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4. Abstract Meaning Definition Philosophy Benefit Is Just in Time right for your business? Japanese JIT system v/s U.S System Just in Time Techniques American automotive industries Barriers for small manufacturing enterprises Problems with JIT Risk Example Case study of DELL Conclusion 5 8 9 10 12 14 16 17 18 19 20 23 26 28 31 4 . 7. 5. 14 15. 8. 6. 1. 12. 3. 11.INDEX SR.NO PARTICULAR PAGE NO. 2. 13. 10. 9.

The new organization of production settles the problem and brings in the light the case of Lean Manufacturing . the market homogeneity as well as the stability of import of the goods (costs of raw materials. etc). In order to reduce the cost. while impacts considerably on the flexibility of the system. because the preparation time (set up) of the production system is too long and very costly. when it is needed. Mass Production system is unable to cope with urgent or separate orders of products with special characteristics. Mass Production system persists in the productivity as well as in the large quantities of products. Key Concepts: Waste is anything that adds cost to the product without adding value Reduce cost through continuous improvement Produce according to customer demands: what is needed. shown by the increased requirements of the markets for larger variety of products in smaller quantities with higher quality. is the constant demand of the manufactured products. will be presented along with the interconnected philosophy of Total Quality Management . In order for the dynamics of Mass Production to come into force. right the first time. Consequently. In the light of this view. labour costs. a typical example can be observed by Henry Ford s historical saying "They can get it in any color as long as it is black". while the system administration of production of Just In Time . every time 5 .ABSTRACT The model of Mass Production . being a common strategy in enterprises and its primary aim is to restrict the range of manufactured products. which aims at the effective confrontation of the era of mass production. in the quantity it is needed Lean workers are valued for their minds more than their hands TQM simple objective: Do the right things. The aim of this paper is to appoint the comparative advantages and objectives of Lean Production concerning the model of Mass Production.

In order to reduce the cost. and in the end we get all the profit we ought to make. When production is based on predictions of the future. The prevailing idea is that if you make large batches of product you've used your equipment more efficiently than if you make small batches with time consuming changeovers. In order for the dynamics of Mass Production to come into force is the constant demand of the manufactured products. Model T Production Every time you reduce the price of the car without reducing the quality. More is better. The great weakness of this system is that no one can predict the future with sufficient certainty.000 cars for the year less profit on each car. etc). In a mass production environment. There are many men who will pay $360 for a car who would not pay $440.Mass Production The model of Mass Production . In the light of this view. risk of loss from overproduction (PUSH systems) is far greater than when production is based on actual demand. you increase the possible number of purchasers. and I figure that on the $360 basis we can increase the sales to possible 800. In this environment the focus is on individual efficiency.000 buyers of cars on the $440 basis. while impacts considerably on the flexibility of the system. the market homogeneity as well as the stability of import of the goods (costs of raw materials. Mass Production system persists in the productivity as well as in the large quantities of products. a typical example can be observed by Henry Ford s historical saying "They can get it in any color as long as it is black". H. Ford. which in turn is based on historical data and trend analysis. labour costs. 6 . but more cars. both for machines and operators. more employment of labor. being a common strategy in enterprises and its primary aim is to restrict the range of manufactured products. We had in round numbers 500. Mass production manufacturers set their production schedules based on a forecast of future needs. economies of scale are the focus.

Consequently. Mass Production system is unable to cope with urgent or separate orders of products with special characteristics. because the preparation time (set up) of the production 7 .

The most common industry using JIT manufacturing is the automobile industries. Although just-in-time manufacturing sounds like a very simple application. Since the products arrive just in time there is no need for stock holding facilities of any kind. at a conceptual extreme. For example consider my journey to work this morning. thus increasing profit. they would simply arrive just-in-time! Similarly we could produce finished goods just-in-time to be handed to a customer who wants them. However. just-in-time to catch the train. just-in-time to catch a bus to the train station. everything happens just-intime. I could have left my house. In its most basic explanation and principle JIT is every component in the manufacturing system arriving just in time for it to be used. and lower cost. just-in-time to walk into this lecture theatre to start the lecture.MEANING Just-in-time (JIT) manufacturing is a way of managing manufacturing systems that could reduce waste. So. implementing it can be a very costly and difficult task. 8 . however achieving it in practice is likely to be difficult! So too in a manufacturing operation component parts could conceptually arrive just-in-time to be picked up by a worker and used. just-in-time to pick up my lecture notes. JIT has no need for inventory or stock. many other companies of all sizes and products are currently using and transitioning to just-in-time manufacturing. So we would at a stroke eliminate any inventory of parts. just-in-time to arrive at my office. Example Just-in-time (JIT) is easy to grasp conceptually. Conceptually there is no problem about this. either of raw materials or work in progress or finished goods.

