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Just-in-time (JIT)

Introduction

Just-in-time (JIT) is easy to grasp conceptually, everything happens just-in-time. For


example consider my journey to work this morning, I could have left my house, just-in-
time to catch a bus to the train station, just-in-time to catch the train, just-in-time to arrive
at my office, just-in-time to pick up my lecture notes, just-in-time to walk into this lecture
theatre to start the lecture. Conceptually there is no problem about this; 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. So we would at a stroke eliminate any
inventory of parts, 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. So, at a
conceptual extreme, JIT has no need for inventory or stock, either of raw materials or
work in progress or finished goods.

Obviously any sensible person will appreciate that achieving the conceptual extreme
outlined above might well be difficult, or impossible, or extremely expensive, in real-life.
However that extreme does illustrate that, perhaps, we could move an existing system
towards a system with more of a JIT element than it currently contains. For example,
consider a manufacturing process - whilst we might not be able to have a JIT process in
terms of handing finished goods to customers, so we would still need some inventory of
finished goods, perhaps it might be possible to arrange raw material deliveries so that, for
example, materials needed for one day's production arrive at the start of the day and are
consumed during the day - effectively reducing/eliminating raw material inventory.

Adopting a JIT system is also sometimes referred to as adopting a lean production


system.

History

JIT originated in Japan. Its introduction as a recognized technique/philosophy/way of


working is generally associated with the Toyota motor company, JIT being initially
known as the "Toyota Production System". Note the emphasis here - JIT is very much a
mindset/way of looking at a production system that is distinctly different from what
(traditionally) had been done previous to its conception.

Within Toyota Taiichi Ohno is most commonly credited as the father/originator of this
way of working. The beginnings of this production system are rooted in the historical
situation that Toyota faced. After the Second World War the president of Toyota said
"Catch up with America in three years, otherwise the automobile industry of Japan will
not survive". At that time one American worker produced approximately nine times as
much as a Japanese worker. Taiichi Ohno examined the American industry and found
that American manufacturers made great use of economic order quantities - the
traditional idea that it is best to make a "lot" or "batch" of an item (such as a particular
model of car or a particular component) before switching to a new item. They also made
use of economic order quantities in terms of ordering and stocking the many parts needed
to assemble a car.

Ohno felt that such methods would not work in Japan - total domestic demand was low
and the domestic marketplace demanded production of small quantities of many different
models. Accordingly Ohno devised a new system of production based on the elimination
of waste. In his system waste was eliminated by:

 just-in-time - items only move through the production system as and when they
are needed
 autonomation - (spelt correctly in case you have never met the word before) -
automating the production system so as to include inspection - human attention
only being needed when a defect is automatically detected whereupon the system
will stop and not proceed until the problem has been solved

In this system inventory (stock) is regarded as an unnecessary waste as too has to deal
with defects.

Ohno regarded waste as a general term including time and resources as well as materials.
He identified a number of sources of waste that he felt should be eliminated:

 overproduction - waste from producing more than is needed


 time spent waiting - waste such as that associated with a worker being idle whilst
waiting for another worker to pass him an item he needs (e.g. such as may occur
in a sequential line production process)
 transportation/movement - waste such as that associated with transporting/moving
items around a factory
 processing time - waste such as that associated with spending more time than is
necessary processing an item on a machine
 inventory - waste associated with keeping stocks
 defects - waste associated with defective items

At the time car prices in the USA where typically set using selling price = cost plus profit
mark-up. However in Japan low demand meant that manufacturers faced price resistance,
so if the selling price is fixed how one can increase the profit mark-up? Obviously by
reducing costs and hence a large focus of the system that Toyota implemented was to do
with cost reduction.

To aid in cost reduction Toyota instituted production leveling - eliminating unevenness in


the flow of items. So if a component which required assembly had an associated
requirement of 100 during a 25 day working month then 4 were assembled per day, one
every two hours in an eight hour working day. Leveling was also applied to the flow of
finished goods out of the factory and to the flow of raw materials into the factory.

