scheduling, preventive maintenance, quality alternativesinclude:
production,employeeempowerment,commitmentofmanagement Increasingyoursalesvolumetocovermoreofyourfixed
andemployees. cost
8.JITpartneringwithsuppliers;fewsuppliers;nearbysuppliers; Doingallofthethingsthatagoodoperationsmanagerdoes

repeatbusinesswiththesamesuppliers;analysistoenabledesirable tobecomemoreefficient.
supplierstobecome/staypricecompetitive;competitivebidding
mostlylimitedtonewpurchases;buyerresistsverticalintegration END-OF-CHAPTER PROBLEMS
andsubsequentwipeoutofsupplierbusiness;andsuppliersare 16.1Demandduringleadtimeof2:(1,0002)2,000
encouragedtoextendJITbuyingtotheirsuppliers. Safetystock(1/2day)500
9.The word is kanban, andiscloselyassociatedwithJIT. It Maximuminventorylevel2,500
relies onvisual orother simplesignals toindicate whenitems Numberofkanbansneeded:
needtobepulled.Itissymbolicofthewastereduction,distance 2,500(Maximuminventorylevel)
reduction,andsmalllotsizethatcharacterizeJIT. 5
500(Kanbansize)
10.Standardized, reusable containers within the plant: in
16.2Demandduringleadtime125
shipping;protectthespecificquantitiestobemoved;reduceweight
Safetystock62.5
and
Maximuminventorylevel187.5
disposalcosts;generatelesswastedspaceintrailers;andrequire
Numberofkanbansneeded:
lesslabortopack,unpack,andprepareitems.Insidetheplant:to
conveythequalityofthekanbanandtoprotecttheitems. 187.5(Maximuminventorylevel)
3.75 4
11.Lean production is applicable everywhere. It ranges from 50(Kanbansize)
lean layouts at McDonalds kitchens (see the Global Company

Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.
2 DS 2(20,000)(20) 800,000 800,000
Qp 4359 66
d
80 250(1 0.266) 183.5
H 1 250 1
p 300
244 Thenwedeterminethenumberofkanbans:
CHAPTER 16 J I T A N D L E A N O P E R AT I O N S
Demandduringleadtime 240(=3daysDailyusageof80)
Safetystock 150(=1/2dailyproductionof300)
Thereforemaximuminventoryshouldbe 390mainshafts.
Becausethekanbansizeis66mainshafts,5.9kanbansare
appropriate(390/66).Thiscanberoundedto6.

16.3First, we determine the kanban size. To do this, we


determinetheproductionorderquantity(seediscussionin
Chapter12),whichdeterminesourkanbansize.

Demandduringleadtime 160(=16DaysDailyusageof10)
Safetystock 80(=4dailyproductionof20)
Thereforemaximuminventoryshouldbe 240subassemblies
Becausethekanbansizeis50subassemblies,5kanbansareappropriate(240/50),roundedfrom4.8.
2 DS 2(2,500)(30)
Qp
d
10
H 1 120 1 20
p
150,000 2 DS
2,500 50 Q
60 16.8 d
H 1
Thenwedeterminethenumberofkanbans: p
16.4First,wemustdeterminethekanbansize.Todothis,we where D = annual demand, S = setup or order cost,
determinetheproductionorderquantity(seediscussionin H =holdingcost, d =demandrate, p =productionrate.
Chapter12),whichdeterminesourkanbansize. SolvingforS(setupcost):
16.5D2,000;H$12;S$30
d 120
2(2,000)(30) Q2 H 1 1202 12 1
(a)EOQ 100lamps p
960
12 S
2D 2 31,200
2,000(30) 100(12)
(b)TC $1,200 14,400 12 (1 0.125)
100 2 $2.42
62,400
2,000
(c)No.oforders 20orders/year
100 $2.42/setup 60minutes/hour
Setuptime
16.6D2,000;H$20;S$0.50 $20 / hour
2(2,000)(0.50) 7.26minutes/setup(whichis.12hours)
(a)EOQ 10lamps
20 2 DS
Q
2,000 16.9
(b)No.oforders 200orders/year d
10 H 1
p
2,000 (0.5) 10(20)
(c)Totalannualcost where D = annual demand, S = setup or order cost,
10 2
H = holding cost, d = daily demand rate, p = daily
1000 200
100 100 $200 productionrate.SolvingforS(setupcost):
10 2
d 150
16.7WithJIT,purchase/deliveryofgoodsimmediatelyprecedes Q2 H 1 1502 10 1
demand.ThedecreaseinEOQforlamps,from100to10, p 1000