A method for optimizing processes that involves continual reduction of waste 4. Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs 9 . Organizes the production process so that parts are available when they are needed 3. Uses a systems approach to develop and operate a manufacturing system 2.DEFINITION 1.

PHILOSOPHY Philosophy of JIT is simple: inventory is waste. The ideas in this way of working come from many different disciplines including statistics. and inadequate capacity. Inventory is seen as incurring costs. instead of adding and storing value. at the right place. a firm may simply be outsourcing their input inventory to suppliers. This does not mean to say JIT is implemented without awareness that removing inventory exposes preexisting manufacturing issues. and behavioral science. Newman (1993) investigated this effect and found that suppliers in Japan charged JIT customers. 10 . However. production management. without the safety net of inventory. Secondly. and are therefore not a simple solution for a company to adopt. lack of flexibility of employees and equipment. at the right time. a 5% price premium. The JIT inventory philosophy defines how inventory is viewed and how it relates to management. The company must follow an array of new methods to manage the consequences of the change. the just-in-time inventory system focus is having the right material. contrary to traditional accounting. even if those suppliers don't use JIT (Naj 1993). Management may be tempted to keep stock to hide production problems. Transaction cost approach JIT reduces inventory in a firm. 1. allowing any stock habituates management to stock keeping. JIT inventory systems expose hidden causes of inventory keeping. or waste. on average. This way of working encourages businesses to eliminate inventory that does not compensate for manufacturing process issues. The JIT system has broad implications for implementers. and to constantly improve those processes to require less inventory. and in the exact amount -Ryan Grabosky. industrial engineering. machine reliability. These problems include backups at work centers. process variability. In short.

Fixing up of standards for volatility of quality according to the quality circle 5. Time wasted in traffic jams 2.2. As with price volatility. Where input prices are expected to rise. Quality volatility JIT implicitly assumes that input parts quality remains constant over time. 6. This violates three JIT waste guidelines: 1. Supply Stability In the U. Inventory specifically pipeline (in transport) inventory 3. which helps ensure efficient capital utilization rates. Cusumano (1994) highlighted the potential and actual problems this causes with regard to gridlock and burning of fossil fuels. Longer term price agreements can then be negotiated and agreed-upon quality standards made the responsibility of the supplier. Environmental concerns During the birth of JIT. firms may hoard high quality inputs. Scrap fuel burned while not physically moving 3. Demand stability Karmarker (1989) highlights the importance of relatively stable demand. multiple daily deliveries were often made by bicycle. Price volatility JIT implicitly assumes a level of input price stability that obviates the need to buy parts in advance of price rises. Increased scale has required a move to vans and lorries (trucks). JIT becomes untenable in high capital cost production.S. a solution is to work with selected suppliers to help them improve their processes to reduce variation and costs.000 worker plant because they had no supply 11 . If not. Karmarker argues that without significantly stable demand. the 1992 railway strikes caused General Motors to idle a 75. 4.. storing inventory may be desirable.