Toyota changed their factory layout. Previously all machines of the same type, e.g.
presses, were together in the same area of the factory. This meant that items had to be
transported back and forth as they needed processing on different machines. To eliminate
these transportation different machines were clustered together so items could move
smoothly from one machine to another as they were processed. This meant that workers
had to become skilled on more than one machine - previously workers were skilled at
operating just one type of machine. Although this initially met resistance from the
workforce it was eventually overcome.

Whilst we may think today that Japan has harmonious industrial relations with
management and workers working together for the common good the fact is that, in the
past, this has not been true. In the immediate post Second World War period, for
example, Japan had one of the worse strike records in the world. Toyota had a strike in
1950 for example. In 1953 the car maker Nissan suffered a four month strike - involving
a lockout and barbed wire barricades to prevent workers returning to work. That dispute
ended with the formation of a company backed union, formed initially by members of the
Nissan accounting department. Striking workers who joined this new union received
payment for the time spent on strike, a powerful financial inventive to leave their old
union during such a long dispute. The slogan of this new union was "Those who truly
love their union love their company".

In order to help the workforce to adapt to what was a very different production
environment Ohno introduced the analogy of teamwork in a baton relay race. As you are
probably aware typically in such races four runners pass a baton between themselves and
the winning team is the one that crosses the finishing line first carrying the baton and
having made valid baton exchanges between runners. Within the newly rearranged
factory floor workers were encouraged to think of themselves as members of a team -
passing the baton (processed items) between themselves with the goal of reaching the
finishing line appropriately. If one worker flagged (e.g. had an off day) then the other
workers could help him, perhaps setting a machine up for him so that the team output was
unaffected.

In order to have a method of controlling production (the flow of items) in this new
environment Toyota introduced the Kanban. The Kanban is essentially information as to
what has to be done. Within Toyota the most common form of Kanban was a rectangular
piece of paper within a transparent vinyl envelope. The information listed on the paper
basically tells a worker what to do - which items to collect or which items to produce. In
Toyota two types of Kanban are distinguished for controlling the flow of items:

 a withdrawal Kanban - which details the items which should be withdrawn from
the preceding step in the process
 a production ordering Kanban - which details the items to be produced
All movement throughout the factory is controlled by these kanbans - in addition since
the kanbans specify item quantities precisely no defects can be tolerated - e.g. if a
defective component is found when processing a production ordering Kanban then
obviously the quantity specified on the Kanban cannot be produced. Hence the
importance of autonomation (as referred to above) - the system must detect and highlight
defective items so that the problem that caused the defect to occur can be resolved.

Another aspect of the Toyota Production System is the reduction of setup time. Machines
and processes must be re-engineered so as to reduce the setup time required before
processing of a new item can start.

Ohno has written that Toyota was only able to institute kanbans on a company wide basis
in 1962, ten years after they first embarked on the introduction of their new production
system. Although, obviously, as the originators of the approach Toyota had much to learn
and no doubt made mistakes, this illustrates the time that can be required to successfully
implement a JIT system in a large company. Moreover you can reflect on the
management time/effort/cost that was consumed in the development and implementation
of their JIT system.

With respect to the Western world JIT only really began to impact on manufacturing in
the late 1970's and early 1980's. Even then it went under a variety of names - e.g. Hewlett
Packard called it "stockless production". Such adaptation by Western industry was based
on informal analysis of the systems being used in Japanese companies. Books by
Japanese authors (such as Ohno himself) detailing the development of JIT in Japan were
not published in the West until the late 1980's.

