Group 6

Notes in IE 443 (Supply Chain Management)

Chapter 6: Just-in-Time (Lean) Purchasing

Lean concepts have had a significant effect on the profitability in almost all industrial
settings. The key lean principles focus on people, postponement, efficiency, and the elimination
of waste. All of these key business principles have a direct effect on the purchasing function. The
purchasing department plays an important role in the profitability of any manufacturing firm.

Lean Production Systems

In its simplest form, “the manufacturing process” is a composition of the material flows.
JIT is designed to manage the flow of materials, components, tools, and associated information.
JIT production is based on planned elimination of all waste and on continuous improvement. JIT
is also referred to as lean production. With JIT (lean) the entire manufacturing system from
purchasing to shop floor management can be measured and controlled. Therefore, the JIT (lean)
system is a powerful management tool that could easily determine the success or failure of the
manufacturing system.

JIT applies primarily to repetitive manufacturing process in which the same products and
components are produced over and over again. The general idea is to establish flow processes
(even when the facility uses a job shop or batch process layout) by linking the work centers so that
there is an even, balanced flow of materials throughout the entire production process, similar to
that found in an assembly line. To accomplish this, an attempt is made to reach the goals of driving
all inventory buffers toward zero and achieving the ideal lot size of one unit.

The integration between MRP and JIT in literature reflects the trend toward a more realistic
hybrid manufacturing environment. The current shift toward that so-called lean thinking
manufacturing environment is one of the major motivations for future JIT research. The conceptual
framework for JIT is shown in Figure 6.1.
FIGURE 6.1 JIT Conceptual Framework

The following practices are considered essential for a comprehensive JIT implementation:

1. Uniform production (also known as heijunka). Create a uniform load on each workstation
through constant daily production and producing the same mix of products each day, using
a repeating sequence.
2. Quick setup times. Aim for short setup times – this can be done through better planning,
process redesign, and product redesign.
3. Small lot sizes. Reducing setup times allows economical production of smaller lots; close
cooperation with supplier is necessary to achieve reductions in order lot sizes for purchased
raw materials and component parts since this will require more frequent deliveries.
4. Short lead times. Production lead times can be reduced by moving workstations closer
together, applying group technology and cellular manufacturing concepts, reducing queue
length, and improving the coordination and cooperation between downstream processes;
delivery lead times can be reduced through close cooperation with supplying organizations,
possibly by inducing suppliers to locate closer to the factory.
5. Preventive maintenance. Use machine and worker idle time to maintain equipment and
prevent breakdowns.
 6. Multifaceted workforce. Workers should be trained to operate several machines, to perform
maintenance tasks, and to perform quality inspections.
7. Supplier development. All defective items must be eliminated since there are no buffers of
excess parts.
8. Kanban production control. Use a control system such as a kanban (card) system (or other
signaling system) to convey parts between workstations in small quantities (ideally, one
unit at a time).

Just-in-Time Production System

JIT is Toyota’s manufacturing philosophy to minimize waste, and the 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. The reduced lot sizes not only contribute to production efficiency and
product quality; but also reduce the overall costs associated with production in the JIT
manufacturing environment.

Improvements in the kanban-controlled production systems have followed a pragmatic

approach, continuous improvement. Therefore, success of the JIT production system must be
explained in conjunction with continuous improvement, total quality management, and lean
thinking. Experience and commitment of the workers on the shop floor to continue to improve
performance and methods are the major drivers of the JIT production system.

The JIT production system is not a panacea. In fact, there is a list of reasons why the Toyota
manufacturing system may not work for all firms. The reasons include cultural differences,
geographical dispersion of suppliers, supplier power, different managements styles, and so forth.

The JIT production system is often called lean production system because it uses less of every
resource compared with the conventional mass production system (Womack, et al., 1990). On the
other hand, the JIT system is viewed as a conventional reorder point system with extremely small
lot sizes (Zipkin, 1991). The most common standpoint in understanding the JIT production system
is that the JIT production is a pull system as opposed to the conventional push system. Thus, it is
only natural to portray the push/pull debates in conjunction with the MRP/JIT studies.
Kanban Production Control System

Kanban is the Japanese word for card. The kanban card contains the part number, the part
description, the type of container, and various workstation information. A kanban production
control system uses simple, visual signals to control the movement of materials to replenish those
sent downstream to the next work center. The kanban card is attached to a storage and transport
container. The kanban card is used to provide an easily understood, visual signal that a specific
activity is required. Kanbans are similar to fixed-order inventory systems where an order for Q is
placed when the inventory level falls before the reorder point. The reorder point is determined
based on the demand during the lead time. The only inventory required is the inventory required
during the replenishment lead time.

