comparative analysis of jit purchasing

Comparative analysis of Japanese Just-in-Time Purchasing and Traditional Indian

Purchasing System Sultan Singh

Reader/Associate Professor Mechanical Engg. Deptt Deenbandhu Chhotu Ram University of Science and Technology

Murthal-Sonepat Haryana-131039

India

Dixit Garg

Professor Mechanical Engg. Deptt NIT Kurukshetra Haryana-136118

India

Abstract: Japanese Just-in –Time purchasing strategy is being recognized as a corner stone of the Japanese success story. Just-in –Time Purchasing has received an increasing amount of attention throughout the world due to its potential for quality improvement and cost saving. Today many reputed Indian industries have also switched to the Japanese JIT Purchasing concept to improve their product quality and productivity. This paper discusses the major activities of JIT Purchasing and provides a comparative analysis of differences between the JIT Purchasing and traditional Indian purchasing systems. In this article the problems encountered in JIT Purchasing implementation and its benefits, the companies benefited in India and other countries are also discussed.

Key Words: Just-in-Time (JIT), Purchasing

1. INTRODUCTION

The traditional approach to purchasing has been used in industry for many years. It is imbedded in the corporate structure as the way to procure materials. The approach, however, is at the root of many of the problems, business faces today. High inventory levels, soaring costs, adverse relationships with suppliers and quality issues which either stop production or results in poor products are just a few of the problems with the current way of purchasing [3].

Increasing domestic and international competition has forced the Indian Industries to look for some innovative techniques to meet the challenges or threats posed by the growing foreign industries. During the last three decades the business environment all over the world has experienced significant changes. Particularly, the purchasing environment has become one of the most crucial elements in establishing the value added contents for the products and services and hence has become the vital organization in the dynamic international market [4]. Shortages of Raw Material, shorter lead time, requirement of high quality, increasing the variety of products with smaller runs, inflation, productivity and introduction of a JIT purchasing system etc. have prompted the realization of the importance of purchasing. The roles and responsibilities of purchasing have increased over the past several years, particularly in the decision-making area. This increase was the result of significant changes in the business environment between 1967 and 1978 [5]. Shortages of raw materials, long lead time, inflation, and decline in product quality and productivity [1, 4, 5, 7, 24] prompted these changes in the organizational structures of many manufacturing firms. In a period of turbulent economic conditions, changes in purchasing practices are crucial to the current and future competitive advantage of firms. Adopting JIT purchasing practices appears to be the key in this case. Prerequisites for a successful JIT purchasing programme include [4, 5, 10, 12, 20, 24, 27, 30] complete support and co-operation of suppliers, the commitment of everyone in the organization, and a series of changes in the manufacturing process such as requiring small lot size, smoothing production, designing transportation system and flexible processes etc.

Sultan Singh et al. / International Journal of Engineering Science and Technology (IJEST)

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A competitive buyer-supplier relationship characterizes the traditional purchasing, where supplier is selected on price basis

The term ‘purchasing’ [5] is simply the process of buying. However, in a broad sense, the term involves determining the need, selecting the supplier, and arriving at proper price, terms and conditions, issuing the contract or order and to follow-up to ensure proper delivery on time. The image and status of purchasing is driven by the contribution of the purchasing function to overall corporate performance and to the performance of other functions. There are strategic ‘levers’ [11] that purchasing can use to enhance the chances for firm success. The strategic ‘levers’ include human resources management, interaction with suppliers, influence over suppliers and interaction with other departments. Apart form this; presently one may find companies [46] where the cost of materials purchased exceeds the value added by production inside. It is clear from such situations that supply management has an important role in any cost reduction programme. The role becomes even more important if following facts are considered:

-Low degree of technology required in this area.

-Relatively small investment required as compared to other areas, and

-Instantly obtained benefits, which are maintained for a long term.

In view of the increased importance of purchasing function, the scope for JIT purchasing is growing rapidly.

2. JAPANESE JIT PURCHASING

It is an uninterrupted flow of 100% acceptable materials delivered on due dates and time at optimal cost 100% of time. It is a process of buying, which involves determining the need, selecting supplier, proper price, terms and conditions, order and proper delivery. In JIT purchasing environment [5, 22, 47], purchasing is carried out in small lots with frequent deliveries in small standard containers used to hold exact quantity and to the required specifications from a nearby local single supplier with a long-term contract. The company relies more on performance specifications than on product design. Supplier is evaluated by consistency in quality and delivery performance under different operating conditions, and the price. Consistent quality and delivery performance is most important parameters in the supplier evaluation while price is an important one. This area includes supplier’s management, inspection of incoming raw materials/ semi finished / maintenance components, transportation system employed in buying activities etc. . JIT purchasing is a process of buying, which involves determining the need, selecting the supplier, proper price, terms and conditions, order and proper delivery. JIT Purchasing is carried out in small lots with frequent deliveries in small standard containers of exact quantity and specifications from local supplier with long-term contract. The four basic principles of JIT purchasing are:

1. Elimination of waste.

2. Employee’s involvement in decision making.

3. Supplier participation.

4. Total Quality Control.

These principles must be applied to three basic functions of manufacturing Purchasing, Production, and Marketing.