As an indication of the growth of interest in JIT over time the graph below shows the
number of documents (such as books and conference proceedings) referring to just-in-
time in the British Library, which has a very extensive collection of such documents
relating to the UK. The earliest material I could find was from 1984, when there was one
book published and one set of conference proceedings. The graph shows the number of
documents published each year as well as the cumulative number published.
One often reads nowadays that JIT involves employee participation, involving workers so
as to gain from their knowledge and experience. Such participation is meant to ensure
that workers feel involved with the system and make suggestions for improvements,
cooperate in changes, etc. Personally I am not convinced that this aspect of JIT, as it is
interpreted nowadays, played any part in its initial development. Certainly Ohno, writing
in 1978 long before the appearance in the West of material related to JIT, in 8 pages of
single spaced A4 paper outlining the Toyota Production System makes little mention of
this aspect. My best guess, from my reading of the subject, is that JIT started out as
a top-down, centrally organized and imposed production system. Whilst it may later
have come to take on a "human-face" with connotations of worker involvement and
participation I personally doubt it started out that way.

Toyota still describes itself as using the Toyota Production System for car manufacture,
e.g. here in relationship to a manufacturing plant in the USA.

Japanese terms

There are a number of Japanese terms (words) associated with JIT that you may
encounter. I have listed some below for you:

 Andon - trouble lights which immediately signal to the production line that there
is a problem to be resolved (typically the line is stopped until the problem is
resolved)
 Jikoda - autonomation - enabling machines to be autonomous and able to
automatically detect defects
 Muda - waste
 Mura - unevenness
 Muri - excess
 Poka-yoke - "foolproof" machines and methods so as to prevent production
mistakes
 Shojinka - a workforce flexible enough to cope with changes in production and
using different machines
 Soikufu - thinking creatively, having inventive ideas

In the Toyota system the Andon, indicating a stoppage of the line, is hung from the
factory ceiling so that it can be clearly seen by everyone. This coupled with line stoppage
clearly raises the profile of the problem and encourages attention/effort to its solution so
that it does not reoccur.

As an indication though of the difficulty of implementing JIT in a Western environment


when General Motors instituted an Andon for line stoppage workers were simply not
prepared to take responsibility for stopping the line. Hence defective items were passed
though the system, rather than the Andon functioning as planned and highlighting
problems and hence leading to their resolution. General Motors resolved the problem by
allowing workers to indicate that they had a problem whilst the line continued to operate.

Reconciling JIT and EOQ

It is a common misconception that JIT, a Japanese originated concept, is somehow


radically different from the classical Western concept of the Economic Order Quantity
(EOQ), based as it is on the most economic level of stock. I hope below to convince you
that this is not so.

Recall from the notes about inventory theory the problem of deciding the appropriate
amount of stock to order.

Assume

 Stock used up at a constant rate (R units per year)


 Fixed setup cost co for each order - often called the order cost
 No lead time between order and arrival of order
 Variable holding cost ch per unit per year

Then we need to decide Q, the amount to order each time, often called the batch (or lot)
size.

With these assumptions the graph of stock level over time takes the form shown below.
Hence we have that:

 Annual holding cost = ch(Q/2)

where Q/2 is the average inventory level

 Annual order cost = co(R/Q)

where (R/Q) is the number of orders per year (R used, Q each order)

So total annual cost = ch(Q/2) + co(R/Q)

Total annual cost is the function that we want to minimize by choosing an appropriate
value of Q.

Note here that, obviously, there is a purchase cost associated with the R units per year.
However as this is just constant as R is fixed we can ignore it here.

The diagram below illustrates how these two components (annual holding cost and
annual order cost) change as Q, the quantity ordered, changes. As Q increases holding
cost increases but order cost decreases. Hence the total annual cost curve is as shown
below - somewhere on that curve lies a value of Q that corresponds to the minimum total
cost.

