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Introduction to TQM and JIT

Concept of JIT
What is JIT?
Background of JIT

The Goal Of JIT

Focus of JIT?

Elements of JIT

JIT-Philosophy or Technique?

Kanban, Jidoka and Andon

Implementation of JIT

How JIT Implementation can be successful?

 Problems Implementing JIT

Guidelines for Successful Implementation

Benefits of JIT

Drawbacks of JIT

Factors Debilitating JIT

JIT in manufacturing

JIT and Costs

Kanban-An Integrated System
When and How Kanbans are effective?
Case Study:
From three various Countries of the world
Conclusion
Bibliography
Introduction to TQM and JIT
Total Quality Management (TQM)

Total quality management (TQM) is not a technique; it is a broad management approach or

methodology, dealing with processes and attitudes. TQM places quality as the primary objective

for the organization, as opposed to the traditional management objective of maximizing

production and subsequently controlling costs. Although, TQM was initially developed for the

manufacturing environment, it can be equally applicable to any environment, which involves

inputs and outputs, such as knowledge service industry like universities.

Principles of TQM may be summarized as follows:

There is a goal of ‘Continuous Improvement’ against achieving some static level of quality. It is

about approaching excellence in an incremental way. Quality is a continuous ongoing process.

Quality is responsibility and mission of all. Hence all employees should be continuously trained

and motivate to consistently achieve better and better quality. Even ‘Commitment of Top

Management’ should be visible and clear to all.

Instead of reactive and person dependent system, TQM is a ‘Proactive Systematic Approach’.

This means ‘prevention and immediate detection of errors and problems at root source’ is

preferred over of ‘correction for problems after its occurrence’. Responsibility for quality takes
place at the source. This feature demands ‘Quality Design’ rather than inspection of quality after

poor design.

TQM attempts to expose problems rather than hide or burry them. ‘Just in Time (JIT)’ helps us to

understand more on this. TQM identifies and addresses causes of problems, not effects.

TQM creates, encourages and nurtures simplicity, instead of bureaucratic approach of adding

controls. It attempts to identify and eliminate non-value-added activities thus naturally motivating

people to use quality procedures.

The essence of TQM is the simple but extremely powerful belief that it is better and
hence cheaper; to do every process right at first time, rather than not to do it right and
then corrects it afterwards. Doing things right at first time requires no money. Doing
things wrong is what only costs money, as allowing defective products to get produced
wastes time and resources.

Thus, longer it takes to identify problem, more will be the cost incurred to correct it. TQM is

systematic way of guaranteeing that all activities within an organization happen as planned. It is

the management attitude that concerns with preventing problems at source, rather than allowing

problems to occur and then correcting them afterwards.

Introduction
Just-In-timeor JIT, is a management philosophy aimed at eliminating manufacturing

wastes by producing only the right amount and combination of parts at the right place at the right

time. It is also that ‘Just in Time (JIT)’ enforces ‘Continuous Improvement’ by continual reduction

of non-value-added inventory stocks to lower and then further lower levels. This is based on the

fact that wastes result from any activity that adds cost without adding value to the product, such

as transferring of inventories from one place to another or even the mere act of storing them.
The goal of JIT, therefore, is to minimize the presence of non-value-adding operations
and non-moving inventories in the production line. This will result in shorter throughput

times, better on-time delivery performance, higher equipment utilization, lesser space
requirement, lower costs, and greater profits.

JIT was developed as a means of meeting customer demands with minimum delays. Thus, in the

olden days, JIT is used not to reduce manufacturing wastage, but primarily to produce goods so

that customer orders are met exactly when they need the products.
JIT is also known as lean production or stockless production, since the key behind a successful

implementation of JIT is the reduction of inventory levels at the various stations of the production

line to the absolute minimum. This necessitates good coordination between stations such that

every station produces only the exact volume that the next station needs. On the other hand, a

station pulls in only the exact volume that it needs from the preceding station.

The JIT system consists of defining the production flow and setting up the production floor such

that the flow of materials as they get manufactured through the line is smooth and unimpeded,

thereby reducing material waiting time.

This requires that the capacities of the various workstations that the materials pass through are

very evenly matched and balanced, such that bottlenecks in the production line are eliminated.

This set-up ensures that the materials will undergo manufacturing without queuing or stoppage.

Introduction to TQM and JIT[1]

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A Walk from Past…
Background of JIT

JIT finds its origin in Japan, where it has been in practice since the early 1970’s. It was

developed and perfected by Taiichi Ohno of Toyota, who is now referred to as the father of JIT.

Before the introduction of JIT, there were a lot of manufacturing defects for the existing system at

that time. This included inventory problems, product defects, risen costs, and large lot production

and delivery delays. The inventory problems included the unused accumulated inventory that

was not only unproductive but also required a lot of efforts in storing and managing them. Other

implied problems were parts storage, equipment breakdowns and uneven production levels. For

the product defects, manufacturers knew that only one single product defect could destroy the

producer’s credibility. They must create a defect free process. Thus began the search for the

system that could bring about a turnaround.

The original concepts for the present day JIT philosophy is derived from the car plant
developed by Henry Ford in the early part of the century.

The ideas probably originated even earlier than this. Although many elements of JIT

manufacturing were present in Ford's assembly line in the 1930s, JIT as a manufacturing

process was not refined until the 1970's by Toyota Motors. Springing from Japan's post World

War II goal of full employment through industrialization, Japanese manufacturers imported

technology to avoid heavy R & D expenditures and focused on improving the production process.