S
increases deliveries from 20 to 200. With the new 2D 2 39,000
relationship with Specialty Lighting, DiscountMart has 22,500 10 (1 0.15)
reduceditsinventorycosts,ausualpatternforcompanies $2.45
78,000
usingJITpurchasing.
$2.45/setup 60minutes/hour
Setuptime
$40 / hour
3.675minutes/setup

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CHAPTER 16J I T A N D L E A N O P E R AT I O N S 245

Q 2 H (1 d / p) 2.Suggestedlayoutfollows:
16.10 (a)UsingthemodelS
2D
2002 10 (1 100 / 800)

2 30,500
S$5.74
5.74
(b) Setuptime 60 8.61min
40

ADDITIONAL HOMEWORK PROBLEMS


Herearesolutionstotheadditionalhomeworkproblemsat
www.myomlab.com.
16.11Demandduringleadtime(1day) 1,500
Safetystock(1/2day)750
Maximuminventorylevel2,250
Numberofkanbansneeded:
2,250(Maximuminventorylevel)
9
250(KanbanSize)
16.12First, we determine the kanban size. To do this, we
determinetheProductionOrderQuantity(seediscussion
inChapter12),whichdeterminesourkanbansize.

2 DS 2(50,000)(25) 2,500,000
Qp 25,000 158
d
200 100
H 1 200 1
p 400
Thenwedeterminethenumberofkanbans.
Demandduringleadtime 1,200(=6daysdailyusageof200)
Safetystock 400(=1timesdailyproductionof400)
Thereforemaximuminventoryshouldbe 1600compressors.
Becausethekanbansizeis158compressors,10kanbansareappropriate(1600/158).

CASE STUDIES
1 MUTUALINSURANCECOMPANYOFIOWA
1.Wecanassumethatifcarriedoutproperly,allthegoodthings
thataresupposedtohappenwithJITwill.Forinstance,weexpect
reduced floor space, higher quality (fewer errors), less WIP,
3.Weareassumingthatthepersonnelcanbecrosstrainedforall
empoweredemployeeswithhighermorale,fasterthroughput,etc.
the jobs in the cell, that training budgets will increase, and that
equipmentutilizationwillimprove,yieldinglesscapitalexpenditure.
4.ThenewJITsystemwillreducethroughputtime,yieldsatisfied
customers,andcreatemoresatisfyingjobs.(SoundslikeDeming.)

2 JITAFTERACATASTROPHE

Thiscaseandthediscussionbelow(muchofwhichisfroma
seriesofWallStreetJournalarticles;May19,2008,B1,B2;July
20,2007,B1;September13,2001,B1,B4;andMay8,1997,A1,
A5) can make for a very interesting class discussion. More
resourcefulstudentsmayevengotothesourcesandbeprepared
withtheseanswers.

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246 CHAPTER 16 J I T A N D L E A N O P E R AT I O N S

1.Whatdoyoudotokeepcouplingproductiongoing? couplingplantoutsidetheU.S.tosupplyfuturegrowth
andprovidebackupifthereisanothercrisis.
AtCaterpillar:  At Toyota:ThefireanditsaftermathhaveleftToyota
 ThemorningafterthetornadoMr. Folley was on site executivesconvincedthattheyhavetherightbalanceof
withSteveBrister,whosecompanyhadbuiltthefacility efficiencyandrisk.Manypeoplesayyoumightneedto
10yearsearlier. scatterproductiontodifferentsuppliersandplants,but
then you have to think of the costs of setting up
 FolleygaveBristeratwoweekdeadlinetogettheplant
expensivemillingmachinesateachsite,Mr.Ikebuchiis
running.
quoted in the WSJ as saying. We relearned that our
 Within48hoursCaterpillarengineerswerescouringthe systemworks.
worldforcouplings. In fact, the fire may have made the system even more
 Caterpillar recruited new vendors and dispatched efficient.NisshinKogyoCo.,whichwasmakingtheother1%of
manufacturingengineerstocheckqualityandcapacity. ToyotasPvalves,saysthatduringthecrisisitraisedproduction
efficiency30%byspeedingupproduction.
 The company promised Oxford employees that their
The fire spurred Toyota to begin an effort to trim the
paycheckswouldcontinue.
numberofitspartvariations,aprojectthatshouldeventuallycut
 ItrecruitedvolunteerstomovetemporarilytoaMichigan costs. And solesource suppliers are moving quickly to build
plantwheresomecouplingproductionwasstarted. failsafe supply chains. In some cases this means revamping
 Caterpillar built a new temporary supply chain that systems to facilitate easily shifting to another site if disaster
piecedtogetherthecapabilityofmanyplants. strikes.