We can calculate exactly which value of Q corresponds to the minimum total cost by
differentiating total cost with respect to Q and equating to zero.

d(total cost)/dQ = ch/2 - coR/Q² = 0 for minimization

which gives Q² = 2coR/ch

Hence the best value of Q (the amount to order = amount stocked) is given by

 Q =(2Rco/ch)0.5

and this is known as the Economic Order Quantity (EOQ)

To get the total annual cost associated with the EOQ we have from before that total
annual cost = ch(Q/2) + co(R/Q) so putting Q =(2Rco/ch)0.5 into this we get that the total
annual cost is given by

ch((2Rco/ch)0.5/2) + co(R/(2Rco/ch)0.5) = (Rcoch/2)0.5 + (Rcoch/2)0.5 = (2Rcoch)0.5


Hence total annual cost is (2Rcoch)0.5 which means that when ordering the optimal (EOQ)
quantity we have that total cost is proportional to the square root of any of the factors (R,
co and ch) involved.

The Economic Order Quantity is (by definition) the order quantity that minimizes
total annual cost and hence (on cost grounds) should always be the quantity that we
order.

What then of JIT with its philosophy of (essentially) very small orders/levels of stock (i.e.
Q=1). Is there not a contradiction?

If fact there need not be. This is because in JIT we notice that we need not take co and/or
ch as fixed. In particular if we can reduce the cost of ordering co then the EOQ reduces.
For example, if we were to reduce co by a factor of 4 we would reduce total cost by a
factor of 2 (note the EOQ would change as well, being halved). This, in fact, is one of the
ideas behind JIT to reduce (continuously) co and ch so as to drive down total cost.

Hence if, for example, we were to build close links with our suppliers so as to reduce
ordering cost dramatically it becomes, just by a straightforward application of the EOQ
formula, much more attractive to have small order quantities. In the limit if c o is zero, i.e.
ordering is free, then we order each and every unit as we need it (remember here our
simple EOQ model assumes a zero lead time, i.e. orders received as soon as they are
placed).

Note too from the formula (2Rc och)0.5 for the total annual cost associated with the EOQ
reducing co also reduces cost.

In summary then in order to reconcile JIT and EOQ we do not take co and/or ch as fixed
but seek (continuously) to reduce them, thereby reducing the EOQ thereby
simultaneously reducing the total annual cost.

Obviously seeking ways of reducing c o and/or ch takes management time (thereby


incurring cost) and we may reach a point of diminishing returns, i.e. it may not be worth
the management effort (cost) required to reduce total annual cost further.
General Motors

An example of the use of JIT in General Motors is given below.

General Motors (GM) in the USA has (approximately) 1700 suppliers who ship to 31
assembly plants scattered throughout the continental USA. These shipments total about
30 million metric tons per day and GM spends about 1,000 million dollars a year in
transport costs on these shipments (1990 figures).

JIT implies frequent, small, shipments. When GM moved to JIT there were simply too
many (lightly loaded) trucks attempting to deliver to each assembly plant. GM's solution
to this problem was to introduce consolidation centers at which full truckloads were
consolidated from supplier deliveries.

This obviously involved deciding how many consolidation centers to have, where they
should be, their size (capacity) and which suppliers should ship to which consolidation
centers (suppliers can also still ship direct to assembly plants).

As of 1990 some 20% by weight of shipments go through consolidation centers and about
98% of suppliers ship at least one item through a consolidation centre.

All this has been achieved without sacrificing the benefits of JIT.

JIT outline points

Originated in Japan

Often said Japanese industry works - just-in-time, Western industry works - just-in-case

JIT is also known as stockless production or lean production

JIT is a suitable production system when:

 have steady production of clearly defined standard products


 a reasonable number of units made
 a high value product
 have flexible working practices and a disciplined workforce
 short setup times on machines
 quality can be assured, e.g. zero defects either though good working practices or
though a cost penalty

Kanban
 a signal or message or communication, e.g. wave hands, shout, send a card,
electronic
 used to control the flow of items though the production process

It is often said that:

 Materials Requirements Planning (MRP) = a 'Push' system


 JIT = a 'Pull' system

I believe that this is an incorrect analysis - MRP is a system based on fulfilling predicted
usage in a set time period.