Their aim was to increase product quality and reliability. Tai-ichi Ohio established Toyota as

leaders in quality and delivery time through the implementation of JIT. This position was gained

due to a commitment to two philosophies: elimination of waste and respect for people.

The Japanese developed what we today understand as Just-in-time, through intensive

government supported work, and intended to improve their then inferior industries. Their
programmes began by learning existing techniques from experts such as Deming and Juran,

American quality specialists. The characteristics of Japan, restrained spaces, no natural energy

sources or mineral wealth put them under pressure and appears to have banished complacency.

Total Quality Manufacturing experts, Deming and Juran, are responsible for pushing North

American manufacturers to adopt JIT philosophies. JIT gained world prominence as North

American manufacturers modified JIT principles to fit into their top down planning and

manufacturing systems approach.

The Goal of JIT

The prime goal of JIT is the achievement of zero inventories, minimal work in progress not just

within the confine of a single organization, but ultimately through out the entire supply chain.
There are three main objectives.

Increasing the organization’s ability to complete with others and remain competitive over the long

run. The competitiveness of the firm is increased by the use of JIT manufacturing process as

they can develop a more optimal process for their firms.

Increasing efficiency within the production process. Efficiency is obtained through
the
increase of productivity and decrease of cost.
Reducing wasted materials, time and effort. It can help to reduce the costs.
Other objectives of JIT:

Identify and response to consumers needs. Customer’s needs and wants seem to be the major

focus for business now, this objective will help the firm on what is demanded from customers,

and what is required of production.

Optimal quality/ cost relationship. The organization should focus on zero defect production

process. Although it seems to be unrealistic, in the long run, it will eliminate a huge a huge

amount of resources and efforts in inspecting, reworking & the production of defected goods.

Develop a reliable relationship between the suppliers. A good and long long-term relationship

between organization and its suppliers helps to manage a more efficient process in inventory

management, material management and delivery system. It will also assure that the supply is

stable and available when needed.

Plant design for maximizing efficiency. The design of plant is essential in terms of
manufacturing efficiency and utility of resources.
Adopt the work for continuous improvement. Commit a long- term continuous
improvement throughout the organization. It will help the organization to remain
competitive in the long run.
Reduce unwanted wastes. Wastes that do not add value to the products itself should
be
eliminated. JIT helps significantly in reducing wastes. JIT also helps in eliminating.

* Waste from overproduction

* Waste of waiting time

* Transportation waste

* Inventory Waste

* Waste of motion
* Waste from defects

JIT can help an organization to remain competitive by offering consumers higher quality of

products than their competitors, which is very important in the survival of the market place.

Focus of JIT?

Mainly JIT focuses to eliminate the waste or the non-value added. Thus there are several types

of wastes categorised. JIT usually identifies seven prominent types of waste to be eliminated:
•

Waste from Overproduction

•

Transportation Waste
•

Processing Waste
•

Waste from Product Defects

•

Waste of waiting/idle time

•

Inventory Waste
•

Waste of Motion

Elements of Just In Time

The basic elements of JIT manufacturing are:

· People Involvement

· Plants

· System
People Involvement: Maintaining a good support and agreement from
people involved

in production. This is not only reducing the time and effort in implementation of JIT, but also

minimize the chance of creating implementation problem. The attempt to maximize people's

involvement may carry through the introduction of quality circle and total involvement concept.
Manufacturers can gain support from4 sources.
1. Stockholders and owners of the company - should maintain a good long-term
relationship among them.
2. Labor organization - all labors should be well informed about the goals of JIT, this
is
crucial
in
gaining
support
from
the
them.
3. Management support - support from all level of management. The ideas of
continuous
improvement should spread all over the factory, managers and all shop floor labor.

4. Government support - government can show their support by extending tax and other financial

help. This can enhance the motivation, and also help in financing the implementation of JIT.
Plants: Certain requirements are needed to implement JIT
1. Plant layout - the plant layout is mainly focus on maximizing working flexibility. It
requires the use of "multi-function workers".
2. Demand-pull production - it means to produce when the order is received. This
can
manage the quantity and time more appropriately.

3. Kanban - a Japanese term for card or tag. Special inventory and process
information
are written on the card. This helps tying and linking the process more efficiently.
4. Self inspection - it is carried out by the workers at catch mistakes immediately.
5. Continuous improvement - this concept should be adopted by every members in the

organization in order to carry out JIT. This is the most important concept of JIT. This can allow an

organization to improve its productivity, service, operation and even customer satisfaction in an

on-going basis.
System This refers to the technology and process that combines the
different processes
and activities together. Two major types are Material Requirement Planning and
Manufacturing Resource Planning.

MRP is a computer based, bottom-up manufacturing approach. This involves two plans,

production plan and master production schedule. Production plan involves the management and

planning of resources through the available capacity. Master production schedule involves what

products to be produced in what time.

The above three factors form the element of JIT.

JIT - Philosophy or Technique????

Just In Time is a philosophy and not the technique for elimination of wastes. The JIT
strategy is to have "the right product at the right place at the right time."

The Just-in-time philosophy that emerged, is a management logic based on simplicity and

continuous improvement. It may be applied to any process where it will aim to make

improvements through elimination of excess, waste and unevenness.

The Just-in-Time concept comprises methods and techniques that aim to increase the
potential for short times to delivery.

Production system in which both the movement of goods during production and deliveries from

suppliers are carefully timed so that at each step of the process the next (usually small) batch

arrives for processing just as the proceeding batch is completed

The "Just in time" (JIT.) inventory concept, also called Kanban, asserts that just enough

inventories, arriving just in time to replace that which was just used, is all the inventory that is

necessary at any given time. Excessive inventory unnecessarily ties up money, adds

warehousing costs, increases risk of damage and risks obsolescence, and most of all, can

possibly obscure opportunities for operational improvements.

