Corporate Policy of MM/JIT/Kanban

Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs In order to achieve JIT the process must have signals of what is going on elsewhere within the process. This means that the process is often driven by a series of signals, which can be kanban), that tell production processes when to make the next part. Kanban are usually ‘tickets’ but can be simple visual signals, such as the presence or absence of a part on a shelf. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization’s return on investment quality, and efficiency. Some have suggested that “Just on Time” would be a more appropriate name since it emphasizes that production should create items that arrive when needed and neither earlier nor later.

Integrated Materials Management

Various functions served by materials management include the material planning, purchasing, receiving, stores, inventory control, scrap and surplus disposal. All these functions can have separate working norms including the one for performance.

Efficient management of input materials is of utmost importance in a business organization for maximizing materials productivity, which ultimately adds to the profitability of the organization.

This requires well coordinated approach towards various issues involving decision making with respect to materials.

All the materials related activities such as material planning & indenting, purchase systems & procedure, variety reduction through standardization & rationalization, reducing uncertainties in demand & supply, handling & transportation, inspection, proper storage & issue of materials to the internal customers, inventory management, vendor management & finally disposal of obsolete, surplus & scrap materials etc. taken together is termed as Integrated Materials Management.

For example, while inventory manager would like to have minimum level of inventory to show off his performance, purchasing manager would like to place bulk orders in order to lessen his work load and show discounts as reductions. Both of these acts may be little contradictory from the organizational point of view. That is if some of the functions were to be handled separately, a conflict of interests may occur.

Therefore, the conflicting objectives need to be balanced and intertwined from a total organizational viewpoint so as to achieve optimum results for the organisation as a whole

In an integrated set up, one materials manager (usually the chief) is responsible for all such inter related functions and he is in a position to exercise control and coordinate all the activities with a view to ensure proper balance of the conflicting objectives of the individual functions.

Integration also attains the synergetic advantage in terms of eliminating water tight compartments that set in a disjointed environment of working. The resulting benefits can be seen in terms of rapid transfer of data, through effective and informal communication channels.

This is crucial as the materials management function involves handling vast amount of data. Therefore, integrating the various functions identify themselves to a common materials management department which in turn results in greater coordination and better control

Now a day, in many traditions bound companies too, even the spare part planning which hitherto was done by the operation people has been brought under the umbrella of integrated materials

Management

Better accountability ,better coordination, better performance, better adaptability to EDP are some of the tangible advantages of the Integrated Materials Management besides a perceptible team spirit , morale and cooperation are the intangible gains.

Just-In-time (JIT)

Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs. In order to achieve JIT the process must have signals of what is going on elsewhere within the process. This means that the process is often driven by a series of signals, which can be Kanban (Kanban) that tell production processes when to make the next part. Kanban are usually ‘tickets’ but can be simple visual signals, such as the presence or absence of a part on a shelf. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization’s return on investment quality, and efficiency. Some have suggested that “Just on Time” would be a more appropriate name since it emphasizes that production should create items that arrive when needed and neither earlier nor later.

Quick communication of the consumption of old stock which triggers new stock to be ordered is key to JIT and inventory reduction. This saves warehouse space and costs. However since stock levels are determined by historical demand , any sudden demand rises above the historical average demand, the firm will deplete inventory faster than usual and cause customer service issues. Some have suggested that recycling Kanban faster can also help flex the system by as much as 10-30%. In recent years manufacturers have touted a trailing 13 week average as a better predictor for JIT planning than most forecasters could provide.

The technique was first used by the Ford Motor Company as described explicitly by Henry Ford ‘s My Life and Work (1923): “We have found in buying materials that it is not worthwhile to buy for other than immediate needs. We buy only enough to fit into the plan of production, taking into consideration the state of transportation at the time. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads of raw materials would arrive on schedule and in the planned order and amounts, and go from the railway cars into production. That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials. With bad transportation one has to carry larger stocks.” This statement also describes the concept of “dock to factory floor” in which incoming materials are not even stored or warehoused before going into production. The concept needed an effective freight management system (FMS); Ford’s Today and Tomorrow (1926) describes one.

The technique was subsequently adopted and publicized by Toyota Motor Corporation of Japan as part of its Toyota production System (TPS). However, Toyota famously did not adopt the procedure from Ford, but from Piggly Wiggly .Although Toyota visited Ford as part of its tour of American businesses, Ford had not fully adopted the Just-In-Time system, and Toyota executives were appalled at the piles of inventory lying around and the uneven work schedule of the employees of Ford. Toyota also visited Piggy Wiggly, and it was there that Toyota executives first observed a fully functioning and successful Just-In-Time system, and modeled TPS after it.

The technique was first used by the Ford Motor Company as described explicitly by Henry Ford’s My Life and Work (1923): “We have found in buying materials that it is not worthwhile to buy for other than immediate needs. We buy only enough to fit into the plan of production, taking into consideration the state of transportation at the time. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads of raw materials would arrive on schedule and in the planned order and amounts, and go from the railway cars into production. That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials. With bad transportation one has to carry larger stocks.” This statement also describes the concept of “dock to factory floor” in which incoming materials are not even stored or warehoused before going into production. The concept needed an effective freight management system (FMS); Ford’s Today and Tomorrow (1926) describes one.