It forces you to consider how every part of the production process works and to look for ways of streamlining working practices. Many businesses find that purchasing only the raw materials or components they need for their current jobs. as well as retailers with complex supply chains. using just-in-time working in a circuit board plant. For example. but reorganizing production to make Just In Time work is excellent discipline for any business. Likewise. improves cashflow and minimizes the amount of money tied up in stock. as well as reduced stock holdings.000 to $20. These benefits include: 1. 2.000.BENEFITS Just In Time aims to reduce waste and improve may no longer need an expensive warehouse. storing less work-inprogress and fewer finished goods reduces space requirements. can reduce the need for costly storage space . the company was able to cut the assembly time by over 95%. While in the UK. thanks to a brainstorming session led by the DTI's Manufacturing Advisory Service. getting your suppliers signed up to deliver just in time. Higher productivity:-It may seem a daunting prospect. In the above example from Hewlett Packard. Reduced costs:-Just In Time can minimize storage costs. In retail too. computer manufacturer Hewlett Packard reduced the value of the inventory held from $670. Cheshire-based Advanced Medical Solutions realized long changeover times were holding up their production line. bringing a whole range of benefits to manufacturing businesses of any size. 12 . The company rehearsed quicker changeovers and is now more flexible and reactive to customer requirements.

Competitive advantage:-Lean manufacturing helps create a more flexible business that has better communication with customers and suppliers. Implementing JIT working will help your business move towards industry best practice and keep up with competitors. thereby cutting recruitment costs.4. gives them greater responsibility and fosters an interest in the performance of the whole company. and can react more quickly to market demands. Many businesses find greater customer loyalty is a welcome by-product of adopting this new way of working. Improved job satisfaction:-JIT demands active participation in the production process from employees. It increases their skills. rather than just their department or team. Read more about the cultural impact of JIT on the JIT Considerations page 13 . 5. You may find this raises morale and helps reduce staff turnover.

your business could benefit from employing JIT techniques in your ordering. delivery or transportation failures costing you time and money? Can you quantify the cost of failure/delay at any given interface between you and your suppliers/customers? Have you calculated the cost of managing your supply chain and could you reduce the cost by automating the processes? If you answered "Yes" to any of these questions you are ready to look at the next section below on inventory. 1.Examine your business model y y y Are major customers driving an initiative towards more automated ordering and supply? Could you extract more value from your suppliers by communicating directly with their systems? Could you win more customers or foster increased customer loyalty by extending your business processes into supply partner organisations? If you answered "Yes" to any of these questions. (Its origins are in car manufacturing). work through the following steps. If you answered "No" to any of these questions you should review your processes further. 14 . Ideally your company should have short setup times on machines.Identify key stages in the business y y y y Can you identify the key interfaces between your business and your suppliers/customers? Are ordering.IS JUST IN TIME RIGHT FOR YOUR BUSINESS? Just In Time usually works best if your business produces a medium to high volume of a relatively high value product. planning and dispatch. To see if Just In Time might be applicable to some or all of your business. 2. and a commitment to quality assurance.

quality procedures or safety certifications? Can you trace what you produce (including its constituent parts) back to source and prove that you meet the appropriate commercial or regulatory standards? If you answered "No" to any of these questions.3. consider how you could increase efficiency and improve customer satisfaction by automating the interfaces with your supply chain. Analyze demand peaks y y y y Does production proceed at a rate dictated by your customers rather than your supply chain partners? Do you know in advance when demand peaks will occur? Do your supply chain partners know in advance when your demand peaks will affect their business? Can you quantify the cost of delays at peak periods? If you answered "No" to any of these questions. Review your working practices y y y Is the sequence of steps required to take a product from point of sale to point of delivery a standard one. 15 . 5. 4. repeatable at a pre-defined quality level? Do your business partners' systems give you automated access to component/material histories. you should consider using automated JIT techniques in ordering. Minimize inventory y y y Do you know how much inventory you hold at any one time? Do you know how much inventory you need to hold at any one time? Would you benefit from implementing systems that communicate this information automatically to supply chain partners? If you answered "Yes" to these questions. supply and production to streamline your supply chain. you are ready to look at the next section below on demand planning. Weigh up the benefits of minimizing inventory against the costs of investing in JIT technology.