Storing inventory is still the basics of warehousing, but in today’s business it constitutes only part

of the total. A modern thought on warehousing is that large inventories are really not as

necessary as once believed.

To some companies storing large quantities of inventory is detrimental to business because it

ties up capital and can also disguise poor management practices. The JIT philosophy

emphasizes flow flexibility and developing supply chains to reduce all excess and waste
Kanban, Jidoka and Andon
Kanban, Jidoka and Andon are the tools of Just In Time techniques. They are listed as
under:
What Is Kanban?
A Kanban system is a material control system where work centres use visible,
physical
signals
to
initiate
manufacturing
and
movement
of
material.

Signals used in a Kanban system can be quite simple, such as an empty container, a card or a

message at a workstation in a computerized system or an EDI message from a customer or to a

supplier. The Japanese word Kanban can be translated as "card" or "sign." The most well-known

and widely used type of Kanban system is the card system that
was
first
developed
at
Toyota
in
Japan.
What is Jidoka?

Transferring human intelligence to automated machinery so machines are able to detect the

production of a single defective part and immediately stop themselves while asking for help.

Sakichi Toyoda pioneered this concept, also known as autonomation, at the turn of the twentieth

century when he invented automatic looms that stopped instantly when any thread broke. This

permitted one operator to oversee many machines with no risk of producing large amounts of

defective cloth. The term has since been extended beyond its original meaning to include any

means of stopping production to prevent scrap (for example the andon cord which allows

assembly-plant workers to stop the line), even where this capability is not built-in to the

production machine itself.

What is Andon?

Andon at many manufacturing facilities is an electronic device: audio and/or color-coded visual

display. For example, suppose an Andon unit has three color zones (red, green, and orange) and
when the orange zone flashes with a distinctive sound, it calls for an attention of and is signaling

operator to replenish certain material.

The andon communication system promotes teamwork in that it allows team members to know

how they are doing in meeting their fundamental goal. Also, the support received by the team

member who pulls the andon cord serves as positive feedback that they are indeed the focus of

the organization.
Implementation Of JIT

Although the just-in-time (JIT) concept is very young, perhaps 10 to 15 years old in this country, it

is so widespread in American manufacturing and service. Perhaps this is because the idea is so

simple and so appealing. In short, the JIT strategy is to have "the right product at the right place

at the right time." It implies that in manufacturing or service, each stages of the process produces

exactly the amount that is required for the next step in the process. This notion holds true for all

steps within the system.

Suppose, for example, that all products pass through a drilling operation and then a milling

operation. With JIT, the drill produces only what the mill will need next. It also holds for the last

step that is, the system produces only what the customer desires.

Implementation of a JIT system typically includes emphasis on the following aspects

of

the production process:

Production Smoothing

Capacity Buffers

Set-up Reduction

Cross Training and Plant Layout

Total Quality Management

Most of the companies today seek this method of implementation:
Form a top-level team:

This team’s responsibilities include deciding upon an organizational structure and developing a

plan to implement JIT within the company. This plan should include the company’s goals
concerning production, as well as how to establish this plan among all employees (i.e. motivation

& discipline) This plan then be used to establish the overall philosophy of the company

concerning JIT
To train the top management in the basic concepts of JIT:

This is the first step of the implementation process. It is very important to educate and train the

top-level management, as they are the ones who frame policies and get things moving. This

being a new idea, getting this into practice will need full support & cooperation from these

people.
To implement this system to every aspect of the company from supplier to
distributors:

First of all each department should establish its goals and a specific problem to attack. Then a

team should be chosen by each department and establish team leaders. The teams should focus

on the reduction of costs and the elimination of wastes. Data must then be collected on the

team’s problems. This data should be plotted in order to find excess waste or costs. Once this is

done, measurement should be plotted in order to find excess waste or costs. Once this is done,

measurement should be made. Manipulation of this data should show at least some apparent

problems in the current system. Further analysis should help in the implementation of JIT by

showing problem areas. In addition, the data the data could be used to show the effects of

implementing JIT into the company.

How Can JIT Implementation be Successful??

Stabilize and level the MPS with uniform plant loading: create a uniform load on all work centres

through constant daily production (establish freeze windows to prevent changes in the production

plan for some period of time) and mixed model assembly (produce roughly the same mix of

products each day, using a repeating sequence if several products are produced on the same

line). Meet demand fluctuations through end-item inventory rather than through fluctuations in

production level.
Reduce or eliminate set-up times: aim for single digit set-up times (less than
10
minutes) or "one-touch" set-up -- this can be done through better planning, process
redesign, and product redesign.

Reduce lot sizes (manufacturing and purchase): reducing set-up times allows

economical production of smaller lots; close cooperation with suppliers is necessary to achieve

reductions in order lot sizes for purchased items, since this will require more frequent deliveries.
Reduce lead times (production and delivery): production lead times can be
reduced by
moving work stations closer together, applying group technology and cellular manufacturing

concepts, reducing queue length (reducing the number of jobs waiting to be processed at a given

machine), and improving the coordination and cooperation between successive processes;

delivery lead times can be reduced through close cooperation with suppliers, possibly by

inducing suppliers to locate closer to the factory

Preventive maintenance: use machine and worker idle time to maintain
equipment and
prevent breakdowns
Flexible work force: workers should be trained to operate several machines,
to perform
maintenance tasks, and to perform quality inspections. In general, the attitude of
respect
for people leads to giving workers more responsibility for their own work.