The technique was subsequently adopted and publicized by Toyota Motor Corporation of Japan as part of its Toyota production system (TPS). However, Toyota famously did not adopt the procedure from Ford, but from Piggy Wiggly. Although Toyota visited Ford as part of its tour of American businesses, Ford had not fully adopted the Just-In-Time system, and Toyota executives were appalled at the piles of inventory lying around and the uneven work schedule of the employees of Ford. Toyota also visited Piggy Wiggly, and it was there that Toyota executives first observed a fully functioning and successful Just-In-Time system, and modeled TPS after it.

 Philosophy

The philosophy of JIT is simple – inventory is defined to be waste. JIT inventory systems expose the hidden causes of inventory keeping and are therefore not a simple solution a company can adopt; there is a whole new way of working the company must follow in order to manage its consequences. The ideas in this way of working come from many different disciplines including statistics, industrial engineering, production management and behavioral science. In the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says about the management within the company, and the main principle behind JIT.

Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. This does not mean to say JIT is implemented without unawareness that removing inventory exposes pre-existing manufacturing issues. With this way of working, businesses are encouraged to eliminate inventory that does not compensate for manufacturing process issues, and then to constantly improve those processes so that less inventory can be kept. Secondly, allowing any stock habituates the management to stock keeping and it can then be a bit like a narcotic. Management is then tempted to keep stock there to hide problems within the production system. These problems include backups at work centers, machine reliability, and process variability, lack of flexibility of employees and equipment, and inadequate capacity among other things.

In short, the just-in-time inventory system is all about having “the right material, at the right time, at the right place, and in the exact amount”, without the safety net of inventory. The JIT system has implications of which are broad for the implementers.

 Stocks

JIT emphasis’s inventory as one of the seven wastes (Production, waiting time, transportation, inventory, processing, motion and product defect), and as such its practice involves the philosophical aim of reducing input buffer inventory to zero. Zero buffer inventories means that production is not protected from exogenous (external) shocks. As a result, exogenous shocks reducing the supply of input can easily slow or stop production with significant negative consequences. For example, Toyota suffered a major supplier failure as a result of the 1997 Aisin fire which rendered one of its suppliers incapable of fulfilling Toyota’s orders. In the U.S., the 1992 railway strikes resulted in General Motors having to idle a 75,000-worker plant because they had no supplies coming in.

Transaction cost approach

JIT reduces inventory in a firm. However, unless it is used throughout the supply chain, it can be hypothesized that firms are simply outsourcing their input inventory to suppliers (Naj 1993). This effect was investigated by Newman (1993), who found, on average, suppliers in Japan charged JIT customers a 5% price premium.

Environmental concerns

During the birth of JIT, multiple daily deliveries were often made by bicycle; with increases in scale has come the adoption of vans and Lorries (trucks) for these deliveries. Cushman (1994) has highlighted the potential and actual problems this causes with regard to gridlock and the burning fossil fuels. This violates three JIT wastes:

• Time; wasted in traffic jams
• Inventory; specifically pipeline (in transport) inventory and
• Scrap; with respect to petrol or diesel burned while not physically moving.

Price volatility

JIT implicitly assumes a level of input price stability such that it is desirable to inventory inputs at today’s prices. Where input prices are expected to rise storing inputs may be desirable.

Quality volatility

JIT implicitly assumes the quality of available inputs remains constant over time. If not, firms may benefit from hoarding high quality inputs.

Demand stability

Carmaker (1989) highlights the importance of relatively stable demand which can help ensure efficient capital utilization rates. Carmaker argues without a significant stable component of demand, JIT becomes untenable in high capital cost production. In the U.S., the 1992 railway strikes resulted in General Motors having to idle a 75,000-worker plant because they had no supplies coming in

Benefits

As most companies use an inventory system best suited for their company, the Just-In-Time Inventory System (JIT) can have many benefits resulting from it. The main benefits of JIT are listed below.

• Set up times are significantly reduced in the factory. Cutting down the set up time to be more productive will allow the company to improve their bottom line to look more efficient and focus time spent on other areas that may need improvement. This allows the reduction or elimination of the inventory held to cover the “changeover” time, the tool used here is SMED
• The flows of goods from warehouse to shelves are improved. Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand. Small or individual piece lot sizes reduce lot delay inventories which simplifies inventory flow and its management.
• Employees who possess multiple skills are utilized more efficiently. Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product.
• Better consistency of scheduling and consistency of employee work hours. If there is no demand for a product at the time, workers don’t have to be working. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day.
• Increased emphasis on supplier relationships. No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. Having a trusting supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public.
• Supplies continue around the clock keeping workers productive and businesses focused on turnover. Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction, promotion or even higher pay.