Inspection of Raw material at buyer s end. Vary from consignment to consignment. 2. 1. 9. 5. Less paper formality. 8. U. 16 .JAPENESE (JIT) V/S U. Transportation cost is less as suppliers are located nearby. Supplier is selected based on biding pricing for quoted quality. 4.S APPROACH Bulk quantity of raw material. 6. Minimum packing in handling of raw materials. 2% defect in quality is acceptable. More suitable for single product system. 7. More paper formality as is based on tender system Heavy packing in handling of raw materials as bulk purchases. Zero defect in quality is required.S SYSTEM SRNO. Transportation cost is more as supplier s are scattered More suitable for multi product system. 3. JAPENESE(JIT)APPROACH Small size purchasing of raw material Inspection of Raw material at supplier s end. Long term agreement with suppliers. Supplier is selected based on reasonable pricing as worked out in view quality consideration.

JUST IN TIME TECHNIQUES 1. Total Quality Assurance:Product quality is extremely important in a JIT situation. 2. Every member of the production process must be trained in production quality and should use techniques to assure quality. with the implementation of JIT setup time are usually reduced thirty or fifty percent. 17 . Techniques such as Statistical process control is a very good way to ensure quality during production. all aspects of the product and the manufacturing process must be carefully scrutinized for optimum quality. Preventive Maintenance: Preventive maintenance is needed to reduce variation in the process and also to keep a high level of quality. This requires a comprehensive examination of all machines on a regular basis. In a Just-In-Time manufacturing company the plant floors are laid out so that there is a minimal movement of goods during the production process. this reduces a great deal of waste. the ideal batch size is said to be one. Reduced Setup Times:Reduced setup times are achieved in JIT by keeping batch sizes as small as possible. 3. Companies spend a lot of time in setup time reduction.

AMERICAN AUTOMOTIVE INDUSTRIES American automotive companies such as Ford and General Motors have implemented JIT into their production. T. or strike."(Glenn. A similar problem took place with General Motors in 1996 resulting in them temporarily closing over two-thirds of their plants. So the plant was still costing money to run.that shuts off the flow of materials from that critical plant to the assembly process can shut down a manufacturing operation in a matter of hours. Even after the strike was over there were still complications for some time. Unfortunately. Their supply company had a seventeen day strike and without having any emergency or backup materials there was nothing that could be done to correct the problem. and lower costs. After the strike was over the supplier had to speed up production to meet General Motors needs resulting in a large amount of defective products. They had to shut down six plants leaving many workers with nothing to do. not as smoothly as Toyota. fire. any natural or unnatural disaster at any critical supply plant whether it's a flood. "JIT manufacturing. T. This seventeen day strike resulted in General Motors loosing between 600-800 million dollars in profits. 2001). creates terrific manufacturing efficiencies. the downside is it creates and Achilles' heel for manufacturers. Since JIT is a stockless production system it leaves the company at the mercy of the suppliers. Ford experienced a problem with a JIT supplier that may have cost them tens of millions of dollars. quality improvements. They came across several problems including strikes and the suppliers inability to supply the materials demanded (Glenn. but nothing productive was taking place. along with single source suppliers. 2001) 18 . A statement by Keith Crain of Automotive news sums up these problem very well. however.

The first is money is always an issue with smaller companies. 19 . R. B. Unlike large manufacturing having an unsuccessful attempt could cost the smaller manufacture enough most to result in bankruptcy. They also are used to making smaller batches of products and switches over so thus makes them more flexible.BARRIERS FOR SMALL MANUFACTURING ENTERPRISES Small manufacturing enterprises have just as much to gain as large enterprises from implementing JIT into their company. They also a few advantages by being smaller than the larger companies. Since smaller companies do not have a large amount of free cash and are less susceptible to get loans. An SME trying to implement the who concept has a smaller chance of succeeding because certain components are not designed for them. Although SMEs have several advantages their risks are much greater and their size creates several barriers. This can restrict them from getting a good price ordering only small amounts at a time. Many SMEs do not have union contracts to worry about which makes it much easier to make the change over.d. Also with fewer employees it is easier to communicate the new system to the employee. coming up with appropriate funding can be a huge issue. To be successful a SME needs to look at the different components of JIT and choose which one will fit. An accepted measurement of a small manufacturing enterprises are fewer than 100 employees having a sales volume of no more than 5 million dollars (Johnston. Some advantages that SMEs have are they can be owned privately which means the decision to switch does not have to be held up in an approval process. That gives them one less component to worry about. and implementing JIT can cost a relatively large amount of money without any short time returns.). Since they have fewer employees many SMEs train their employees on several machine in case of sudden absences. However. Although SMEs implementing JIT into their manufacturing system can have positive result it can be a risk. There are more barriers for them to overcome and they are taking a larger risk. Also since SMEs do not use as large an amount of materials they do not have any bargaining power over the larger manufacturing companies. n.