Require supplier quality assurance and implement a zero defects quality

program:

errors leading to defective items must be eliminated, since there are no buffers of excess parts. A

quality at the source (jidoka) program must be implemented to give workers the personal

responsibility for the quality of the work they do, and the authority to stop production when

something goes wrong. Techniques such as "JIT lights" (to indicate line slowdowns or

stoppages) and "tally boards" (to record and analyze causes of production stoppages and

slowdowns to facilitate correcting them later) may be used.

Small-lot (single unit) conveyance: use a control system such as a kanban
(card) system

to convey parts between workstations in small quantities (ideally, one unit at a time). In its largest

sense, JIT is not the same thing as a kanban system, and a kanban system is not required to

implement JIT (some companies have instituted a JIT program along with a MRP system),

although JIT is required to implement a kanban system and the two concepts are frequently

equated with one another.

Problems Implementing JIT

JIT is a philosophy whose objective is to eliminate all sources of waste, including unnecessary

inventory and scrap in the production. Although JIT can eliminate many wastes, it also has

problems in the implementation.

Repetitive production.

Standard products.

Short set-up times.

Demands discipline.
Sloppy work, no late delivery.

bad management.

Stable demand, level production.

Cooperation and trust between people.

Guidelines for Successful JIT Implementation

Make the factory loadings uniform, linear, and stable. Fluctuations in manufacturing
loadings will result in bottlenecks.
Reduce, if not eliminate, conversion and set-up times.
Reduce lot sizes. This will smoothen out the flow of inventories from one station to
another, although this may necessitate more frequent deliveries or transfers.

Reduce lead times by moving work stations closer together and streamlining the production floor

lay-out, applying cellular manufacturing concepts, using technology to automate processes and

improve coordination.
Reduce equipment downtimes through good preventive maintenance.
Cross-train personnel to achieve a very flexible work force.
Require stringent supplier quality assurance since an operation under JIT can not
afford
to incur errors due to defects.
Use a control system to convey lots between workstations efficiently; the use of a
kanban
system is an example of this
Benefits of JIT
Perhaps, the most significant benefit of JIT is to improve the responsiveness of the
firms
to the market place thereby affording it an overwhelming advantage in competition.

Specific benefits will depend upon size of the market, technology of processes etc.
Therefore, they vary from organizations to organization.

One of the benefits of JIT is that with raw materials and WIP being processed in smaller batches,

errors can be easily identified and corrected quickly, during each stage of the production

process. This in turn has the‘knock- on’ effects of reducing non-value added costs
Conceptually, the JIT benefits could be grouped into the following categories;
Product Cost: This is greatly reduced of manufacturing cycle time, reduction of
scraps,
inventories, space requirement, and material handling and eliminations of non-value
adding operations.
Quality: It has greatly improved due to fast detection and correction of defects, use
of

automatic stop devices, higher quality of purchased parts, worker centered quality control and

statistical process control. Total preventive maintenance an d lower inventory levels also help in

quality improvements.
Design: Due to fast response to engineering change, alternative designs can be
quickly
brought on the shop floor.
Productivity: Order magnitude productivity improvements are obtained due to the
use of
flexible workforce, reduced rework, reduced inspection, reduced part delay and
reduced
throughout time. Workers acquire multiple skills and become highly productive.
JIT systems have a number of other important benefits also, which are attracting the
attention of various companies. The main benefits are:
•

Reduced levels of in-process inventories, purchased goods, and finished goods.

•

Reduced space requirements.

•

Increased product quality and reduced scrap and rework.

•

Reduced manufacturing lead times.

•

Greater flexibility in changing the production mix.

•

Smoother production flow with fewer disruptions.

•

Worker participation in problem solving.

•

Pressure to build good relationships with vendors.

•

Increased productivity levels and utilization of equipment. 10.Reduction in the need

for certain indirect labour.

Drawbacks of Just In Time

Regardless of the great benefits of JIT, it has its drawbacks.

JIT has the following major drawbacks:
Culture Differences: The organizational cultures vary from firm to firm.
There are some
cultures that tie to JIT success but it is difficult for an organization to change its
cultures
within a short time.
Traditional Approach: The traditional approach in manufacturing is to store
up a large
amount of inventory in the means of backing up during bad time. Those companies
rely
on safety stocks may have a problem with the use of JIT.
Difference in implementation of JIT. Because JIT was originally established in
Japanese,
it is somehow different for implementing in western countries. The benefits may
vary.
Loss of individual autonomy: his is mainly due to the shorter cycle times
which adds
pressures and stress on the workers.

Loss of team autonomy: This is the result of decreasing buffer inventories

which lead to
a lower flexibility of the workers to solve problem individually.
Loss of method autonomy: It means the workers must act some way when
problems
occur,
this
does
not
allow
them
to
have
their
own method to solve a problem.
JITsucces s is varied from industry to industry. Some industries are benefit more
from
JIT while others do not.
Resistance to change JIT involves a change throughout the whole organization, but
human nature resists changing. The most common resistance are emotional resistance and
rational resistance. Emotional resistance are those psychological feeling which hinder
performance such as anxiety. Rational resistance is the deficient of the needed
information for the workers to perform the job well.

Relationship between management and employees is important. A mutual trust must

be
built between management and employees in order to have effective decision-
making.

Employee commitment: Employees must commit to JIT, to enhance the quality as their ultimate

goal, and to see JIT as a way to compete rather than method used by managers to increase their

workload.

Production level JIT works best for medium to high range of production volume.

Employee skill JIT requires workers to be multi-skilled and flexible to change.