JIT purchasing has been implemented in many industries of several countries such as United States, United Kingdom, Italy, Germany, and Korea etc.

3. TRADITIONAL PURCHASING AND JIT PURCHASING

There is a lot of difference in traditional purchasing and JIT purchasing. The main difference is discussed below.

3.1 Traditional purchasing

The term purchasing, procurement, supply, supply-chain, material etc. all are interchangeable. In general purchasing describes the process of buying; learning the need, supplier selection, price negotiation and the truly important follow up ensuring timely delivery. Procurement covers a broader array of processes. These include purchasing, stores, traffic, receiving, inspection, and salvage. The overall objectives of the purchasing function are to buy the right materials in the right quantity for delivery at the right time.


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3.2 Goals of Purchasing

There are nine goals of purchasing, which are shown in Table- 1

Table -1

Goals of Purchasing

Goals Description

(1) Uninterrupted flow of materials It relates to the ability to never allow stock outs to occur.

(2) Managing inventory The cost of inventory is between 20-50% depending on the product. Reduction of this number will affect the balance sheet positively.

(3) Improve quality This goal can achieve truly great things when the cost of inferior quality, rework charges, loss of manufacturing time, is considered

(4) Develop suppliers When the ability of buyers and competent suppliers are found then continuous improvement techniques can improve both the performances of buyer and seller.

(5) Standardization By consolidating items to determine a (one) standard item, buyers can procure in large quantities, thereby saving money and not have to stock different items that require different stocking conditions which cost additional money.

(6) Achieve low cost Achieve the lowest cost and not the lowest price. Overall cost reduction contributes to the profit leverage effect.

(7) Improve competitive position By performing the function of supply in a professional manner, cost are lower for producing products than that of the competition

(8) Develop cross-functional relationship Better relationship with other departments will increase the ability to perform the job of cost reduction

(9) Reduce administrative cost The function of purchasing is very aware of the cost of doing business and continually seeks ways to reduce operating expenses.

3.3 Steps in traditional purchasing system

1. Recognition of need. 2. The people that perform the operation or service should understand what is needed, how much and

when customers need it. 3. Description of need. 4. This includes information of the characteristics of the item and amount of article, service or

commodity. To have a catalogue of all the items needed reduces misunderstanding and hence the issue of ordering the incorrect items.

5. Selection of sources of supply. The location of suitable suppliers is an important component of the entire purchasing process. Basic records related to suppliers are; outstanding contracts, commodity classification of items purchased and record of suppliers.

4. Determination of price and terms This deal with the analysis of quotes and bids for items needed by the firms. Many methods exist depending on the type of item purchased.

5. Preparation of the Purchase Order (P O)


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Many different forms of the purchase orders exist throughout the industry. The old system of handwriting the PO and mailing it for items purchased is defunct. Many computer systems send this information across the Internet and receive an acknowledgement electronically. It is known that PO is not a contract until an acknowledgement copy has been received from the supplier accepting the PO but this has been simplified by the standardization of electronic signatures. This is a method of verifying who has read and understood the PO. All this is possible because of the wide use of the microcomputer. Electronic data interchange (EDI) is a method of transmitting data the suppliers via computer. This reduces error rates and allows for quicker less costly transactions.

6. Follow up and Expediting Once the PO is issued, circumstances may arise that require the purchaser to follow-up with the supplier to verify its status or expedite it which means to pursue with the supplier to get delivery on time or before the required delivery date (RDD). In fact, this reduces the possibility that shipment will be late and effecting the shipment of product to the consumer.

7. Receipt and Inspection of goods Receipt of goods is a critical area of supply. The reasons are: To ensure that orders placed are showing up Verify condition of goods, and To ensure correct is a method of quantity arrived 8. Invoice and payment clearance Many people feel that accounting should handle this transaction but as the party the contracted the purchase and possibly more important your relationship with the supplier is a risk if they are not paid in a reasonably amount of time. The experience has shown that the supplier is rarely at total fault as to the information the buyer possesses to clear the PO. This means of course that the buyer generally shares in the reason the PO have not been cleared up. 9. Records Documentation of purchasing activities is a crucial function. Policy and procedure manual has all information relating to purchasing, including how problems will be handled. Unless these are updated frequently then there use is quite limited. These policy manuals are critical to the continued operation of the department because often-knowledgeable leave and void of key processes occurs. Common subjects in the policy manual are: - Requisition authority - Bidding practices - Supplier information - Authority to question specifications - Repair station information - Capital equipment information. 3.4 Challenges of Supply Basically there are three challenges of supply, which are: -How to apply quality principles to purchasing activities? -How to work cooperatively with the supplier’s on continuing quality improvement? -Dealing with supplier rationalization. In order to survive today’s market firms must consider the following terms and execute them to the greater extent possible. - Continuous improvement - Speed to market - Customer driven - Supplier satisfaction - Employee empowerment When looking at how purchasing can meet these goals; some of the areas of improvement are inventory reduction which requires increased inventory turns. Others additional efforts are: - Setup time reduction - Just-in-time - Stockless inventory - Order cost reduction - Better information systems 4. TRADITIONAL PURCHASING VS JIT PURCHASING

