JIT SCM

If Supply Chain Management is

the Answer, What's the Question?

Introduction
Shift in manufacturing business processes
in practically every industrial setting.
JIT thinking paradigm now includes the
purchasing function.
JIT concepts have had a significant effect
on the profitability in almost all industrial
settings.

Introduction
The key JIT principles focus on people,
postponement, efficiency, and the
elimination of waste.
All of these key business principles have a
direct effect on the supply chain function.

JIT Conceptual Framework

6-4

Practices Essential for JIT

Implementation
1.
2.
3.
4.
5.
6.
7.
8.

Uniform production
Quick set times
Small lot sizes
Short lead times
Preventive maintenance
Multifaceted workforce
Supplier development
Kanban production control

On The Other Hand, The Japanese..

JIT is Toyotas manufacturing philosophy
to minimize waste,
JIT production system is a subsystem
controlled by kanban.
The kanban-controlled JIT production
system has been erected based on the
premise of minimizing work-in-process
inventories (waste) by reducing or
eliminating discrete batches.

Supported By:
1.
2.
3.
4.
5.
6.

Smoothing of production,
Standardization of jobs,
Reduction of setup times,
Improvement of activities,
Design of machine layout,
Automation of processes.

Significance Of JIT SCM

Material cost as a proportion of total cost
of the end product has risen sharply and is
as high as 80 percent in some instances.
The role in a manufacturing organization
has become increasingly important.

Significance Of JIT SCM

Focuses on reducing both raw materials
and work-in-process inventories.
Provide a firm with component parts and
raw materials.
Requires that the right materials are
provided to work stations at the right time
Ensure that high-quality products are
provided on time, at a reasonable price.

FOR JIT PURCHASING TO

WORK.

Reduced Order Quantities

Small lot sizes.
Long and infrequent production runs have
in the past been considered beneficial for
the overall productivity of a manufacturing
organization.
However, long production runs usually
lead to high levels of raw-material and
finished-goods inventories.

On-Time Delivery Schedules

Supplier performance can be measured
more accurately under the JIT SCM
In order to obtain small lot sizes for
production, the order quantity size needs
to be reduced and corresponding delivery
schedules need to be made more
frequent.

Reduced Lead Times

To be able to maintain low inventory
levels, it is critical that replenishment lead
times be as short as possible.

COMPARISON BETWEEN
TRADITIONAL AND JIT
PURCHASING APPROACHES

Order quantities

Traditional
Purchasing

JIT-Purchasing

Based on trade-offs
between ordering
and carrying costs

Based on small lot

sizes for production

Delivery schedules Infrequent, primarily

because of high
ordering costs
involved

Frequent because
of small lot sizes
and low ordering
costs

Delivery windows

Very narrow

Relatively wide

Delivery lead times Relatively long and

relaxed

Stringent and
reduced significantly

Parts quality

Responsibility of the Responsibility of

quality function in
supplier
the organization

Supplier base

Fairly broad

Considerably
smaller

High Quality of Incoming Materials

Japanese manufacturers attempt to
reduce incoming material inspection as
much as possible.
In order to eliminate the associated
receiving inspection costs, a very high
emphasis is placed on the quality of
incoming materials under the JIT system.

Reliable Suppliers
Since there is no buffer stocks, unreliable
supply, in terms of delivery time and quality of
incoming material, may lead to frequent
problems in production.
Purchasing function has been preoccupied
with trimming the overall supplier base in
quest of so called superior suppliers.

JIT SCM BENEFITS

Reduced Inventory Levels

Associated inventory holding costs.
Firms like Toyota have been able to
reduce inventory levels to such an extent
that their inventory turnover ratios have
gone up to over 60 times per year,
compared to corresponding ratios of 5 to 8
reported by most American manufacturers.

Improved Lead-Time Reliability

Delivery lead times are shorter.

Lead-time reliability is better
Higher levels of customer service
Lower safety stock requirements for the
company.
Reduced working capital requirements for
the firm.

Scheduling Flexibility
Reduced purchasing lead times and setup
times.
Prevents confusion in the manufacturing
plant
Unique competitive advantages to
manufacturing firms since they are
capable of adapting to changes in the
environment more quickly.