Problems within a JIT system

The major problem with just-in-time operation is that it leaves the supplier and downstream consumers open to Supply Socks and large supply or demand changes. For internal reasons, this was seen as a feature rather than a bug by Ohno used the analogy of lowering the level of water in a river in order to expose the rocks to explain how removing inventory showed where flow of production was interrupted. Once the barriers were exposed, they could be removed; since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup in the next downstream area. One of the other key tools to manage this weakness is Production Leveling to remove these variations. Just-in-time is a means to improving performance of the system, not an end.

With very low stock levels meaning that there are shipments of the same part coming in sometimes several times per day, Toyota is especially susceptible to an interruption in the flow. For that reason, Toyota is careful to use two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk by the 1997 Aisin Fire However, since Toyota also makes a point of maintaining high quality relations with its entire supplier network, several other suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation. Thus, a strong, long-term relationship with a few suppliers is preferred to short-term, price-based relationships with competing suppliers. This long-term relationship has also been used by Toyota to send Toyota staff into their suppliers to improve their suppliers’ processes. These interventions have now been going on for twenty years and result in improved margins for Toyota and the supplier as well as lower final customer costs and a more reliable supply chain. Toyota encourages their suppliers to duplicate this work with their own suppliers.

KANBAN

Kanban where Kan, means “visual,” and ban, means “card” or “board”) is a concept related to lean and Just In Time (JIT) production. The Japanese word kanban (pronounced Kanban) is a common everyday term meaning “signboard” or “billboard” and utterly lacks the specialized meaning that this loanword has acquired in English. According to Taiichi ONO, the man credited with developing JIT, kanban is a means through which JIT is achieved.

Kanban is a signaling system to trigger action. As its name suggests, kanban historically uses cards to signal the need for an item. However, other devices such as plastic markers (kanban squares) or balls (often golf balls) or an empty part-transport trolley or floor location can also be used to trigger the movement, production, or supply of a unit in a factory

It was out of a need to maintain the level of improvements that the kanban system was devised by Toyota. Kanban became an effective tool to support the running of the production system as a whole. In addition, it proved to be an excellent way for promoting improvement.

Origins

The term kanban describes an embellished wooden or metal sign which has often been reduced to become a trade mark or seal. Since the 17th century, this expression in the Japanese mercantile system has been as important to the merchants of Japan as military banners have been to the samurai. Visual puns, calligraphy and ingenious shapes — or kanban — define the trade and class of a business or tradesman. Often produced within rigid confusion restrictions on size and color, the signs and seals are mast MR Pieces of logo and symbol design. For example, sumo wrestler, a symbol of strength, may be used as kanban on a pharmacy’s sign to advertise a treatment for anemia.

Operation

An important determinant of the success of “push” production scheduling is the quality of the demand forecast which provides the “push”. Kanban, by contrast, is part of a pull system that determines the supply, or production, according to the actual demand of the customers. In contexts where supply time is lengthy and demand is difficult to forecast, the best one can do is to respond quickly to observed demand. This is exactly what a kanban system can help: it is used as a demand signal which immediately propagates through the supply chain. This can be used to ensure that intermediate stocks held in the supply chain are better managed, usually smaller. Where the supply response cannot be quick enough to meet actual demand fluctuations, causing significant lost sales, then stock building may be deemed as appropriate which can be achieved by issuing more kanban. Taiichi Ohno states that in order to be effective kanban must follow strict rules of use (Toyota, for example, has six simple rules) and that close monitoring of these rules is a never-ending problem to ensure that kanban does what is required.

A simple example of the kanban system implementation might be a “three-bin system” for the supplied parts (where there is no in-house manufacturing) — one bin on the factory floor, one bin in the factory store and one bin at the suppliers’ store. The bins usually have a removable card that contains the product details and other relevant information — the kanban card. When the bin on the factory floor is empty, the bin and kanban card are returned to the factory store. The factory store then replaces the bin on the factory floor with a full bin, which also contains a kanban card. The factory store then contacts the supplier’s store and returns the now empty bin with its kanban card. The supplier’s inbound product bin with its kanban card is then delivered into the factory store completing the final step to the system. Thus the process will never run out of product and could be described as a loop, providing the exact amount required, with only one spare so there will never be an issue of over-supply. This ‘spare’ bin allows for the uncertainty in supply, use and transport that are inherent in the system. The secret to a good kanban system is to calculate how many kanban cards are required for each product. Most factories using kanban use the colored board system (Hiejunka Box). This consists of a board created especially for holding the kanban cards

E-Kanban Systems

Many manufacturers have implemented electronic kanban systems Electronic kanban systems, or E-Kanban systems, help to eliminate common problems such as manual entry errors and lost cards. E-Kanban systems can be integrated into Enterprise Resource Planning (ERP) systems. Integrating E-Kanban systems into ERP systems allows for real-time demand signaling across the supply chain and improved visibility. Data pulled from E-Kanban systems can be used to optimize inventory levels by better tracking supplier lead and replenishment times.