Very low stock levels means shipments of the same part can come in several times per day. Just-in-time is a means to improving performance of the system. However. Since one of the main barriers was rework. there was an exception to this rule that put the entire company at risk because of the 1997 Aisin fire. not an end. for example. A key tool to manage this weakness is production leveling to remove these variations. For internal reasons. several other suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation. and lowered prices for customers.PROBLEMS Within a JIT system Just-in-time operation leaves suppliers and downstream consumers open to supply shocks and large supply or demand changes. price-based relationships with many competing suppliers. Thus. it ultimately would be desirable to introduce synchronized flow and link JIT through the entire supply stream. Toyota uses this long-term relationship to send Toyota staff to help suppliers improve their processes. He used an analogy of lowering the water level in a river to expose the rocks to explain how removing inventory showed where production flow was interrupted. a strong. For that reason. Once barriers were exposed. With present technology. they could be removed. Ohno saw this as a feature rather than a bug. none followed this in detail all the way back through the processes to the raw materials. However. lowering inventory forced each shop to improve its own quality or cause a holdup downstream. These interventions have been going on for twenty years and have created a more reliable supply chain. long-term relationship with a few suppliers is better than short-term. Toyota uses two suppliers for most assemblies. As noted in Liker (2003). Within a raw material stream As noted by Liker (2003) and Womack and Jones (2003). an 20 . This means Toyota is especially susceptible to flow interruption. improved margins for Toyota and suppliers. Toyota encourages their suppliers to use JIT with their own suppliers. since Toyota also makes a point of maintaining high quality relations with its entire supplier network.

The argument is presented as follows: The number of refineries in the United States has fallen from 279 in 1975 to 205 in 1990 and further to 149 in 2004. as the electric arc furnaces at the heart of many mini-mills can be started and stopped quickly. the make-to-order part has often been within the retailer portion of the value chain. Of course. the mining of iron and making of steel is still not connected to an order for a particular car. As a result. by using JIT. and steel grades changed rapidly. which must be discovered and/or grown through natural processes that require time and must account for natural variability in weather and discovery. as most do today. Both flow and JIT can be implemented in isolated process islands within the raw materials stream. Toyota took Piggly Wiggly's supermarket replenishment system and drove it at least half way through their automobile factories. Their challenge today is to drive it all the way back to their goods-inwards dock. Oil It has been frequently charged that the oil industry has been influenced by JIT. Katrina caused the shutdown of 9 refineries in Louisiana and 6 more in Mississippi. The part of this currently viewed as impossible is the synchronised part of flow and the linked part of JIT. It is for the reasons stated raw materials companies decouple their supply chain from their clients' demand by carrying large 'finished goods' stocks. almost all value chains are split into a part made-to-forecast and a part that could. resulting in the loss of 20% of the US domestic refinery 21 . Note that the advent of the mini mill steelmaking facility is starting to challenge how far back JIT can be implemented. Recognising JIT could be driven back up the supply chain has reaped Toyota huge benefits and a dominant position in the auto industry. The challenge becomes to achieve that isolation by some means other than carrying huge stocks. Because of this.ear of corn cannot be grown and delivered to order. the industry is susceptible to supply shocks. The same is true of most raw materials. become make-to-order. and a large number of oil production and transfer facilities. which cause spikes in prices and subsequently reduction in domestic manufacturing output. The effects of hurricanes Katrina and Rita are given as an example: in 2005. Historically.