Compensation should be set on time-based wages. This allows the workers to concentrate
on building what the customers wants.

Factors Debilitating JIT

Listed below are few of the factors that can debilitate JIT:
Lack of Experience and expertise: JIT being a relatively novel concept for the
Indian
Industries, lack of experience and expertise at every level of management could in
turn
hinder the growth and development of the organization.
Shortcoming of Suppliers: These include factors such as unpredictable
quality, erratic
deliver schedules, varying quantity dispatches, machine breakdowns and quality
related
losses etc
Little or no incentive for suppliers to adopt JIT delivery: JIT generally does not
provide any incentives such as credit facilities, discounts on bulk purchases, etc. to
the
suppliers to meet with the delivery dates. It is mandatory that they provide the
same.
Lack of commitment from buyers: This basically means cancellation of orders
by the
buyer. This happens due to termination or postponement of orders down the line.

Unreliable power supply: Power is among the basic necessity for any plant
operation.

Unreliable power supply is quite a common phenomenon is a country like India. Very few places

in the country get uninterrupted power supply throughout the day. This halts production and

deliver dates cannot be met by the supplier.

Labour problems such as lockouts, strikes, etc: Labour unrest also can be a
hindrance

in the JIT system. Laborers from labour unions and take out strikes and can vow not to work

unless their demands are fulfilled. These obstacles are mostly expected in developing or under

developed economies like India. Thus, there it is essential to see that such situations do not

occur frequently.
Poor transport and infrastructure facilities: this is a major concern for
factories

located in remote areas. Taking India as an example, we cannot boast of a good transport and

infrastructure capacity for the movement of men and material. We lag behind by 10- 15 yrs as

compared to the western and South-Eastern Nations. JIT is only possible when there is an

uninterrupted flow of material, which is likely to happen when there exists coordinated and

smooth transportation.
Just In Time (JIT) Manufacturing

Just in Time manufacturing is a systems approach to developing and operating a manufacturing

system. It is based on the total elimination of waste. JIT is not a new concept. It has been part

and parcel of the Japanese manufacturing industry adopted

approach for quite some time. It requires that equipment, resources and labor are made available

only in the amount required and at the time required to do the job. It is based on producing only

the necessary units in the necessary quantities at the necessary time by bringing production

rates exactly in line with market demand. In short,JI T means making what the market wants,

when it wants it.JI T has been found to be so effective that it increases productivity, work

performance and product quality, while saving costs.

JIT AND COSTS

JIT can affect the bottom line in a variety of ways. Improvement in quality and delivery times can

increase demand and, thus, revenue. Costs are also affected; the JIT philosophy contends that

inventory reduction and increased quality reduce costs. Traditional cost accounting Systems

often makes it difficult to measure the effects of changes except in very aggregate terms. One of

the tenets of JIT is to account for these effects more accurately.

Cost Accounting Systems

Costs are a major factor in PIM decisions. Unfortunately, traditional cost accounting Systems

often do not tell the decision maker how much a specific decision wilt affect actual expenditures.

This is due to overhead costs being hidden by the allocation methods.

For example, overhead costs usually are allocated to departments (cost
centres) rather

than to activities, such as set-up, and inspection and maintenance operations. In addition,

allocation based on the material or directs labour required to manufacture an item ignores the

fact that different items are in different stages of their life cycles.

Thus, different items may have different manufacturing, engineering, and tooting costs, may have

quite different quality and inspection requirements, and may require different marketing and

distribution expenditures. When these costs are aggregated and allocated on the basis of the

average direct labour cost of a part-as is the case with most traditional cost accounting systems-

some products are allocated costs considerably below the actual

expenditures required for their manufacture and distribution and others are
allocated
more than their true cost. Thus, decisions often are based on inaccurate information.

In order to manage costs and base decisions on accurate information, the causes (source) of the

expenditures must be identified. Various expenditure causes; such as set-up times, shop and

purchase order processing, receiving, and material handling deserve more discussion.
These basic causes of indirect costs are called cost drivers. The cost accounting system
must report the cost of these activities to accurately determine the costs of individual
products. Such reporting enables manufacturing management to treat set-up, inspection,
receiving, and transaction costs as direct costs, to base decisions on accurate information,
and to focus on reducing high cost elements. An ABC analysis can be used to select the
activities that are appropriate for cost reduction studies.

KANBAN - An Integrated JIT System

What is Kanban?
A Kanban is a card containing all the information required to be done on a product at
each stage along its path to completion and which parts are needed at subsequent
processes. These cards are used to control work-in-progress (WIP), production, and
inventory flow. A Kanban System allows a company to use Just-In-Time (JIT)
Production and Ordering Systems, which allow them to minimize their inventories while
still satisfying customer demands.
A Kanban System consists of a set of these cards, with one being allocated for each part
being manufactured, that travel between preceding and subsequent processes. The
Kanban System was developed (more than 20 years ago), by Mr. Taiichi Ohno, a vice
president of Toyota, to achieve the following objectives:
•

Reducing costs by eliminating waste/scrap

•

Try to create work sites that can respond to changes quickly

•

Facilitate the methods of achieving and assuring quality control

•

Design work sites according to human dignity, mutual trust and support, and
allowing workers to reach their maximum potential
How JIT and Kanban Work Together??

JIT is a method for improving the overall productivity and responsiveness in a manufacturing

enterprise. Eliminating waste that results from overproduction, unnecessary stock on hand,

waiting time, defective items, manual keying, etc accomplish this. JIT also aims to develop a

manufacturing process that is as continuous as possible, from receipt of raw materials and

purchased components to the shipment of finished goods.