A changeover from traditional purchasing to JIT purchasing involves altering the basic fundamentals of the purchasing activity. So it was felt necessary to list down and understand the areas of difference.


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Besides the qualitative differences in the functioning of the purchasing departments, it must be understood that JIT practice in Japan is in the context of a management style characterized by long -term planning, lifetime employment and consultative decision-making. The production systems in Japan involve a high level of automation and robotics and quality control is ensured by extensive use of Statistical Quality Control techniques. All these characteristics affect the functioning of the JIT and, therefore, before trying to move towards JIT in the Indian context, one must keep the above differences in mind and try to move towards those systems wherever possible.

JIT purchasing is also compared to traditional purchasing with respect to the following activities: (I) Establishing lot size (II) Vendor selection (III) Vendor evaluation (IV) Inspection of incoming materials (V) Negotiating with vendors (VI) Determining mode of transportation (VII) Setting specifications (VIII) Paper work (IX) Packaging (I) Establishing Lot Size

In establishing a lot size, both traditional and JIT purchasing systems have different approach. Traditional purchasing relies on a just-in-case concept [5]. Large batches are purchased just in case there are serious disruptions in suppliers. Most firms purchase parts in large quantities because they consider shipping and handling costs constant. Their justification for this practice is lower shipping and handling costs and discount rates.

JIT purchasing practices, on the other hand, emphasize the purchase [5, 24] of minimum lot sizes, preferably piece for piece. This allows tighter control over inventory, which eliminates the larger stocks of parts between process stages. Under JIT purchasing practices, obtaining small lot sizes is considered important enough to warrant overcoming the obstacles of higher freight costs and loss of discount rates. Several strategies, such as freight consolidation and dealing with local suppliers where possible, are effective in reducing total freight costs under JIT purchasing.

(II) Vendor Selection

Vendor selection is made in traditional as well as in JIT purchasing system. This is the most important decision a buyer makes in vendor selection. Traditional purchasing advocates for multiple sources of supply for a part with short term contracts.

The JIT purchasing emphasizes on single sourcing for one/several part with long term contract.

(III) Vendor Evaluation

Evaluation of performance source of supply is another important process in a good purchasing department. The method for evaluating vendors [5] varies with the nature, complexity, and monetary value of the competitive items purchased. Most of the methods possess three distinctive features with respect to the assessment and control of quality. One is simply to check the supplier’s record for each shipment as to whether required product specifications have been met. This can be measured as the percentage of rejections to total material shipped. Another method is to make monthly or quarterly tabulations of the percentage of the supplier’s materials rejected by the buyer during that period. Evaluation of the supplier’s delivery performance is based on responses to inquiries, on-time delivery, special services rendered etc.

Under traditional purchasing practices, a vendor delivery-rating scheme may consist of categories such as very good, good, fair, and unsatisfactory. Price is the main criteria. The supplier’s delivery performance can be tabulated and rated monthly [17].

JIT purchasing practices [47] emphasize mainly on product quality, delivery performance, service, and price in evaluating vendors.

(IV) Inspection of Incoming Materials


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Inspection requires time and manpower. It consumes a lot of time and money. In traditional purchasing, the receiving department is responsible [2, 5, 16, 17, 29, 35] for receipt, identification, and piece-by-piece inspection of all inbound freight for quality in accordance with product design specifications. In fact responsibility for inspecting incoming materials is almost invariably placed on the buying company.

Under JIT purchasing, this type of inspection [30, 33] is avoided, except for new parts and new suppliers. Instead, the supplier performs quality control at the source. This practice is achieved primarily by extending the quality inspection function back to the supplier and making sure that quality is built in before the materials leave the supplier’s plant. As a result, suppliers drive their delivery trucks straight to the assembly line.

One way to assure the delivery of high product quality is supplier certification [32], a programme that certifies that quality specifications have been met before part leaves the suppliers’ plants. Another effective method is regular auditing of suppliers’ plants.

(V) Negotiating With Vendors

Negotiation with vendors must be made for close and long relations. Differences between traditional and JIT purchasing practices also exist in the negotiating and bidding processes. Since typical buyer preference in traditional purchasing is to deal with multiple sources of supply, the bidding process implies that he lowest bid will usually get the contract. In fact, the whole objective in bidding from various sources is to obtain the lowest possible bidding price.