Improved Quality
High-quality incoming materials result in
savings associated with reduced rework
and scrap

Reduced Costs of Parts

As cooperation and relationships between
suppliers and manufacturers build up in a
JIT system, so do the opportunities to
conduct an extensive value analysis and
focus on reducing the cost of parts
purchased.

Constructive Synergies with Suppliers

Because of smaller lot sizes and frequent
delivery schedules, suppliers are in a
position to receive quick feedback
regarding any potential manufacturing or
design problems.
Manufacturing is in a position to implement
engineering changes quicker because of
the reduced inventory levels.

Cost Decreases
Reduces physical inventory level
Reduced insurance premiums associated
with the storage of inventory.
Reduced inventory holding costs
Reduced labor cost in store rooms and
material handing costs.
Reduced clerical and administrative costs.

Cost Decreases
Reduced waste from the manufacturing
process.
Reduced obsolescence costs.
Reduced deprecation of handling and
storage equipment.
Each of the cost savings will result in a
leaner more profitable operation.

PROBLEMS WITH
IMPLEMENTATION

Lack of Cooperation from Suppliers

The suppliers see little incentive in
adopting the JIT approach when the
primary benefits of the program go to the
buyer

What You Need To Give

1.
2.
3.
4.
5.
6.

A long-term business agreement

A fair return on supplier investment
Adequate time for thorough planning
Accurate demand functions
Correct and firm specifications
Parts designed to match suppliers
process capability

What You Need To Give

7. Smoothly timed order releases
8. A fair profit margin
9. Fair dealings with regard to price
10.A minimum number of change orders
11.Prompt payment of invoices

Lack of Top Management Support

Implementation of the JIT philosophy
requires a cultural change in the
organization.
Cannot be implemented successfully
without total support from top
management.

Lack of Employee Readiness

and Support
Resistance is encountered because the
employees are required to change their
long-standing work habits, or because
they interpret the new system as being a
threat to their jobs.
JIT system requires most employees to
assume more problem-solving
responsibilities on the job, which may lead
to additional frustration.

Lack of Support from Design

Engineering Personnel
Design engineering is responsible for
making technical specifications for the
materials a company buys.
SCM does not receive adequate support
from engineering functions, and, as a
result, often unable to advise suppliers on
material quality design options.

Low Product Quality

If suppliers fail to provide materials of
adequate quality on a regular basis,
production slow-downs and stoppages will
occur regularly.

Lack of Communication
Integration of important functional areas
Lack of proper communication among
these areas poses a major obstacle
Purchasing function in an organization
must assume the responsibility of calling
on top management regularly for
leadership and support.

Role of Culture
The need to have harmony in
organizations provides for better
manufacturersupplier relationships at
Toyota and Honda.
Severance of a business relationship
between manufacturer and supplier has a
strong stigma associated with it, which
both manufacturers and suppliers try to
avoid as much as possible.

Critical Analysis of the JIT Concept

Many companies turned to JIT looking for
a relatively painless financial surgery that
would yield substantial short-term benefits.
Over the years, these companies have
come to realize the tremendous effort and
commitment required to make a JIT
system run smoothly.

Critical Analysis of the JIT Concept

The practitioners painted an extremely
romantic picture of JIT emphasizing
simplicity and efficiency, along with a state
of affairs where employee morale would
be high and relations between buyers and
suppliers would be completely
harmonious.

Critical Analysis of the JIT Concept

It takes time to change attitudes of the
workforce and nurture long-term
relationships with suppliers.
JIT systems work best when its smooth
production and low inventory requirements
are aimed at meeting a relatively stable
product demand.

Critical Analysis of the JIT Concept

Demand patterns are not stable for all
products. In order to induce a relatively
stable demand, companies using JIT
manufacturing often consolidate their
product lines.
Not all marketing strategies are compatible
with the JIT system.

Final Note
Key word in supply chain management is
management, and when relationships
aren't managed properly (or at all), then
there really isn't much of a supply chain.
What you've got instead is a mad free-forall, and ultimately, a lot of unhappy
customers.