Inventory Control

and On-Demand
Manufacturing

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Just Right, Just-In-T ime

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and Never Too Much
At Green Gear Cycling, makers of the Bike Friday foldable travel bike, each bike is
built to order. Inventory is small and the company doesn’t stock partial works-in-
progress.

From color to size, every bike is a custom project. As co-owner Alan Scholz says,
“We’re a flow company.” Green Gear receives product daily and ships daily. “
Every day we have stuff going in and stuff going out.” 1

Bike Friday manufactures about 3,000 folding single, tandem

and triple bikes per year at its facility in Eugene, Oregon. 2 When
demand ramps up, Green Gear ramps up with it, calling in office
staff or temporary help to pitch in on the production line. 3

From inception, the folks at Green Gear adopted just-in-time

production concepts. The philosophy behind just-in-time is not to
sell products that have been produced, but to produce products to replenish
those that have been sold.

Just-in-time (or JIT) proponents describe this as the difference between push and
pull production systems. In JIT, customer orders trigger the production process—
essentially pulling components and supplies down the line.

Just-in-time is most commonly associated with inventory control systems as this

“pull” philosophy has significant implications for raw materials and inventory. The
rule, essentially, is don’t buy it (or build it) ‘til you need it.

Within a just-in-time system, managers adopt the policy that it is best to have the
right materials at the right time in the right place and in the right amount.

Anything outside of this “just right” system is considered wasteful. The idea
is that having parts or goods simply waiting on shelves is not the best use of
company resources. Inventory ties up cash as well as space that could be used
for production. This inventory is also subject to theft, damage, or perhaps more
commonly—obsolescence.

1 “Bike Friday Factory Tour Video - Part 4.” The Gal From Down Under. 05 Mar. 2009
<http://www.galfromdownunder.com/movies/WEB-bf-factory-tour-part4.mov>.
2 “Oregon Companies Keep Production Local.” Bicycle Retailer and Industry News. 05 Mar. 2009
<http://www.bicycleretailer.com/news/newsDetail/2189.html>.
3 Stevens, Tim. “Pedal Pushers.” Industry Week 17 July 2000.
© 2009 4imprint, Inc. All rights reserved
Once you eliminate the risks and carrying costs of inventory, your

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organization can become more flexible and responsive. Gone are the
days of stalling a product enhancement or pushing product on a
client while you wait for inventory to draw down.

What’s more, JIT proponents argue that excess inventory hides

weaknesses in the production cycle and that reducing inventory forces
greater quality control throughout the operation—with everything from fewer
production mistakes to better customer service.

As one of the leaders at Toyota—the company generally credited with developing

just-in-time—once said, waste is “anything other than the minimum amount of
equipment, materials, parts, space, and worker’s time, which are absolutely essential
to add value to the product.” 4 Under this definition, waste includes overproduction,
waiting, transport, inventory, unnecessary motion, and product defects.

The JIT philosophy is that inventory should not act as a mechanism for
accommodating inefficiencies in other areas of the system. By optimizing the supply
chain, inventory (i.e. waste) is reduced.

Multiple opportunities for waste exist throughout the supply chain. A JIT initiative
endeavors to eliminate as many inconsistencies as possible including:
• Raw Materials: e.g. variable quality, unreliable delivery
• Manufacturing: e.g. unpredictable production, set-up
times, staff productivity
• Distribution: e.g. inconsistent product requirements

Just-in-time principles are closely aligned with lean manufacturing.

Lean systems seek to reduce operational inefficiencies and waste
through a total system of continuous improvements. Just-in-time is
one of multiple tools in a lean initiative.

Always better
At Green Gear, customization goes far beyond color choices. Customers submit their
height, weight, inseam measurements, age, and preferred riding position with every
order. The company builds bikes to accommodate everyone including children, little
people, and the very tall.

Standard delivery time is four weeks, although the company can accommodate last
minute orders—for a premium.

