Chapter 15

Just-In-Time and Lean Production

JIT In Services
Competition on speed & quality Multifunctional department store workers Work cells at fast-food restaurants Just-in-time publishing for textbooks - on demand publishing a growing industry Construction firms receiving material just as needed

What is JIT ?
Producing only what is needed, when it is needed A philosophy An integrated management system JITs mandate: Eliminate all waste

Lean Operations: Best Implementation is Toyota Production System

TPS is a production management system that aims for the ideal through continuous improvement Includes, but goes way beyond JIT. Pillars: Synchronization Reduce transfer batch sizes Level load production Pull production control systems (vs. push): Kanban Quality at source Layout: Cellular operations Continuous Improvement (Kaizen): through visibility & empowerment

....

Basic Elements of JIT

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Flexible resources Cellular layouts Pull production system Kanban production control Small-lot production Quick setups Uniform production levels Quality at the source Total productive maintenance Supplier networks

Toyotas waste elimination in Operations

1. Overproduction 2. Waiting 3. Inessential handling

4. Non-value adding processing

5. Inventory in excess of immediate needs 6. Inessential motion 7. Correction necessitated by defects

Reducing waste: Increase Problem Visibility Lower the Water to Expose the Rocks

Missed Due Dates Late Deliveries

Too Much Space

Inventory

Too much paperwork Engineering Change Orders Long queues

Scrap & Rework

Poor Quality 100% inspection

Machine Downtime

Waste in Operations

Waste in Operations

Waste in Operations

Flexible Resources
Multifunctional workers General purpose machines Study operators & improve operations

The Push System

Pre-planned issues of supplies/merchandise regardless of customer demand criteria Creates excess and shortages not efficient over the long run

The Pull System

Material is pulled through the system when needed Reversal of traditional push system where material is pushed according to a schedule Forces cooperation Prevent over and underproduction

Kanban Production Control System

Kanban card indicates standard quantity of production Derived from two-bin inventory system Kanban maintains discipline of pull production Production kanban authorizes production Withdrawal kanban authorizes movement of goods

A Sample Kanban

The Origin of Kanban

a) Two-bin inventory system system
Bin 1 Bin 2 Reorder card

b) Kanban inventory
Kanban

Q-R
R R

Q = order quantity R = reorder point - demand during lead time

Types of Kanbans
Bin Kanban - when bin is empty replenish Kanban Square
Marked area designed to hold items

Signal Kanban
Triangular kanban used to signal production at the previous workstation

Material Kanban
Used to order material in advance of a process

Supplier Kanbans
Rotate between the factory and suppliers

Small-Lot Production
In theory:

Requires less space & capital investment Moves processes closer together Makes quality problems easier to detect Makes processes more dependent on each other

Components of Lead Time

Processing time
Reduce number of items or improve efficiency

Move time
Reduce distances, simplify movements, standardize routings

Waiting time
Better scheduling, sufficient capacity

Setup time
Generally the biggest bottleneck

SMED Principles
1. Separate internal setup from external setup 2. Convert internal setup to external setup 3. Streamline all aspects of setup 4. Perform setup activities in parallel or eliminate them entirely

Common Techniques for Reducing Setup Time

Preset Buttons/settings Quick fasteners Reduce tool requirements Locator pins Guides to prevent misalignment Standardization Easier movement

Uniform Production
Results from smoothing production requirements Kanban systems can handle +/- 10% demand changes Smooths demand across planning horizon Mixed-model assembly steadies component production

Quality at the Source

Jidoka is authority to stop production line Andon lights signal quality problems Undercapacity scheduling allows for planning, problem solving & maintenance Visual control makes problems visible Poka-yoke prevents defects (mistake proof the system)

Visual Control

In use at Harley-Davidson and at Opal Plant - Russelsheim

Visual Control

Kaizen
Continuous improvement Requires total employment involvement Essence of JIT is willingness of workers to
Spot quality problems Halt production when necessary Generate ideas for improvement Analyze problems Perform different functions

Total Productive Maintenance (TPM)

Commercial industry answer to PMCS

Breakdown maintenance
Repairs to make failed machine operational

Preventive maintenance
System of periodic inspection & maintenance to keep machines operating

TPM combines preventive maintenance & total quality concepts

TPM Requires Management to:

Design products that can be easily produced on existing machines Design machines for easier operation, changeover, maintenance Train & retrain workers to operate machines Purchase machines that maximize productive potential Design preventive maintenance plan spanning life of machine

Goals of JIT
1. 2. 3. 4. 5. 6. 7. Reduced inventory where? Improved quality Lower costs Reduced space requirements Shorter lead time Increased productivity Greater flexibility 8. 9. 10. 11. 12. 13. Better relations with suppliers Simplified scheduling and control activities Increased capacity Better use of human resources More product variety Continuous Process Improvement

JIT Implementation
Use JIT to finely tune an operating system Somewhat different in USA than Japan JIT is still evolving JIT as an inventory reduction program isnt for everyone - JIT as a CPI program is! Some systems need Just-inCase inventory

Reverse Logistics: Important or Irritant?