In dual-card kanban system, there are two main types of kanban:

1. Production kanban signals the need to produce ore parts. Each kanban is physical attached
to a container.
2. Withdrawal kanban signals the need to withdraw parts from one work center and deliver
them to the next work center.

The dual card kanban rules follow:

1. No parts are made unless there is a production kanban to authorize production. If no

production kanban are in the “in box” at a work center, the process remains idle, and
workers perform other assigned activities. This rule enforces the “pull” nature of the
process control.
2. There is exactly one kanban per ciontainer.
3. Containers for each specific part are standardized, and they are always filled with the same
(ideally, small) quantity.

Decisions regarding the number of kanbans (and containers) at each stage of the process
are carefully considered because this number sets an upper bound on the work-in-process inventory
at the stage. This feature of dual-card kaban system enable systematic productivity improvement
to take place. By deliberately removing one or more kanbans (and containers) from the system, a
manager also will reduce the maximum level of work-in-process (buffer) inventory. This reduction
can be done until a shortage of material occurs.
A Simple Kanban Example

As shown in Figure 6.2a, overproduction is an element of waste. Less inventory also

reduces the amount of scrap or rework required when a defect is discovered. And, since less
inventory means shorter lead times, it takes up space, uses up working capital, and is liable to
damage and devaluation. Thus, in the example above, Operation B needs to control what Operation
A gives them. The secret of this is the kanban card. A kanban card is a control device that
effectively says to the recipient “Give me N items, and N items only. When you have done that,
stop! Wait until you get the next kanban card.”

Figure 6.2b shows the changed conversation between the suppliers, Operation A and
Operation B. Operation A now may stand idle for a while, which may see like a cost, but it is not
as great as the cost of idle inventory.
Significance of Purchasing
The just-in-time production control system focuses on reducing both raw materials and
work-in-process inventories. Specifically, JIT requires that the right materials are provided to
workstations at the right time. The purchasing function is heavily involved in making necessary
arrangements with suppliers so that the material flows are possible in the manufacturing plant.

JIT Purchasing

The function of purchasing is to provide a firm with component parts and raw materials.
Purchasing also must ensure that high-quality products are provided on time, at a reasonable price.
A comparison of critical elements associated with JIT purchasing and traditional purchasing
approaches follows:

1. Reduced order quantities. One of the most crucial elements of the just-in-time system is
small lot sizes. The just-in-time concept reduces setup times and the associated costs by
introducing clever hangover techniques and simpler product designs.
2. Frequent and “on time” delivery schedules. 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. In the pre-JIT days, “on-time” meant anything
arriving up to 12 days ahead of the normal schedule, and as late as six days.
3. Reduced lead times. To be able to maintain low inventory levels, it is critical that
replenishment lead times be as short as possible.
4. High quality of incoming materials. In order to eliminate the associated receiving
inspection costs, a vey high emphasis is placed on the quality of incoming materials under
the JIT system.
5. Reliable suppliers. Since JIT system does not provide for buffer stocks, unreliable supply,
in terms of delivery time and quality of incoming material, may lead to frequent problems
in production.
 Table 6.1 Comparison between Traditional and Just-in-Time (Lean) Purchasing
Approaches

Traditional Purchasing JIT Purchasing

Order quantities Based on trade-offs between
ordering and carrying costs
Delivery schedules Infrequent, primarily because of
high ordering costs involved
Delivery windows Relatively wide
Delivery lead times Relatively long and relaxed
Parts quality Responsibility of the quality
function in the organization
Supplier base Fairly broad
Based on small lot sizes for
production
Frequent because of small lot sizes
and low ordering costs
Very narrow
Stringent and reduced significantly
Responsibility of supplier
Considerably smaller