AtToyota: VIDEO CASE STUDY


ThesupportthatpartsmakersprovidedToyotaduringits JITATARNOLDPALMERHOSPITAL
crisis helps indicate why Japans auto companies return the A9minutevideo, filmed specifically for this text, isavailable
loyaltyoften tothe detrimentof U.S. and otherforeign parts fromPrenticeHallandisdesignedtosupplementthewrittencase.
makers.ToyotaandAisindidntbothertoapproachanyforeign
companiesduringthecrisis,aToyotaspokesmansays,because 1.Whatdoyourecommendbedonewhenanerrorisfoundina
therewerenoforeignsuppliersinapositiontohelpus. packasitisopenedforanoperation?
SuppliersneveraskedToyotaorAisinwhattheywouldbe Theimmediatesolutionisgetanotherpack.(AlthoughAPHuses
paidforrushingoutthevalves,saysSomicsMr.Ishikawaina aJITsystem,therearesomesparesactuallyalmostaoneday
2001WallStreetJournalarticle.Wetrustedthem. buffer.)However,theadvantageofJITisthattheerrorisknown
Indeed,asthefirstvalvesarrivedatToyotafactories,Aisin immediatelyatAPHwithinadayofdelivery.McKessoncan
told the suppliers it would pay for everything, from drills and trackbackthruthesystemandidentifythecauseoftheerror
overtime pay to lost revenue and depreciation. And Toyota andtakecorrectiveaction!
promisedthesuppliersabonustotalingabout$100millionasa 2.Howmighttheprocedureforcustomsurgicalpacksdescribed
tokenofourappreciation,saysMr.Okuda,itspresident.Headds herebeimproved?
thattheautomakerwillcertainlyrememberthecompaniesthat
pitchedinduringitscrisis. APHcouldreducethenumberofpacksinthebufferfromoneday
tolessthanonedayfixleading.
2. JIT has survived because of the classic advantages of 3.WhendiscussingJITinservices,thetextnotesthatsuppliers,
JIT:reducedinventorywithitsentirecostsavingsand layout,inventory,andschedulingareallused.Provideanexample
fewer writeoffs; a requirement for high quality; and ofeachoftheseatAPH:
motivationforanelementofstandardization. Suppliersgetonboardwithhighqualityfrequentdeliveries.
Layout is modified to be near (perhaps adjacent) to the
3. TheconsistentresponseofCaterpillar,Toyota,Chrysler, workareaandwithnospaceforexcessstorage.
etc.istocontinuewithJIT.JITworks,anditworksin Inventoryisataminimumtoensurethatbadproductisnot
spite of a catastrophe. The efficiencies are just too made, shipped, and stored. Minimum inventory allows
overwhelming. The systems, as noted below, may get immediatefeedbackonquality.TheplusatAPHisthat
finetunedandbackupplansmaybeimproved,butJIT quality(i.e.,sterilepacks)isenhancedbymaintainingonly
isawinner limitedstorage.
SchedulingthatmeetsJITdemands,schedulesonlywhatis
4. Policychanges: neededwhenitisneeded.
4.Whenadoctorproposesanewsurgicalprocedure,howdo
 AtCaterpillarmanagementisconsideringaddingsome yourecommendtheSKUforanewcustompackbeenteredinto
machines at factories that can duplicate some of the thehospitalssupplychainsystem?
couplings. The company is also reviewing operations
worldwidetodeterminehowtocosteffectivelyreduce TherequestforchangesandallnewproductsgoestotheMedical
riskatkeypoints.Andisconsideringbuildinganother Economics Outcomes Committee. Reducing the proliferation of

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CHAPTER 16J I T A N D L E A N O P E R AT I O N S 247

SKUsisacontinuingissueatAPH,asitisforoperationspersonnel
everywhere.

Copyright2011PearsonEducation,Inc.publishingasPrenticeHall.