With potential JIT suppliers, many purchasing departments have established different policies and guidelines for handling the bidding process. The objective becomes not just to negotiate for the lowest price but also to establish a very close relationship with vendor. In fact, the lowest qualified bidders generally will not get the contract. Rather, the vendor most likely to be awarded a contract [5, 24, 26, 34, 36, 48] is the one who can provide consistently high product quality with no incoming inspection requirements, reduced delivery time, work closely with buyer to solve problems, and agree upon a ‘fair’ price to have ‘win-win’ relation for both parties. The bidding specifications are less rigid and vendors are usually encouraged to be innovative in meeting the buyers’ specific needs.

(VI) Determining Mode of Transportation

Determining the right mode of transportation of raw material is an important factor for safety point of view as well as of timely arrival of the material. For most manufacturing firms, the transportation cost of inbound raw materials and component parts is an important factor, after material and labour considerations. Thus, whether the transportation cost is paid directly by the buyer or included in the price, it must be evaluated very carefully.

In the traditional approach, the handling of inbound freight is indeed different from JIT purchasing. Primary responsibility for scheduling and delivery is left to the vendor and transporting company.

Conversely, one of the most important requirements in the implementation of JIT purchasing is on-time delivery. To meet this requirement, the buyer must design a transportation system compatible with JIT delivery schedules. JIT purchasing can not be successful if the responsibility for inbound schedules is left to the transportation company whose primary concern is to maximize its profit. In a JIT environment [24], the traffic manager should be more concerned with on-time delivery than to achieve a lower inbound freight cost. To meet JIT delivery requirements, delivery dates and times, types of carriers, routing decisions, and shipping processes must be designated by buying company.

(VII) Setting Specifications

Setting of specifications as per requirements of the finished product is a crucial task to perform. If the right specifications are made in the order then the hope of right type of supply of material can be made. On the part of the buyer setting specifications is an important task. According to traditional purchasing practices, engineers spend a great deal of time and effort specifying and developing tolerances for almost every conceivable design feature of the end product. Purchasing people simultaneously review purchase requirements to make sure that all product specifications are defined, and then let suppliers know exactly what buyer wants.

Under JIT purchasing practices, the buyer seeks advice and assistance on technical matters from suppliers [15, 26] in order to improve product quality, increase productivity, design better parts, achieve lower prices etc. in fact, the buyer relies more on supplier performance (technical) and less on narrowly defined design


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specifications. This gives the supplier more discretion to make recommendations and suggest innovations in discussion with the buyer.

(VIII) Paperwork

Paperwork in traditional purchasing systems consumes a lot of time. The chances of errors are more which creates the problems in performing the task. In traditional systems various forms are required in each stage for nearly all phases of purchasing such as requisitions, packaging lists, shipping documents, which require a massive time for these activities to perform. As a result of frequent changes in order quantity and delivery times, purchasing people deal with immediate crisis rather than trying to prevent future ones. This gives them less opportunity to solve problems with vendors or work in close liaison with them to improve cost efficiency, product design specifications, and productivity.

On the other hand JIT purchasing system requires much less formal work [5], as compared to traditional purchasing system, because

(i) Deliveries are made several times a day,

(ii) Long-term contracts are used,

(iii) A simple telephone call or fax massage or electronic mail can easily change the delivery time or quantity level, and

(iv) Kanban cards reduce paperwork.

(v) Computer plays a major role for paperless work

(vi) Orders and records can easily be made well in time.

(IX) Packaging

A factor often overlooked in traditional purchasing practices is packaging specifications and handling. Better packaging and precise listing of material not only reduce manpower requirements but also affect the buyer, distributor, retailer, and marketing and transportation departments.

Under JIT purchasing; small, reusable, standard containers are used for every part type of part number. Since the containers hold a precise quantity, the following advantages [31] are realized:

- Precise specifications of parts on the containers - Easy accurate count of parts - Reduction of waste - Time saving - More attraction towards product - More sale - More benefit - More safety of the product

The differences between the two approaches of purchasing are shown in Table-2.

Table-2

Comparison Between Traditional Purchasing and JIT Purchasing

S. No Purchasing Activity Traditional Purchasing JIT Purchasing

1. Main responsibilities of purchasing function

A Establishing lot size Purchase in large batches with infrequent deliveries

Purchase in small lots with frequent deliveries

B Selecting suppliers Multiple sourcing with short term contracts

Single source for a given part, near with a long term contract

C Evaluating suppliers Price, delivery and quality in Product quality, delivery


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that order performance and price;

(Zero rejection expected)

D Negotiating with suppliers

Lowest possible price is the prime objective

Product quality, fair price, long term contract is the prime objective

2. Indirect Responsibilities of Purchasing

A Incoming inspection Buyer is responsible for receiving, counting and inspecting all incoming parts

Counting and inspecting of incoming parts is eventually reduced and eliminated

B Determining mode of transportation

Concerned only for out bound freight (of finished goods). Delivery schedule within a month is left to the supplier

Concern for inbound, outbound freight and outbound on- time delivery.