4 Hyer, Nancy Lea. Reorganizing the factory competing through cellular manufacturing. Portland,
Or: Productivity P, 2002.
© 2009 4imprint, Inc. All rights reserved
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“We can accommodate those kinds of requests, with decision-to-buy to riding in three
days,” said Scholz. “Most bike manufacturers have terrible margins and huge lead times.
They have no levers. We give people what they want, when they want it. If you do that,
people are willing to pay you for it.” 5

With prices ranging from roughly $1000 to $1500 per bike, expediting fees not included,
Green Gear discovered early on that there were profits to be had in short lead times and
customization.

It’s a lesson many other American manufactures learned in response

to outsourcing. When volume buying became vastly more affordable
from places like China, American manufacturers learned to compete on
service—enabled by just-in-time methods.

Overall, just-in-time systems contribute the following benefits:

• Reduced inventory in raw materials, parts, and finished goods
• Better equipment utilization
• Increased productivity
• Fewer product defects
• Greater flexibility and responsiveness throughout the organization

We’ll explain more as we outline the key components of a just-in-time system including
1) supply management, 2) employee empowerment, 3) production cells, 4) reduced setup,
5) signaling systems, and 6) takt time.

Implementing JIT
Just-in-time cannot be explained in a simple multi-step process. Consultants spend years
honing their knowledge of just-in-time best practices. And naturally, every company
presents unique challenges and opportunities. The following is a basic overview of
just-in-time concepts. To build on these ideas in your own company, seek professional
assistance or begin a more in-depth course of study.

1. Supply management
Logically, a just-in-time system requires small, frequent shipments. JIT systems work when
long-term relationships exist and suppliers are educated about your production process
and are informed as needs arise.

5 Stevens, Tim. “Pedal Pushers.” Industry Week 17 July 2000.

© 2009 4imprint, Inc. All rights reserved

At Divesco, a vendor to the U.S. nuclear plant industry, the

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company has built its niche as a just-in-time supplier, buying,
storing and reselling specialized materials to and from more
than 100 plants nationwide. Its services assist nuclear plants in
reducing inventory and becoming more cost-efficient.

4imprint customer Divesco retains its position as a key nuclear

supplier by emphasizing same- or next-day delivery of any
needed materials.

“When we can get the inventory out within a day or so, we have a big advantage over
our competitors,” said Kay Fisher, vice president of Divesco. “And, it really helps in
fostering the relationships we currently have with our customers; they know they can
rely on us.”

Tightening the supply chain requires strong relationships at every stage along the
way. Often, JIT supply systems rely on vendor-managed inventory, whereby automated
tracking tools alert the vendor when materials are required.

When implementing JIT, a business eliminates its “just in case” inventory. That buffer
must be replaced by reliable vendors who can consistently deliver on-time, on-demand.

Toyota, the global model for just-in-time systems, famously ran into trouble in July
2007 when one of its suppliers was impacted by an earthquake. The carmaker had to
temporarily shut down 12 production facilities after Riken Corp., a supplier of $1.50
piston rings, was damaged by a quake. Nevertheless, company leaders remained firm in
support of the just-in-time policy. “We’ve been implementing this strategy for decades
... and we’ll keep on with it,” President Katsuaki Watanabe said. 6

2. Empowered employees
In a just-in-time system, employees must have the knowledge and the
freedom to make decisions—reacting to certain indicators or triggers
in the production cycle.

The JIT manager is more of a coach, rather than someone who doles
out tasks. He/she becomes a problem solver, removing obstacles and
bottlenecks that prevent streamlined production.

For employees, empowerment is optimized when they are cross-trained and job

6 Chozick, Amy. “Toyota Sticks by ‘Just in Time’ Strategy After Quake.” Wall Street Journal [New York] 24 July 2007,
Eastern ed., sec. A: 2.

© 2009 4imprint, Inc. All rights reserved

classifications are minimized. As at Green Gear—where office staff can assist with

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production—this builds in worker-flexibility and creates a production environment in
which team members can see what needs to get done and pitch in to do it.

