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Just-In-Time Inventory Management (JIT)
Just-In-Time Inventory (JIT) management is a philosophy where the focus on purchasing and manufacturing is to eliminate waste. By eliminating waste you can have the correct parts, at the exact time you need them to go into production. This system does away with the conventional idea of overhead. In order for it to be effective it must incorporate the whole supply chain. Logistics or the planning, implementing, and controlling effectively the way goods and materials are taken from storage to the point of utilization plays a large part in JIT. Some key areas of logistics are transportation, warehousing, packaging, material handling as well as logistic information systems and service providers.
Lean Production System, Vendor Managed Inventory (VMI), Collaborative planning, forecasting and Replenishment (CPFR), and Sigma Six are other terms you will hear that refer to Just-In-Time Inventory management.
The JIT philosophy has become a widely used idea by manufacturing executives. One reason that JIT is viewed as a strategic management objective is because of where the emphasis lies. The emphasis of the JIT philosophy lies in:
- Cooperation within a value chain
- Maximize use of people at various levels
- Quality being the foundation
- Continuous improvement
Today's global market makes it necessary for strategic managers to implement ways to attain competitive advantage. This can be done by offering quality products at competitive prices. With the use of the JIT philosophy this can be accomplished.
Just-In-Time Inventory Management was started in Japan in the 1970's. The man most commonly associated with JIT is Taiichi Ohno sometimes referred to as the father of this system.
When the Second World War ended Japan had little capital, a war-ravaged workforce, limited space, few raw materials, demand levels were depleted and access to the latest technologies did not exist. The president of Toyota brought Taiichi Ohno in giving him the challenge of catching up with the American car industry or Toyota would have to close its door.
Ohno's new system would take production and eliminate the waste. The elimination of waste would happen by moving items through the production system only when needed and by automating the production system. Ohno regarded waste as:
- Time spent waiting
- Processing time
- Inventory and
The work ethic of the Japanese entails the following concepts:
- Highly motivated workers constantly seeking improvement
- Group effort that combine talent, knowledge, skills and ideas
- Work is more important than leisure
- Company loyalty
The building blocks of JIT include:
- Product Design
- Achievable quality
- Appropriate quality
- Standard parts
- Modular design
- Process Design
- Small lot sizes
- Setup time reduction
- Manufacturing cells
- Limited work in process
- Quality improvement
- Production flexibility
- Service enhancements
- No stockrooms
- Personal/Organizational Elements
- Workers as assets
- Cross-trained workers
- Flexible labor
- Continuous improvement
- Cost accounting
- Leadership/project management
- Manufacturing Planning and Control
- Level loading
- Paperless systems
- Pull systems
- Rapid flow times
- Visual systems
- Close vendor and purchasing relationships
- Reduced transaction processing
- Preventive maintenance
JIT has continued to develop by adding new technology after it has simplified its process. This gradual approach has lead to continuous improvement in minimizing waste and maximizing response time. As technology continues to develop JIT will improve. The growth of publications about JIT is an indication of the interest that is evident in this field. By providing information through conferences and books firms are learning new and improved ways to use this philosophy.
Impact/Importance on Business
JIT manufacturing practices impact business strategies as more competition is created between companies. The need to find more innovative ways of doing business requires companies to cut costs and improve quality. This can be done by applying JIT across the supply chain. The supply chain is a network of manufacturers and service providers that work together to convert and move goods from the raw materials stage through to the end user.
As stated previously the key element of JIT is to eliminate waste and add value. By using JIT strategies companies hope to eliminate disruptions, make the system flexible, reduce setup times and lead times, minimize inventory and eliminate waste. The use of JIT strategies gives companies a better return on invested capital (ROIC).
Vendor Managed Inventory (VMI) is a technique used by strategic managers. This process is where a manufacturer generates orders for its distributor based on demand information sent by the distributor. The manufacturer can track product quantities easier because there is automatic replenishment. This means the goods are sent as needed. Money is saved because assets are reduced thereby using less working capital. VMI gives advantage to both the distributor by lowering inventory levels, decreasing backorders or out of stock situations, and improving customer service and the manufacturer who can forecast easier with fewer errors.
The dual advantages include data entry errors are reduced, processing speed is elevated, better business relationship, stabilized purchase orders, reduced lead times, and costs are lower.
Another technique is Collaborative planning, forecasting and replenishment (CPFR). CPFR is a revolutionary business process wherein trading partners apply technology along with a standard set of business processes for internet based collaboration on forecasts and plans for replenishing products. Designed to improve the flow of goods from the raw material suppliers, to the manufacturer, to the retailers' shelves CPFR quickly identifies any discrepancies in the forecasts, inventory, and order data before they negatively impact sales or profits. A new CPFR model was introduced in 2004. This model makes collaboration upgrades more understandable, comprehensive, and appealing to different audiences; especially senior management. The goal of collaboration has always been to satisfy consumers with better product availability at lower cost. The new model places the customer at its core. CPFR is support by Global Commerce Initiative, ECR Europe, ECR Brazil, and ECR Columbia. Many industries have adopted this technique such as apparel, automotive and high tech.
Some scanning systems that support Supply Chain Technology/Automation are:
- Universal Product Code
- Stock Keeping Unit
- Radio-Frequency Identification
- Radio signal on tag to receiver
- Signal generated by chip and battery
- Electronic Product Code
- Next generation RFID
- Individual cans, cases, or pallets
- Inventory levels, ordering or sales
Business Reference on JIT