and more significantly. In Waguespack and Cantor (1996). They find that a large part of the shift came about because of the availability of short-haul crudes from Latin America. Rita subsequently shut down refineries in Texas. The GDP figures for the third and fourth quarters showed a slowdown from 3.2% growth. JIT has never subscribed to such considerations directly. stocks never fell below 194. Finally. JIT does not seem to have been a goal of the industry. Confessing that they had been as guilty as other media sources. Stocks fluctuate seasonally by as much as 20. From 1975 to 1990 to 2005.000 bbls. the Oil & Gas Journal claimed that "casually adopting popular business terminology that doesn't apply" had provided a "rhetorical bogey" to industry critics. Specifically. further reducing output. they confirmed that "It also happens not to be accurate. Companies routinely shut down facilities for reasons other than the application of JIT. the plant may be economically inefficient. the authors point out that JIT would require a significant change in the supplier/refiner relationship. Further. the annual average stocks of gasoline have fallen by only 8. One of those reasons may be economic rationalization: when the benefits of operating no longer outweigh the costs.017 thousand bbls in 1997.331 to 222. this ROI-based thinking conforms more to Brown-style accounting and Sloan management. JIT students and even oil & gas industry analysts question whether JIT as it has been developed by Ohno.5% to 1. as shown in a pair of articles in the Oil & Gas Journal. and others is used by the petroleum industry. the relationships remain cost-driven among many competing suppliers rather than qualitybased among a select few long-term relationships. following Waddel and Bodek (2005).000 thousand bbls. Beside the obvious point that prices went up because of the reduction in supply and not for anything to do with the practice of JIT.986 (Energy Information Administration data). JIT calls for a reduction in inventory capacity. In the follow-up editorial. it hasn't been drastically reduced as JIT practitioners would prefer." 22 .5% from 228. not production capacity. This shows that while industry storage capacity has decreased in the last 30 years. including opportunity costs.output.903 bbls to 208. but the changes in inventories in the oil industry exhibit none of those tendencies. Similar arguments were made in earlier crises. During the 2005 hurricane season. while the low for the period 1990 to 2006 was 187. Goldratt.

The same principle holds for inputs in production. This approach to delivery cost savings also facilitates decreases in aforementioned holding costs by not overstocking certain locations with a product. In the case of Dell Computers. a ³financial imperative for Dell. but also to parts that Toyota might use as inputs in production. they are a double -edged sword. These inventories are kept at a minimum through J IT systems as parts are ordered as needed. Suppliers of such a firm. One can imagine how Toyota. can radically reduce holding costs. an economics specialist at UCLA. for 23 . JIT systems have several cost-cutting advantages. the less money they lose per computer as they ³rot´ on a shelf. JIT inventory systems. this meant that the fewer finished computers Dell holds in inventory. might not make much sense if the demand for that good is significantly greater at one location relative to another. Some positive externalities may also result from a firms decision to implement a JIT system. JIT systems also cut delivery costs as finished products are shipped to where they are in demand. As Charles mentioned in his Dell Computer case study. a pioneer of JIT systems. In addition to these significant cuts in depreciation costs. might save on storage costs as their finished computers and cars no longer sit idle in warehouses awaiting customers. parts are not delivered and held at production centers where they might lay idle. Shipping the same quantity of a product to different retail outlets. JIT inventory can also cut storage costs. JustIn-Time inventory (JIT) is part of a production system whereby a firm vastly reduces inventory from its production processes so that utilization of production inputs and delivery of finish head products are accomplished without incurring significant holding costs. which for Dell can be up to 1 percent per computer per week. And these storage cost savings apply not only to these finished goods. While JIT inventory systems are quite attractive for this reason. the articles main focus is the risks that JIT systems face. its many advantages are realized only when some significant risks to healthy inventory management are mitigated.RISK The following is a guest article written by Nick Koletic. In addition to giving a brief background on Just -In-Time inventory systems benefits. for example. And though a JIT system might even be a necessity given the inventory demands of certain business types.