JIT is a system based on actual usage - parts of the production system are "linked"
together via kanbans as the system runs

It is this linkage that is the distinguishing difference between MRP and JIT - JIT is a
dynamic linked system, MRP is not

JIT philosophy

 elimination of waste in its many forms


 belief that ordering/holding costs can be reduced
 continuous improvement, always striving to improve

Elements of JIT

 regular meetings of the workforce (e.g. daily/weekly)


 discuss work practices, confront and solve problems
 an emphasis on consultation and cooperation (i.e. involving the workforce) rather
than confrontation
 modify machinery, e.g. to reduce setup time
 reduce buffer stock
 expose problems, rather than have them covered up
 reveal bad practices
 take away the "security blanket" of stock

JIT need not be applied to all stages of the process. For example we could keep large
stocks of raw material but operate our production process internally in a JIT fashion
(hence eliminating work-in-progress stocks).

Classic JIT diagram


The classic JIT diagram is as below. There the company (the boat) floats on a sea of
inventory, lurking beneath the sea are the rocks, the problems that are hidden by the sea
of inventory.

|
--|--
|
---------------
\ /
========\ Company /============ Sea of inventory
\---------/
x
xxx xxxx
xxxxx xxxxxx Rocks - the problems hidden
xxxxxxxxxxxxxxxx by the sea of inventory

If we reduce the inventory level then the rocks become exposed, as below.

|
--|--
|
--------------- x
\ / xxx xxxx
========\ Company /====xxxxx===xxxxxx========
\---------/ xxxxxxxxxxxxxxxx

Now the company can see the rocks (problems) and hopefully solve them before it runs
aground!

One plan to expose the problems is simply to:

 make a large amount of finished goods stock to keep the customers supplied
 try running the production system with less inventory to expose problems
 revert to the original levels of inventory until you have had time to fix the
problems you exposed
 repeat the above - hence continuous improvement

Benefits

The benefits of JIT are:

 better quality products


 quality the responsibility of every worker, not just quality control inspectors
 reduced scrap and rework
 reduced cycle times
 lower setup times
 smoother production flow
 less inventory, of raw materials, work-in-progress and finished goods
 cost savings
 higher productivity
 higher worker participation
 more skilled workforce, able and wiling to switch roles
 reduced space requirements
 improved relationships with suppliers

However you should be absolutely clear that implementing a JIT system is a task
that cannot be undertaken lightly. It will be expensive in terms of management time
and effort, both in terms of the initial implementation and in terms of the continuing
effort required to run the system over time.

Suppliers

Suppliers can be crucial to JIT success

Supplier gets:

 long-term, guaranteed, contract


 a good price
 steady demand
 minimal paperwork (e.g. use electronic means to order - such as email or Web or
electronic data interchange, EDI)

In return the supplier agrees to

 quality components (e.g. zero defects)


 guaranteed delivery times
 a "partnership" with its customer
 contingency plans to cope with disruptions, common disruptions might be:
o the effect of bad weather
o a truck drivers strike blocking roads/ports
o a flu outbreak reducing the supplier's workforce

Supplier selection criteria:

 close to production plant (else potential transportation delays)


 good industrial relations ("involvement", "value", "dignity", "ownership"), no
strike deals
 you believe that the supplier can met their promises with respect to the list of
factors given above that that they are agreeing to
With suppliers satisfying these criteria you can reduce the total number of suppliers;
indeed it seems logical so to do. If you had five suppliers meeting all these criteria why
do you need five? Obviously you might decide to have more than one supplier for safety
reasons. Even the best run supplier can suffer a factory fire or an earthquake, but
probably no more than two or three suppliers.

As an illustration of this in 1997 Toyota was affected by a fire at a supplier of brake parts
that cost the company an estimated $195 million and 70,000 units of production. The fire
was at a plant that was the sole supplier of brake parts for all but two Toyota models and
forced the company to shut its 18 assembly plants in Japan for a number of days. As a
result Toyota embarked on a review of components that were sourced from a single
supplier.

Having a single supplier may be attractive in cost terms, but one does need to balance the
risk (albeit a low probability risk - perhaps a fire every 100-250 years say) against the
cost savings.