The Pull Principle as Applied in a Kanban System

Kanban systems are based on pull principles for material control. In a pull system,

manufacturing and movement of material is performed only when demanded for use and

authorized by a consuming department or a customer. Compared to a push system, a pull

system represents a decentralized ordering policy.

The number of cards, or whatever else is used as a signal, controls the level of inventory

and work in progress in a Kanban system. The Kanban system is an execution type of

system. To work properly it must be combined and supplemented by some type of

planning system, generally a computerized MRP II or ERP system.

Types of Kanbans
The two most common types of Kanbans used today are:
•

Withdrawal (Conveyance) Kanban

•

Production Kanban
This is usually a physical card but other devices can be used. Two kinds of Kanban
cards
are mainly used:
•

A Withdrawal Kanban - specifies the kind and quantity of product, which a

manufacturing process should withdraw from a preceding process. The withdrawal Kanban

illustrated (above) shows that the preceding process which makes this part is forging, and the

person carrying this Kanban from the subsequent process must go to position B-2 of the forging
department to withdraw drive pinions. Each box of drive pinions contains 20 units and the shape

of the box is `B'. This Kanban is the 4th of 8 issued. The item back number is an abbreviation of

the item.
A Production-ordering Kanban - specifies the kind and quantity of product,
which the

preceding process must produce. The one illustrated (above) shows that the machining process

SB-8 must produce the crankshaft for the car type SX50BC-150. The crankshaft produced

should be placed at store F26-18. The production-ordering Kanban is often called an in-process

Kanban or simply a production Kanban.

Other types of Kanbans
The three other types of Kanbans that exist for special circumstances only. They are
discussed briefly as follows:
•

Express Kanban - used when shortages of parts occur

•

Emergency Kanban - used to replace defective parts and other uncertainties such as
machine failures or changes in production volumes
•

Through Kanban - used when adjacent work centres are located close to each other. It

combines production and withdrawal Kanbans for both stages onto one,through, Kanban

When and How Kanbans are effective??

Kanbans help simplify planning and to fine-tune production to meet changing customer demand

of up to + or - 10%. The system requires planned monthly and weekly production schedules.

Kanbans simplify day to day flexibility, and changes to the production schedule need only to be

given to the final assembly process and will then automatically work their way back up the line.

Kanban systems can be tightened by removing cards or by reducing the number of parts on a

pallet. The effect will be to speed the flow through the process and hence reduce lead times.

However it also makes the system more vulnerable to breakdowns and other causes of

dislocation. By identifying the areas within the line that are causing disruption, efforts can be

made to improve them. Thus tackling the key points raises the overall efficiency of the line.

Other types of Kanban Also used are Supplier Kanbans - to withdraw goods from external

suppliers, and two types of Signal Kanban, which are inserted near the bottom of a stack of

items. These automatically initiate production of batch-produced items when the stock reaches a

pre-set re-order level. Administrative efforts and costs are reduced as compared to most other

kinds of systems.
The built-in design allows for continuous improvement. The P-kanban denotes the need to

produce more parts while the C-kanban denotes the need to deliver more parts to the next

station. No parts can be produced unless authorized by a P-kanban. On the other hand, a C-

kanban triggers the 'pulling' or 'withdrawal' of units from the preceding station. C-kanbans are

also known as 'move' or 'withdrawal' kanbans

Objectives of Kanban
Synchronize the movement of material throughout the manufacturing and
distribution
system at the rate of withdrawal of material from the system.
Limit the total inventory in the system.

Facilitate analysis, process improvements, and further reductions in inventory.

India case study

Case Study On the Hero Group
The Hero Group has done business differently right from the start and that is what has
helped us to achieve break-through in the competitive two-wheeler market. The Group's
low key, but focussed, style of management has earned the company plaudits amidst
investors, employees, vendors and dealers, as also worldwide recognition.

The growth of the Group through the years has been influenced by a number of
factors:
Inventory Control.
The Hero Group through the Hero Cycles Division was the first to introduce the concept
of just-in-time inventory. The Group boasts of superb operational efficiencies. Every
assembly line worker operates two machines simultaneously to save time and improve
productivity. The fact that most of the machines are either developed or fabricated in-
house, has resulted in low inventory levels.
In Hero Cycles Limited, the just-in-time inventory principle has been working since the
beginning of production in the unit and is functional even till date. The raw materials
vendors bring in the goods get paid instantly and by the end of the day the finished
product is rolled out of the factory. This is the Japanese style of production and in India,
Hero is probably the only company to have mastered the art of the just-in-time inventory
principle.
Ancillarisation.
An integral part of the Group strategy of doing business differently was providing support to
ancillary units. There are over 300 ancillary units today, whose production is dedicated to Hero's
requirements and also a large number of other vendors, which include some of the better-known
companies in the automotive segment.
The Munjals have gone much beyond the conventional definition of ancillarisation,
making it a point to extend technical and managerial support to these ancillaries. Friends,
relatives, ex-employees man these ancillary units or close associates of the Munjal family
since the Group patriarch, Mr Brijmohan Lall, "… never wanted to march alone."
Employee Policy.
Another Striking feature within the Hero Group is the commitment and dedication of
its
workers. At Hero Cycles Limited, the flagship unit of the Group it is claimed that
except