Purchasing Benefits

1. Reduced inventory levels. JIT purchasing facilitates reduction in inventory levels and the
associated inventory holding costs. Reduced inventory levels are indeed one of the benefits
of the JIT system, which basically stresses continuous improvement and elimination of
waste.
2. Improved lead-time reliability. Lead time reliability is usually much better for just-in-time
systems. This implies higher levels of customer service and lower safety stock
requirements for the company. Lower levels of safety stock contribute significantly to
reduced working capital requirements for the firm.
3. Scheduling flexibility. JIT emphasizes scheduling flexibility by aiming for reduced
purchasing lead times and setup times. Such flexibility prevents confusion in the
manufacturing plant and offers unique competitive advantages to manufacturing firms
since they are capable of adapting to changes in the environment more quickly.
4. Improved quality and customer satisfaction. High-quality incoming materials result in
savings associated with reduced rework and scrap.
 5. Reduced costs of parts. Long-term commitments on the part of the manufacturer allow
volume purchases, development of supplier learning curves, and overall productivity
increases.
6. Constructive synergies with suppliers. A just-in-time purchasing program involves close
technical cooperation with suppliers. This particularly means the cooperation between
manufacturing and design engineers.
7. Cost decreases. Reductions in physical inventory also will have a favorable impact on
 Reduced insurance premiums associated with the storage of inventory.
 Reduced inventory holding costs.
 Reduced labor cost in storerooms and material handling costs.
 Reduced clerical and administrative costs.
 Reduced waste from the manufacturing process.
 Reduced obsolescence costs.
 Reduced depreciation of handling and storage equipment.

Each of the cost savings will result in a leaner, more profitable operation.

Implementation of JIT Purchasing

Marketing must be prepared to change its behavior when its customers are using the JIT
system. Some of the common problems associated with implementing the JIT system are as
follows:

1. 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. Moreover, many
suppliers feel a considerable strain in providing the good quality materials to the buyer in
the right quantity and the right time on an ongoing basis.
TABLE 6.2 Expectations of JIT Suppliers
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 supplier’s process capability
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
2. Lack of top management support. Implementation of the JIT philosophy requires a cultural
change in the organization. Such a concept cannot be implemented successfully without
total support from top management. An attitudinal change is required in order to get top
management involved in the implementation process.
3. Lack of employee readiness and support. Many firms report lack of support from their
employees as being one of the major problems encountered in the implementation of JIT.
Education and training are very important to winning the support of employees. They need
to have thorough understanding of how JIT purchasing will be a major factor in the long-
term profitability of the firm, and that their professional future depends on the successful
implementation of the just-in-time system.
4. Lack of support from design engineering personnel. Design engineering is responsible for
making technical specifications for the materials a company buys. Quite often, the
purchasing function in an organization does not receive adequate support from engineering
functions, and, as a result, purchasing is often unable to advise suppliers on material quality
design options.
The solution to this problem is an operating climate that permits or promotes a high level
of integration in all operations, including production, material control, design and process
engineering, and purchasing.
5. Low product quality. If suppliers fail to provide materials of adequate quality on regular
basis, production slowdowns and stoppages will occur regularly.
In order to overcome this problem, a quality program needs to be developed by the JIT
buyers that would help identify critical quality characteristics during the design and
manufacturing stages of the supply process. A supplier quality certification program can
be implemented that would ensure that parts leaving the suppliers’ plants meet all quality
specifications.
6. Lack of support from carrier companies. Few buying firms, however, work closely with
carriers to develop long-term relationships that provide for highly structured delivery
schedules that lower costs. As a result of deregulation, transportation becomes a more
competitive and quality-driven business; most manufacturing firms have begun to realize
that there are significant savings possible in negotiating better terms with carriers.
 7. Lack of Communication. Effective development and implementation of the just-in-time
system require integration of important functional areas such as purchasing,
manufacturing, quality production, and transportation.

Summary

JIT has changed the role of purchasing from merely placing orders to investigating the
supplier’s technical and process capabilities. Value analysis, which aims at seeking cost reductions
through buyer and supplier cooperation, has become an integral part of the just-in-time purchasing
practice. Perhaps the most important realization is the fact that suppliers should become an
extremely important consideration for the purchasing function, wherein they should be viewed as
partners and not adversaries.

The benefits of the JIT purchasing will not be realized overnight. It took Toyota Motors 25
years to develop and implement the JIT system fully, and it will take at least 10 years for those
that wish to obtain satisfactorily results by copying it. A lot of hard work, commitment, and
communication are needed before any concrete results can be seen. However, it is important to
realize that significant competitive advantages can emerge for a firm that utilizes its JIT purchasing
function effectively.