In this case. to greatly expand their ability to fill larger orders without having to increase production capacity. make JIT systems a risky proposition. Even more dangerous are internal issues that might lead single suppliers to be unable to fulfill a firms orders. Internal issues might include. So it might be possible for suppliers. supplying a customer that utilizes JIT is typically easier to do because individual shipments tend to be smaller for these customers and thus tend to be less demanding of the supplier. merely by the nature of their customers JIT system. But internal issues can mean a host of things (and no. For example. A key concern here is the extent to which firms are dependent upon particular suppliers under such an inventory system. say. Several factors. That is to say that for any given order size. However. labor strikes on behalf of the suppliers employees in which labor unions could hold the supplier for ransom up to the amount of its pending orders.example. the evolution of the organization of firms has already taken many of these risks into account. firms that might otherwise 24 . I'm not talking about a Webhost) that prevent a firms supplier from supplying. however. these risks associated with JIT inventory systems may be ameliorated to a certain extent. Such an interruption of supply might be so costly that the firm might just allow the supplier to overcharge the firm up to the cost of this interruption. particularly with respect to rip-offs. Indeed. if a firm were to commission a highly proprietary product to a single supplier (single suppliers being common in JIT). again leading to an interruption of the firms supply of production inputs. a JIT inventory system would put such a firm at an even higher risk of rip -off on behalf of the supplier because the firm would have no immediate inventory to buffer an interruption of supply. For example. JIT inventory systems increases the risk that problems or failures on one end of the production chain might be felt on another end. the firm has no option but to incur the costs of an interruption of its production input supply. The point is that by facilitating the interconnectedness between businesses. This rip-off cost might completely cancel out or even exceed the savings that drove a firm to utilize a JIT inventory system in the first place. might t hen be able handle larger orders but fulfill them with smaller shipments.

A supplier would have less incentive to misbehave and the firm would have more recourse under such an arrangement. but firms with JIT systems are and should be even more acutely aware of these scenarios. for the risk-averse firm. a firm might contract with several suppliers in order to lessen the harm done by any one of them failing to supply. but rather are suggestions to the preliminary considerations firms should make in implementing a successful Just-In-Time inventory system. Preventative measures introduced here are by no means meant to be an exhaustive list of how firms should approach these risks. 25 . firms still have other common-sense ways of preventing these risks. Furthermore. Taking it a logical step further. contracting with a supplier at risk of going out of business makes little business sense in general. A firm might have to really scrutinize the integrity of their suppliers not only in terms of their trustworthiness but also in terms of the health of their business. shortterm and non-exclusive contracts with suppliers might also be attractive as they provide both insurance and punishment against a supplier s misbehavior´. Just-In-Time inventory systems provide for an attractive. cost cutting production system as long as risks are weighed and mitigated. If in-house production or a supplier buy -out is not a feasible option.commission highly proprietary products to a handful of suppliers usually either produce these items themselves or in fact own the suppliers that do so in order to prevent price-gouging from occurring.

Accuracy of forecasting is important so the correct amount of raw materials can be stocked. due to more sophisticated burger -making technology (including a recordbreaking bun toaster).EXAMPLE MCDONALD McDonald's is another example of a JIT system wherein McDonald's doesn't begin to cook (well. or they are part of an assembly for the next node. McDonald's is able to make food fast enough to wait until it's been ordered. Now. The only way to get a fresh hamburger under the old system was to make a special order. What both of these firms do is they provide a customer with their order as fast as possible while having the finished product sitting in inventory for as short as possible. What used to be the case was McDonald's would pre -cook a batch of hamburgers and let them sit under heat lamp s. 26 . They would keep them for as long as possible and eventually discard what couldn't be sold. These parts are then replenished when they are used. The Toyota production strategy is highlighted by the fact that raw materials are not brought to the production floor until an order is received and this product is ready to be built. No parts are allowed at a node unless they are required for the next node. Toyota Toyota is considered by many to be the poster child for JIT success. Important factors to Toyota success: y y Small amounts of raw material inventory must be kept at each node in production. This philosophy has allowed Toyota to keep a minimum amount of inventory which means lower costs. so that production can take place for any product. I should probably say reheat and assemble what may or may not be actual food) its orders until a customer has placed a specific order. This also means that Toyota can adapt quickly to changes in demand without having to worry about disposing of expensive inventory.