Delivery schedule is decided by buyer

C Setting product specifications

Buyer relies more on design specs than on product performance. Suppliers have little freedom in design specifications

Buyer relies more on performance specs than on product design. Supplier is encouraged to be more innovative

3. Other Aspects

A Paper work Great deal of formal paper work

Less time is spent on formal paper work

B Packaging Regular carton or crate packing

Standard small reusable containers

5. IMPORTANCE OF JIT PURCHASING

Generally, in all the industries, the material cost is responsible of more than 60 percent of the total cost, and in some industries such as textile, it account for the more than 80% of the total cost.Though, purchasing is the most important components, it is poorly managed JIT purchasing has been identified as one of the most important JIT elements [9, 14, 18]. Evidences [6, 8, 9, 13, 19, 23, 24, 38, 42, 61] have shown that JIT purchasing can be beneficial in Indian context. In JIT purchasing environment, purchase is carried out in small lots in small standard container used to hold exact quantity and to the required specifications from a nearby-located single supplier with a long-term contract. No percentage of rejects from supplier is acceptable. The supplier is encouraged to be more innovative. He is given “loose specifications “. The company relies more on performance specifications than on product design. Delivery schedule is left to the supplier. Counting and receiving inspection of incoming parts is eliminated. Formal paper work is reduced to minimum delivery schedule or quantity can be changed by simple telephone calls/fax/telex message. Supplier is evaluated by consistence in quality, delivery performance and price. Consistence in quality and delivery performance under the varying conditions is the most important aspects, while price is merely an important factor.

6. JIT PURCHASING IMPLEMENTATION

The JIT system is not new to the present scenario of industrialization. This technique is not limited to any particular country but due to its large potential of benefit it has a widespread application throughout the world. Many industries have adopted it and others are going to implement it for their survival in the fast competition at each stage in each area. JIT purchasing implementation in an organization requires a partnership between the supplier and buyer through a multi-phased process that will embrace JIT purchasing characteristics. There are some strategies, which should be adopted in JIT purchasing implementation in four phases [5, 21, 24, 28, 41, 44, 47, 60].


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(a) Commitment

(a) Learning process

(b) Pilot programme

(c) Implementation These four phases are explained below:

(a) Commitment

The top management of the organization, which is seeking to implement JIT purchasing, must make a conscious goal to establish JIT purchasing as a top priority. Top management can achieve this goal by [47]:

i. Making it clear that it is the goal for entire organization, ii. Allocating appropriate human and financial resources, and iii. Playing a visible role in implementing this phase and the remaining phase of implementation iv. Extending cooperation and coordination within each department of the organization v. Providing effective communication within the organization, so that all the doubts can be cleared.

If top management can gain a commitment from all the employees of the organization then the change towards a JIT system is made easier to implement it with the help of entire organization.

(b) Learning Process

After commitment this phase involves experimenting in organization with JIT purchasing and trying to achieve incremental improvements by reducing inventories, eliminating waste, exposing problems, and responding immediately to them with solution. After completing this phase successfully, the next phase can be implemented easily with little efforts.

(d) Pilot Programme

After learning process the pilot programme can be implemented easily with little resistance from the employees of the organization. When the people know the JIT purchasing concept then only it will be possible to implement it. But adopting new strategies in a system it is not possible to implement JIT purchasing overnight. In beginning, some selected activities may be chosen from where the process of JIT implementation can be started with little problems, which can be detected and removed easily. This process of beginning of JIT purchasing implementation can be termed as ‘pilot programme’ [5].

The pilot programme begins with

i. A few local suppliers, ii. A few part numbers, representing a high monetary investment and low volume, iii. A few carrier companies, and iv. Frequent deliveries directly to assembly section

Starting the pilot programme with a few local suppliers and a few parts increases the likelihood of success because problems such as poor supplier quality can be measured and later or early deliveries can be monitored or adjusted.

Success of pilot programme depends upon a group effort among managers in several departments who share the same goals. If members of the group have conflicting goals, their disagreement will influence the action of certain departments. For example, the finance department may favour the parts that have highest impact on corporate profitability, and the purchasing department may prefer other parts for different reasons. To make this programme run, the group must share the same objectives and work closely to influence their departments to pursue these goals.