Empowerment is essential to continuous improvement in a JIT system. The ideal JIT

philosophy is that employees know best how to produce a given component and
management is responsible for eliminating any identified barriers to success.

3. Production cells
Just-in-time systems use small production cells. Cell operators are organized into
cross-trained teams and are responsible for building their components, from
start-to-finish, including quality control.

In summer 2008, Neosho, Mo.-based furniture maker La-Z-Boy transitioned from a

traditional assembly line to cellular manufacturing. Under the new system, each piece
of furniture is fully assembled within a cell. Each chair cell has three upholsterers, one
frame-maker, one person to do the stuffing, and one for final assembly. As a result,
production time for single chair was cut from two and a half days to just three hours. 7

The company has 31 teams operating on each day and night

shift—19 dedicated to chairs and 12 to sofas. Company leaders
embraced the move as a way to cut costs and as an alternative to
moving production overseas. 8 According to stock reports,
La-Z-Boy leaders claim the move has been financially successful.

In a move independent of U.S. production changes, Morgan

Furniture, a La-Z-Boy licensed manufacturer in Australia,
also saw considerable improvements after implementing
manufacturing cells. Australian demand was high, and the company was considering
investing more than $500,000 in a new conveyor and automation equipment with the
goal of increasing production 100%. 9

After an introduction to the cellular model, leadership changed its mind, determining
that production goals could be reached with far less investment. Under the new system,
Morgan Furniture cut turnaround from roughly three and a half weeks to an average of
just three days. 10

7 “La-Z-Boy Goes Cellular.” Neosho Daily News 15 Jan. 2009.

8 Ibid.
9 “IRL - One hundred percent more La-Z-Boys.” IRL - Industrial Research Limited. 06 Mar. 2009

<http://www.irl.cri.nz/industry-sectors/high-tech-manufacturing/one-hundred-percent-more-la-z-boys.aspx>.
10 Ibid.

© 2009 4imprint, Inc. All rights reserved

And because the company no longer has to store vast quantities of work in progress, it was

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able to increase production space another 40%. Accordingly, company leaders expected to
meet the increased production goal within a year. 11

4. Reduced setup time

In a traditional manufacturing setting, producers attempt to distribute machine
setup costs across multiple parts. So while the company may only need 25 widgets for
the job at hand, the machine operator cranks out 100 while he’s at it. A JIT system
eliminates this extra production.

To implement just-in-time, engineers look for opportunities to reduce setup time.

This can be achieved by standardizing parts, adding auxiliary equipment, adding
manpower to the setup process, organizing workstations, and otherwise reevaluating
the manufacturing process.

Consider a NASCAR team that can change four tires and fill a tank of gas in 20 seconds.
The team has specialized equipment and processes in place to meet those outstanding turn
times, and similar opportunities are available in many manufacturing environments.

5. Signaling system
Signaling systems alert suppliers that it is time to deliver more material. In JIT circles, this
signal is often referred to a kanban. Kanban, a Japanese word for visual sign, harkens back
to the Toyota system.

A kanban triggers material delivery when you need it, and eliminates the need for
constant inventory management.

Imagine a company that manufactured scissors. Each scissors requires a pivot screw which is
delivered to the production cell in bins. Each station is outfitted with two bins that hold a
predetermined number of screws. When the operator empties one of those bins he/
she would take the card from the bottom and deposit in an order box. The card is a
signal, or kanban, to order more screws.

In just-in-time manufacturing settings, every component or material is assigned

a kanban. Quantities are predetermined and resources are simply replenished as
quickly (or as slowly) as they are used.

Some businesses use cards, others empty bins and some even use color-coded golf

11 Ibid.

© 2009 4imprint, Inc. All rights reserved

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balls that travel through the production floor in pneumatic tubes. Effective systems
are simple and visual and built into the production process so that the reorder signal is
triggered as soon as the working inventory hits a predetermined point.