process problems could no longer be hidden by costly inventory that helped to meet ship dates. Harley Davidson s success with the implementation of JIT had a lot to do with the fact that when JIT was put into practice. The inefficiencies in the processes were quickly identified and solved. Increased productivity. Results of Harley Davidson s JIT implementation: y y Inventory levels decreased 75%.Harley Davidson Harley Davidson s use of JIT is mostly characterized by its transformation in the late World War 2 era from an inefficient manufacturer that solved all of its problems with extra inventory to a nimble manufacturer able to meet demand and provide short lead times. 27 .

themanufacturer. The reason is quite simple: computers depreciate at a very high rate. Typically.CASE STUDY When managers discuss low inventory levels. I divided the inventory turnover by 52 in order to show how many weeks worth of inventory Dell holds. Ok. yes. Here are the results: 28 . let's take a look at some of Dell's data over the past 10 years that I pulled can literally see the stuff rot. It's a financial imperative. computer components depreciate anywhere from a half to a full point a week. a computer loses a ton of value. now that we know how much Dell loses for e ach day. even I've mentioned Dell on this site. This article is primarily going to discuss how much it helped. Reasoning behind need for lower inventory The first thing that needs to be discussed is why low inventory has such a great effect on Dell's overall performance. Dell is invariably discussed. As Dell's CEO. as this website successfully describe sit. is "cost of goods sold from the income statement divided by value of inventory from the balance sheet". put it in an interview with Fast Company: "The longer you keep it the faster it deteriorates -." We're going to assume that the depreciation is a full point per week (1%/week) and use that to determine how much money high inventory turns can save Del This means that for every 7 days a computer sits in Dell's What I got from this was the inventory turns. This article will not discuss how they achieved such high inventory turns using a state of the art just in time inventory system. Cutting inventory is not just a nice thing to do." he says. this is turned into a value showing how many days worth of inventory a firm has by dividing inventory turnover by 365. the computer loses 1% of its value. Hell. Sitting in inventory. An inventory turn. So why all the commotion? Has their low inventory REALLY helped out that much? In short. Kevin Rollins. "Because of their short product lifecycles.

This isn't like the canned food industry where managers can let their supplies sit around for months before anyone bats an eye.306 2. the less it is worth.8 24. The longer a computer sits around. computers rot´. Dell was losing less than a percent.532 5.4 9. and as Kevin Rollins of Dell put it. In 2001. That said. Dell was carrying less than 1 week's worth of inventory. By 2001.16 9. This essentially means that inventory used to sit around for 11 weeks and now it sits around for less than 1 week. So what does this mean for Dell? Remember. computers lose 1 percent of their value per week.149 1.7 52.819 Key point to notice here is that Dell was carrying over 10 weeks worth of inventory in 1993.078 5.40 52. in 1993 Dell was losing roughly 10% per computer just by allowing computers to sit around before they were sold.40 51.4 63.992 0.Dells Inventory Turnover Data YEAR 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 INVENTORY TURNOVER 4. Dell reduced costs by nearly 9%.79 5.856 10. 29 . Computers aren t canned goods.5 WEEK S INVENTORY 10.2 41.247 0.992 1. due to depreciation alone. Based on holding costs alone.012 0 .

Hopefully this article provided you with a practical example that demonstrates the positive effects lower inventory can have on a firm's overall costs. check out Dallas Fort Worth trucking accident attorney. Looking at their latest annual reports.Since 2001. Dell has continued to lower inventory. For more basic information regarding holding costs. please read A Simplified Look at the Pros and Cons of Inventory. day's inventory has dropped by approximately a day. 30 . For more information regarding lawyers in the Texas area.

When looked at it appears to be a very simple. In reality it is a very complicated technique that takes long term commitment and a initial cost with no guarantee of success. many companies are not. Although there are many companies that are successful. Companies Currently using JIT y y y y y y y Harley Davidson Toyota Motor Company General Motors Ford Motor Company Manufacturing Magic Hawthorne Management Consulting Strategy Manufacturing Inc. If implemented successfully it would eliminate waste. 31 . It does this through shorter transportation and increased communication. However there are many risks associated with attempting to implement JIT manufacturing techniques. Even though there are enormous risks many still consider implementing JIT for it many advantages.CONCLUSION Just-in-time manufacturing can be a positive influence on a company. quick. make the company more productive and more efficient. and easy thing to do.