for a few days during Operation Bluestar, the plant has never had any stoppage of work.
There is no organised labour union and family members of employees find ready
employment within Hero. The philosophy with regard to labour management is "Hero is
growing, grow with Hero."
When it comes to workers' benefits, the Hero Group is known for providing facilities,
further ahead of the industry norms. Long before other companies did so, Hero was
giving its employees a uniform allowance, as well as House Rent Alowance (HRA) and
Leave Travel Allowance (LTA). Extra benefits took the form of medical check-ups, not
just for workers, but also for the immediate family members.
Dealer Network.
The relationship of the Munjals with their dealers is unique in its closeness. The dealers
are considered a part of the Hero family. A nation-wide dealer network comprising of
over 3,500 bicycle dealers, 350 dealers for mopeds and 225 franchise holders for
motorcycles, the Munjals have a formidable distribution system in place.
Sales agents from Hero travels to all the corners of the country, visiting dealers and send
back daily postcards with information on the stock position that day, turnover, fresh
purchases, anticipated demand and also competitor action in the region. The
manufacturing units have a separate department to handle dealer complaints and
problems and the first response is always given in 24 hours.
Financial Planning.
The Hero Group benefits from the Group Chairman's financial acumen and his grasp on
technology, manufacturing and marketing. Group Company, Hero Cycles Limited has
one of the highest labour productivity rates in the world. In Hero Honda Motors Limited,
the focus is on financial and raw material management and a low employee turnover.
Consolidated Family Business.
The Hero Group is a strong family run business - there is no other Group that has so
successfully managed to stay together for over 40 years. The system is to bring in any
new family member, coming of age, within the fold of the existing business or set him up

in a new business. The third is generation is already actively involved in existing as well
as the new initiatives within the Group. The second and the third generations of the
family, aided by workers who typify the hardy spirit of the Punjab, are consolidating the
Group’s future with the same zeal.
Diversification.
Throughout the years of mammoth growth, the Group Chairman, Mr Lall has actively
looked at diversification. A significant level of backward integration in its manufacturing
activities has been substantial in the Group's growth and led to the establishment of the
Hero Cycles Cold Rolling Division, Munjal and Sunbeam Castings, Munjal Auto
Components and Munjal Showa Limited amongst other component-manufacturing units.
Then there were the expansion into the automotive segment with the setting up of
Majestic Auto Limited, where the first indigenously designed moped, Hero Majestic,
went into commercial production in 1978. Then came Hero Motors, which introduced
Hero Puch, in collaboration with global technology leader Steyr Daimler Puch of Austria.
Hero Honda Motors was established in 1984 to manufacture 1000 cc motorcycles.
The Munjals also took a foray into other segments like exports, financial services,
information technology, which includes customer response
services and software development. Further expansion is expected in the areas of
Insurance and Telecommunication.
Conclusion
The Hero Group's phenomenal growth is the result of constant innovations, a close watch
on costs and the dynamic leadership of the Group Chairman, characterized by an ethos of
entrepreneurship, of right attitudes and building stronger relationships with investors,
partners, vendors and dealers and customers. Brijmohan Lall's aspiration to provide
cheapest transportation to the poorest of India's poor inspired him to perfect his
operations and make them as cost-effective as possible. This is how increased vendor
efficiency and zero-inventory management practices evolved at Hero.

Hero Honda believes in

"The raw material vendors would bring in the goods, they would be paid instantly and by
the end of the day, the finished product would roll out." In order to curtail of the
inventory cost and other waste ages.

American Case study

American companies applying JIT to American plants have reported the following
results:

The Apple Macintosh factory, is months into JIT, reported that rejects were reduced from 28

percent to 1 percent, inventory turns were twice the industry average, space requirements were

reduced 35 percent, labour productivity was increased 60 percent (Sepehri 1986).

Omark Industries, in the first year, reduced inventory 25 percent ($20 million), increased

productivity 30 percent, reduced lot sizes, shortened lead times, and improved quality. Later into

the program, raw material was reduced 95 percent and WIP 96 percent. In the case of WIP, the

reduction was from 100,000 pieces on the floor at any given time to 4,000 pieces, with an

eventual goal of 1,000. The consequences of this reduction to material scheduling and control

are that material can be much more tightly controlled. (Sepehri 1986)
Harley-Davidson reports a 50 percent inventory reduction, a 50 percent reduction in
scrap and rework, a 32 percent productivity increase, an increase in inventory turns
from

5 to 17, and a decrease in warranty claims despite a longer warranty period (Sepehri
1986).
IBM's plant in Raleigh, North Carolina, which makes terminals for mainframe

computers, while not reporting numeric results did report that manufacturing costs were greatly

reduced, inventory turns increased, mean time between failures was reduced, and cycle time

from product inception to customer availability was reduced (Sepehri 1986).

JIT's applicability is not limited to discrete parts manufacturers or to large
companies.
ChemLink, a small petroleum processor, reports that inventory was reduced by 21
percent, sales grew by 9 percent, obsolete inventory was reduced by 30 percent,
and
transportation cost was reduced 8 percent (Crane 1989).
Hay (1988) estimates the range of improvement possible for a western JIT
implementation to be about 83 to 92 percent reduction of lead time, 5 to 5O per-cent
reduction of direct labor, 21 to 60 percent reduction of indirect labor, 26 to 63 percent
reduction in the cost of poor quality, 6 to 45 percent decrease in purchased material costs,
35 to 73 percent reduction in purchased materials, 70 to 89 percent reduction in work in
process, 0 to 90 percent reduction in finished goods inventory, 75 to 94 percent reduction
in setup time, and 39 to 80 percent reduction in space requirements.