(d) Implementation

The implementation is the last phase of the JIT purchasing strategies, which must be designed to meet the needs of individual company. However, many companies identify some common factors that are critical to its successful implementation. They includes three phase process described as under [47]:

i. Changing the system ii. Selection of suppliers iii. Building relationships


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(i) Changing the System

When a new system is implemented the old system will vanish itself rather the new system must have more advantages as compared to old one. The new system must have a clear vision stating its objectives and goals. Specific changes in the role of purchasing are necessary to move towards a JIT purchasing operation. Teams of purchasing activities that do not enhance the value to the product being produced. Commonly performed non-value added purchasing activities such as ordering (vendors should keep track of what is needed), policing (individual managers should keep tract of their own vendor quantity and quality failures), and verifying transactions for paying invoicing (accounts payable personnel can perform these take more efficiently) should be dropped. Most of these activates are duplications of effort as service for other departments and are more efficiently handled by those other departments. A JIT purchasing department must become more focused on fewer purchasing activates. A JIT purchasing manager should concentrate on fewer purchasing activities. A JIT purchasing manager should focus on sourcing (Finding suppliers that can support JIT operation), pricing (being knowledgeable to negotiate a fair price) and continuously improving relationships with suppliers. (ii) Selection of Suppliers

The JIT purchasing system can be implemented more rapidly and successfully if the selection of supplier is made diligently. The right selection of supplier can deliver the required delivery as per specifications in the order of supply. Once the new role of JIT purchasers is established, suppliers who can support a JIT operation must be selected. The teams to selected suppliers should be led by purchasing personal but also include personal from engineering, quality control, manufacturing, finance, and other areas of the company. The objective of this phase is to select the best supplier for each commodity that the organization purchases. The best supplier may be single supplier for all the commodities that the organization needs. The best supplier must be determined by an analysis of following criteria:

Ability to meet desired or required service levels (i.e. quality, units etc.),

- Supplier’s capacity for continuous improvement,

- Commodity price etc.

(iii) Building Relationships

Good relations always pay for smooth functioning of the system. Once a supplier or group of suppliers is selected, JIT purchasing requires a continuous effort for improving the relationship between the purchaser and the supplier. A good relationship between the supplier and purchaser revolves around a continuous review of supplier performance of five aspects:

The quality of products supplied and the commitment of the supplier to seek continual improvement in quality, The information flow that enhances speed of response from the supplier to the purchaser, The material flow from the supplier to match the timely needs of the purchaser, The reduction in lead time response to change in customer demands of purchaser, and A price that reflects the level of fair quality

- 7. PROBLEMS ENCOUNTERED IN JIT PURCHASING IMPLEMENTATION

When something new is implemented, it will face resistance from the old system, because the people are used to work in that environment. It is the tendency of human nature to resist the change. The JIT purchasing implementation has provided impressive benefits, but some major problems are encountered. Their significance will depend upon a number of variables [3, 5, 24, 48, 49]. These are as stated below:

-Type of materials purchased

-Type of product manufactured

-Type of manufacturing processes and facilities utilized

-Product demand patterns

-Corporation’s culture and


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-Organizational structure.

The most serious problems, however, are not operational in nature. They are “people problems”- stemming from attitude and orientation, past experience and practices, and the passive factors of interpersonal relations. The significant problems as reported in the literature are tabulated in Table- 3. These are:

(a) Lack of support from suppliers

The necessary support from supplier is required for successful implementation of JIT purchasing in an organisation. If the supplier does not support the JIT purchasing system then many problems will arise. When the company adopts JIT purchasing system, it faces many problems. The most significant problem involved in the implementation of JIT purchasing appears to be lack of co-operation from suppliers, especially as it concerns quality. The suppliers may not fully support JIT purchasing programme because of following reasons [48]:

Lack of incentives for suppliers to adopt JIT delivery.

Lack of commitment from buyers.

Considerable strain on suppliers on JIT delivery.

To minimize these problems [5] two strategies can be suggested, such as:

(i) Education and training of suppliers

The supplier must be given an opportunity of education and training regarding JIT purchasing system, so that he can clear his doubts and can learn about the new philosophy. Then he will be able to supply JIT deliveries and then the buyer will not face any problem on the part of the supplier.

(ii) Development of long-term relationship with suppliers

To run the system problem free, it is necessary to have a long-term relationship with supplier. Before selecting the supplier, the buyer must know the attitude of the supplier, which must have a positive attitude for long-term relationship.

(b) Lack of support from top management

The top management is the policy maker, whereas middle management implements these policies and bottom management executes these policies. The top management is not directly linked with the execution of the plans. Another problem that can hinder the success of JIT purchasing implementation is the failure of top management to support the programme. There are several possible reasons for this lack of support. Top management generally tends to be less concerned [3] with long-term planning arrangements and more concerned with existing markets and short-term profitability. Constant pressure from stockholders to maintain a high level of stable dividends often generates this shorter-term view. Many managers believe that JIT is not suitable for most of companies. Additionally, some of them become frustrated with the magnitude of problems encountered and sporadic results experience during initial phase of implementation. Successful development of a JIT purchasing programme requires top management’s patience, long-term commitment and leadership.