6. Takt time
Takt or cycle time is the pace of production required to meet consumer demand. If takt
time is two hours, units should come out of the production cell at the rate of one every
two hours.

This takt or cycle time can be broken up by the number of tasks it takes to complete a
certain project. The minimum cycle time should be equal to the longest task time.

So hypothetically, at a furniture maker, upholstering might take two hours, while

framing takes 45 minutes, stuffing 35 minutes, and packaging 20. These task times affect
possible cycle times. At a minimum, cycle time is two hours, assuming one workstation
for each task. At a maximum, cycle time would be 3 hours 40 minutes if all the tasks
were performed by one person (120 + 45 + 35 + 20 = 220 or 3 hours 40 minutes).

In times of low demand, a company may operate closer to maximum cycle time. But
when takt time must be reduced to meet demand, the manufacturer adds people to the
production cell. In order to flex with the ebb and flow of customer orders,
workers must be cross-trained and flexible in order to jump in and out of
various production roles—in exactly the same way Green Gear reduces takt
time with temporary workers and office help.

All of these procedures, from kanbans to production cells and takt time,
are part of a comprehensive just-in-time system. Nevertheless, most could
be introduced as a stand-alone improvement to the production process.

Moreover, just-in-time systems are not limited to the manufacturing floor. Cross-training,
kanbans, and project cells can be applied in many administrative settings.

Just a few final words

To get started, hire a consultant or provide training for your management and
engineers. Once your team understands the principles, it’s time to pull in other shop
leaders and some vendors to create an implementation team.

JIT changes will touch all areas of the organization, so it’s essential that company leaders
express support and encourage buy-in. Likewise, JIT will require substantial changes to

© 2009 4imprint, Inc. All rights reserved

your current order and delivery systems. Pull vendors into the process early so they can

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share their ideas and gear up for the new system.

It’s difficult to pin-point a step-by-step implementation process because one change

will trigger other changes in a ripple effect throughout the company. Here are some of
the general steps you’d take on a conversion to JIT (although they won’t necessarily be
executed in this order):

• Devise a kanban strategy

• Reduce setup and standardize tasks
• Restructure the shop floor
• Calculate demand requirements and move toward a “pull” system
• Cross-train and empower staff
• P
 artner with vendors and customers to integrate and automate
downstream demand signals
• Measure results
• Foster a culture of continuous improvement

Remember, just-in-time is not simply inventory control. Neither is it a standalone physical

system. Rather, just-in-time is a philosophy that must be adopted throughout the
organization—from manufacturing on through to sales, administration and accounting.

JIT is about increasing flexibility and responsiveness throughout the organization

The process requires careful evaluation of all production and inventory procedures.
In doing so, a company eliminates waste, improves customer service, and ultimately
increases the bottom line.

Just-in-time principles are closely aligned with lean manufacturing, another production
concept
that grew out of Toyota. Lean is an overarching philosophy which seeks to reduce waste
throughout the organization. While JIT is one of several tools used to achieve lean, it can be
implemented on its own.

Lean practitioners have a language of their own, and the definition or application of these
terms is often debated. Here are some common terms you might find associated with lean
practices and one accepted meaning for each:

5S – A five-step method for creating clean, organized workspaces: sort, simplify, sweep,
standardize, and sustain.

Kaizen – An event in which team members evaluate procedures or equipment and seek to
make improvements. Kaizen events are part of a continuous improvement process.

Kanban – A visual sign or signal typically used to trigger an order for parts or materials.

© 2009 4imprint, Inc. All rights reserved

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Six Sigma – Developed at Motorola, Six Sigma is a quality improvement system that focuses
on statistical quality measurements. While purists suggest the methodologies are distinct from
lean, Six Sigma is often combined with lean initiatives.

Takt Time - The pace of production required to meet consumer demand

TPS – Stands for the Toyota Production System, considered a precursor to lean
and used somewhat synonymously by some.

Waste – Any activities that consume resources but do not add value to the
product or service.

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