JIT presentations often employ the analogy of a stream when describing proper inventory

management. Well-managed systems achieve a flow of inventory from raw material to the

customer like a smooth river, unimpeded by shoals of scrap or machine breakdown or other

problems. This concept did not originate with the Japanese; Henry Ford's River Rouge plant

regularly converted iron ore into a Model T in 4 days. However, in recent

years, especially the 1970's American Business has not improved its manufacturing capability

quickly enough to maintain a competitive position in cost or quality or market responsiveness or

flexibility.
Computerworld

Until a crystal ball comes along that lets companies forecast exactly what their customers will

want so they can make it in advance, large corporations will continue to turn to just- in-time

manufacturing.

This process lets manufacturers purchase and receive components just before they're needed on

the assembly line. As a consequence, it relieves manufacturers of the cost and burden of

housing and managing idle parts.

Although companies such as SAP AG offer enterprise resource planning software to coordinate

supply chains so they can handle just-in-time processes, analysts say there's still a lot of room

for improvement by using the Web.

Most observers point to automotive firms such as Torrance, Calif.-based Toyota Motor Sales

USA Inc. as the earliest and highest-profile adopters of just-in-time processes. High-tech

companies such as Round Rock, Texas-based Dell Computer Corp. and San Jose-based Cisco

Systems Inc. have followed suit.

"The Toyota production system is famous for efficiency and coordination, but it has been a highly

manual system with very low-level technology," says Tom Jones, a senior vice president at

Miami-based Ryder System Inc., which outsourcers just-in-time supply-chain services.

But Toyota has been working to make its supply chain more flexible by moving it onto the Web,

and other car companies such as Dearborn, Mich.-based Ford Motor Co. have been following in

Toyota's treads, says Jones.

The Web allows the automakers to send requests for parts to their suppliers as the need arises,

regardless of whether disparate computer platforms are involved. For instance, if a car company

experiences a high demand for a certain color vehicle, it can notify its paint supplier and get the

product delivered to its factory quickly and with a minimum amount of human intervention or

paperwork.
Build to Order (Dells Approach)

In the high-tech area, companies are turning to a build-to-order process in which a product is

customized and manufactured according to specific customer requests, making just-in-time

manufacturing and delivery key, says Michael Burkett, a senior research analyst at AMR

Research Inc in Boston.

At Dell, the process is called "pull to order," says company spokesman Venancio Figueroa. "It's a

critical element of our build-to-order manufacturing process," he says. The model contributes to

"increasing the accuracy of doing business, both from a customer and supplier standpoint."

Once the parts are delivered, the assembly-line process can begin prepping components. Dell

then begins manufacturing the actual computer. Afterward, it tests and does custom integration

work for the finished product.

The build-to-order process is only one part of Dell's approach to efficiency - to further improve

the manufacturing processes, the company also relies on special hydraulic tools, conveyor belts

and tracks, reducing the need for human intervention by half. This means better overall quality,

says Figueroa.

Dell is able to achieve a four-hour production cycle time using an Internet-based supply- chain

management system, Figueroa says. After getting an order, Dell notifies its suppliers about what

components are needed, and they're delivered within an hour and a half.

"With our pull-to-order system, we've been able to eliminate warehouses in our factories and

have improved factory output by double by adding production lines where warehouses used to

be," says Figueroa.

Dell plans to save $15 million in the first six months with its build-to-order process;
within three years, that figure should be $150 million, says Figueroa.
Dell generally fulfills customer demands within five days, and the firm plans to
reduce
that time by relying on more extensive Web-based collaborative technologies, he
says.

In addition to the manufacturing efficiencies, there are other reasons why build-to-order is

appealing. For instance, it helps prevent manufacturers from being stuck with inventory that may

become obsolete as it sits gathering dust in a warehouse, says Burkett. Or if there's a design

change to a manufactured product, a company can be stuck with useless inventory that it has to

dispose of at a loss.
Pros and Cons

There's a flip side, however. The just-in-time method demands a very disciplined assembly-line

process, says David Dobrin, an analyst at Surgency Inc. in Cambridge, Mass. The entire factory

has to be in sync to successfully exploit its methods. Manufacturers can afford fewer errors in the

delivery of the supplier's component; if a part isn't there, the assembly line stops, and that can

result in the loss of manpower and cash.

Moreover, just-in-time manufacturing doesn't necessarily mean a company is saving money on

its supply chain - often, companies just have a distributor or supplier maintain a warehouse,

either on-site or nearby, says Dobrin.

This is an area where the Internet could improve existing processes, say analysts. Like Dell,

other companies are trying to establish faster, more efficient communications with their suppliers

by using the Web, says Dobrin, and the older form of communication - electronic data

interchange - is being phased out.

The Web permits very intimate contact between supplier and manufacturer. For instance, Cisco

shares its manufacturing schedules with suppliers so they'll know how much inventory they need

to have on hand.

There can be obstacles to getting these Web processes for just-in-time manufacturing up and

running. Cincinnati-based Procter & Gamble Co., for instance, is struggling with variations in
data-formatting methods among its suppliers, according to CIO Steve David. Human intervention

is required to do the data translation, which slows the process.

In the near term, Procter & Gamble plans to get 50% of its orders to the Web next year, taking

two days off the order cycle time. For the long run, David says, he hopes to have a just-in-time-

based supply chain that's accessible to everyone, from the retailer to Procter & Gamble's

suppliers to the suppliers' suppliers. However, for that to happen, "we need to have data visibility

across all of the supply-chain partners," he says.

- An inventory management system based upon the philosophy that well-run manufacturing

plants do not require the stockpiling of parts and components. Instead, they rely upon receiving

necessary inventory in the exact quantity and at a specified time to support manufacturing

schedules.
Xerox
How did these two philosophies emerge? Let us get to 1980s. Xerox was one of premier
companies in US (and it is even today a premier company) It was in deep trouble and
almost about to be out of business.