Two effective approaches [3, 5] can be applied. The first focuses on education as a mean to effect attitudinal change. Common activities include visit to other companies that have implemented JIT purchasing programme, attending seminars or workshops on the subject, and selected readings in appropriate journals and magazines. The second is the use of positive JIT purchasing results experienced by other companies to convince top management that the concept also enhances their own competitive position.


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Table -3

Major Problems in JIT Purchasing Implementation

Major Problems Recommendations

a) Lack of support from suppliers [5, 48].

Education and training of suppliers in JIT purchasing Development of a long-term mutual relationship with suppliers.

b) Lack of Top management support [3, 5].

Motivation of top management through learning and actual analysis of results.

c) Low product quality [3, 51]. Establishment of a quality management programme aimed at early identification of critical characteristics during engineering stage of supply process.

d) Lack of employee readiness and support [3, 5].

Establish on continuous long-term training of employees in JIT purchasing. Education of employees about company’s main objectives and the philosophy behind implementation.

e) Lack of support from carrier companies [5,24].

Drastic reduction in the number of carrier companies. Requirement of transportation services on a contract basis.

f) Lack of engineering support [5, 62]. Constant co-ordination and co-operation among engineering, purchasing, and production departments.

g) Lack of Communication [3, 59]

Early involvement and high level of integration among purchasing, production engineering and transportation.

(c) Low product quality

Good quality products always dominate the market, which is possible only after the successful implementation of JIT manufacturing strategies. JIT purchasing is one of them. A frequently encountered obstacle to successful implementation of JIT is the difficulty of obtaining high quality materials from suppliers on a consistent basis. When suppliers fail to provide material of adequate quality on a regular basis, down-line supply problems occur that may create a production stoppage or slowdown. This is turn, may jeopardize the JIT purchasing programme.

The best way [5] to resolve this problem is to establish a quality management programme for suppliers aimed at early identification of critical quality characteristics during the design, manufacturing, and engineering stages of the supply process. Two ways [51] to assure the delivery of high quality products are:

i) Development and utilization of a supplier certification programme and, ii) Regular audit of supplier’s plant. When the buyer has established long-term relationships with suppliers and has found that product quality is consistently reliable, it makes sense to place the primary responsibility for inspection and quality control with the supplier. An effective supplier quality certification programme assures that the quality specifications have been met before parts leave the supplier’s plant.

A second method in helping suppliers in delivering high product quality is regular auditing of supplier’s plant. The main objective of this programme is to improve quality through improvement of design and process engineering and subsequently to detect and minimize quality problems through statistical quality control to provide a good quality of products.

(d) Lack of employee readiness and support

The employee will always be happy to adopt traditional system instead of any refined or non-conventional system. A frequently encountered problem is lack of employee readiness and support in JIT purchasing implementation. Many employees simply do not understand the concept of JIT purchasing. There are some key


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reasons [3, 5, 55, 58] why implementation of JIT purchasing dose not receive sufficient co-operation from employees, stated as under:

(i) Resistance to a change in habits,

(ii) Fear of job loss etc.

Two different solutions help in overcoming lack of employee readiness and support in JIT purchasing implementation.

The first approach emphasizes continuous JIT purchasing training for all employees involved with purchasing and material activities even at the expense of short-term efficiency and profit. These training programmes should teach specific new skills as well as the basic concept of JIT philosophy.

The second approach uses a broader orientation, focusing on the company’s reasons for adopting JIT as well as the philosophy behind it. Ample time spent educating employees about importance of JIT to the company’s future success increases positive responses to the required changes. Everyone then understands his or her role in helping to achieve company’s goal. Implementation problems can be reduced drastically if employees understand that successful JIT purchasing will be a major influence on company’s successful operation in its JIT purchasing system.

(e) Lack of support from carrier companies

Historically, buyers in many firms have not given much attention to the transportation system. Many companies experience difficulty in obtaining co-operation from their carrier companies with respect to inbound freight schedules. Carrier services [24] have been arranged by both buyers and suppliers’ companies, on a less than systematic ad hoc basis. The result has been that few buyers have developed long term relationships with carrier companies that are able to provide unique services or highly structured delivery schedules for the buying firms. In the past, carrier companies did not take the buyers’ schedule very seriously. They assumed that buyers had ample inventory and thus would not need the materials immediately.

Several steps [5] can minimize problems with carriers and facilitate prompt JIT deliveries. The first step is to reduce the number of carriers used. This enables the buyer to purchase transportation services much as he or she buys materials. The buyer is able to place more business with each carrier selected and to work more closely with each in arranging mutually feasible delivery schedules. In the case of purchases involving truckload or fairly sizable shipments, transpiration may be purchased from a contract carrier. This type of arrangement lends itself readily to the development of specific contractual feature to meet the unique service or delivery requirements of the buyer.