Estimated $100 billion industry in 2006

In an ideal world, reverse logistics would not exist.

Jim Whalen, In Through the Out Door, Warehousing Management, March 2001

Now, more than ever, reverse logistics is seen as being important.

Dale Rogers, Going Backwards, 1999

Reverse Logistics - What is it? The Armys Definition

The return of serviceable supplies that are surplus to the needs of the unit or are unserviceable and in need of rebuild or remanufacturing to return the item to a serviceable status

Reverse Logistics - What is it? The Commercial Perspective

Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Typical Reverse Logistics Activities

Processing returned merchandise damaged, seasonal, restock, salvage, recall, or excess inventory Recycling packaging materials/containers Reconditioning, refurbishing, remanufacturing Disposition of obsolete stuff Hazmat recovery

Why Reverse Logistics?

Competitive advantage Customer service - Very Important: 57% - Important: 18% - Somewhat/unimportant:23% Bottom line profits

Reverse Logistics - New Problem?

Sherman Montgomery Wards - 1894 Recycling/remanufacturing in 1940s World War II - 77,000,000 square feet of storage across Europe with over $6.3 billion in excess stuff Salvage and reuse of clothing and shoes in the Pacific Theater World War II

Key Dates in Reverse Logistics

World War II the advent of refurbished automobile parts due to shortages 1984 - Tylenol Scare - Johnson and Johnson 1991 - German ordinance that put teeth in environmental reverse pipeline Summer 1996 UK Packaging and Packaging Waste Legislation 1998 - first real study of reverse logistics in the US - University of Nevada, Reno 2001 EU goal of 50-65% recovering or recycling of packaging waste

Reverse Logistics
A US Army Perspective

Operation Iraqi Freedom

The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

Military Operations and Excess

In battle, troops get temperamental and ask for things which they really do not need. However, where humanly possible, their requests, no matter how unreasonable, should be answered. George S. Patton, Jr.

Janes Defence Weekly

Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.

Does this create a problem?

From GAO Audit Report

From GAO Audit Report

Reverse Logistics
The Commercial Perspective

Reverse Logistics
Rate of returns? Cost to process a return? Time to get the item back on the shelf if resaleable?

Costs - above the cost of the item

Merchandise credits to the customers.

The transportation costs of moving the items from the retail stores to the central returns distribution center. The repackaging of the serviceable items for resale.
The cost of warehousing the items awaiting disposition. The cost of disposing of items that are unserviceable, damaged, or obsolete.

Costs

Process inbound shipment at a major distribution center = 1.1 days Process inbound return shipment = 8.5 days Cost of lost sales Wal-Mart: Christmas 2003 returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers PalmOne - 25% return rate on PDAs

More Costs
Hoover - $40 Million per year Cost of processing $85 per item Unnamed Distribution Company $700K items on reverse auction 2001 - over $60 billion in returns; $52 billion excess to systems; $40 billion to process

Is it a problem?
Estimate of 2004 holiday returns: $13.2 billion % of estimated 2004/2005 holiday returns: 25% Wal-Mart: $6 Billion in annual returns = 17,000 truck loads (>46 trucks a day) Electronics: $10 Billion annually in returns Personal Computers: $1.5 Billion annually = approximately $95 per PC sold 79% of returned PCs have no defects Home Depot ~ $10 million in returns in the stores alone Local Wal-Mart ~ $1 million a month in returns

Is it a Problem?
European influence spread to US - Green Laws Estee Lauder - $60 million a year into land fills FORTUNE 500 Company - $200 million over their $300 million budget for returns Same Provider - 40,000 products returned per month; 55% no faults noted K-Mart - $980 million in returns 1999 Warranty vice paid repairs

More consequences
Increased Customer Wait Times Loss of Confidence in the Supply System Multiple orders for the same items Excess supplies in the forward pipeline Increase in stuff in the reverse pipeline Constipated supply chain

Impact?
Every resaleable item that is in the reverse supply chain results in a potential stock out or zero balance at the next level of supply. Creates a stockout do-loop

Results?
This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring. More stocks = larger logistics footprint = the need for larger distribution centers and returns centers.

Reverse Logistics
According to the Reverse Logistics Executive Council, the percent increase in costs for processing a return, as compared to a forward sale, is an astounding 200-300%. In the U.S. alone, the cost is an annual $100 billion. Forbes, March 2005 Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

The truth is, for one reason or another, materials do come back and it is up to those involved in the warehouse to effectively recover as much of the cost for these items as possible.
- Whalen, In Through the Out Door

RFID and Returns

Visibility Tracking Component tracking Data Warehouse on what, why, when Altered products Not for every product

Impacts of Reverse Logistics

Forecasting Carrying costs Processing costs Warehousing Distribution Transportation Personnel Marketing

Next Week
Final Exam Due by Next Saturday Harley Papers Next Week: Resource Planning, Capacity Planning, Quality