(f) Lack of support from design and engineering personnel support

Design engineering is primarily responsible for preparing technical specifications for the materials a company buys. Lack of support and co-operation from design and engineering personnel is another serious problem for adopting a new manufacturing strategy. Unfortunately, this task often involves minimal interaction between design engineering and purchasing personnel. Purchasing people frequently do not have enough information about design features and constraints to discuss design or quality options with suppliers. The resulting technical interface with suppliers is often less than adequate.

The most desirable solution to this dilemma is the development of an operating climate that encourages and promotes a continuously high level of integration in all operations, including production, design and process engineering, materials control, and purchasing matters. The result of frequent interaction between engineering and purchasing [5] is that, in many cases, suppliers with quality problems can solve them effectively and quickly with the appropriate buyer. This practice substantially increases the chance of JIT purchasing implementation successfully.

(g) Lack of communication

Communication always plays an important role for smooth functioning of the system. The problems always persist due to communication gap. To increase the effectiveness and efficiency of the system the communication gap must be eliminated. Effective development and implementation of JIT purchasing requires co-operation and integration of efforts from a number of important areas, such as materials management, transportation, and production control. Lack of communication within a firm’s total operating system with


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respect to implementation of JIT purchasing represents another problem area. The major obstacle [3] between purchasing and other areas such as engineering, design, production and quality control is the difference in view points of Engineers tolerance requirements for every end item. Buyers, on the other hand, attempts to lower the engineer’s performance limits and work with minimum standards.

Resolving the lack of communication and co-ordination in JIT environments requires not only the continuous communication of purchasing personnel with other departments, but also that both engineers and buyers become more conscious of the overall objective of JIT. Design and process engineering must be an integral part of the production system and work very closely with purchasing, rather than functioning as a separate area. They must also work closely with production staff on the production floor to develop a product of high quality and reliability and make production flow smoothly.

8. BENEFITS OF JIT PURCHASING IMLEMENTATION

JIT purchasing implementation has shown wonders in all the areas of manufacturing particularly the inventory and wastages reduction and quality improvements. Many areas such as quality, production management, cost, design, administrative efficiency, human factors and other [24, 30, 48, 52] are benefited by implementing JIT purchasing. Various benefits in these areas are stated below.

8.1 Inventory Reduction

-Less space requirements

-Less capital investments

-Reduction in material wastages

-Reduction in material handling

-Reduction in theft cases

-Reduction in supervision

8.2 Quality

- Good reputation in market - Increase in demand - Increase in profits - Improved quality - Reduction of scrap material and rework processes - Reduction of returned items - Reduction of inspection of incoming parts, work in process and finished goods. - Fast detection and correction of defects since deliveries are frequent. - Increased incentives to workers 8.3 Production Management

- Reduced delays in processes - Reduction in fatigue - Reduction in frustration - Reduced purchasing, production control, inventory control, and supervision with more reliable parts

provisioning and smaller quantities carried 8.4 Cost

- Low inventory carrying cost - Decreasing cost of parts, because of long term learning curve benefits in use to limited suppliers - Reduction in material handling cost -

8.5 Design

- Fast response to engineering changes - More flexibility in designing process - Design innovativeness, since suppliers are expert.


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8.6 Administrative efficiency

- Increase in efficiency at each stage - Few request for bids - Few suppliers to contract with - Contracts negotiated infrequently - Minimal paperwork - Little expediting - Short travel and telephone distance costs - Simple accounting for parts received, if suppliers use standard containers - Reliable identification of incoming orders’ if suppliers use thorough container labelling.

8.7 Human and other factors

- Increase in work satisfaction - Increase in worker motivation - Increased labour utilization - Increased team work spirit - Increased customer satisfaction - Increased competitiveness - Increased profit - Increased incentives to workers

8.8 Reduction in wastage of

(a) Material

-Less material handling reduces wastage of material at input level as well as during processes of manufacturing and output level.

(b) Time

-Sale one- manufacture one (SOMO) principle is applied, which eliminates waiting of material at each stage. Thus wastage of time is reduced.

(c) Money

- Less inventory save capital investment, this reduces wastage of money

9. COMPANIES BENEFITED FROM JIT PURCHASING IMPLEMENTATION

JIT manufacturing strategies, which were started initially in Japan, has spread in many countries. Due to its potential of high quality, improvement in methods and wastage’s reduction at every stage it has been accepted not only in manufacturing companies but has a greater potential in other sectors also like service sectors and administrative system. Increasing domestic and international competition has forced the Indian service sectors to look for some innovative techniques to meet the challenges/problems posed by the growing service sectors. JIT is one such globally accepted and used technique, which can play a major role in making the system more efficiently and effectively. The paradigm of JIT applies to all organisations of manufacturing and service sectors, [57]. The following are some of the Indian and international companies, which have been significantly benefited and achieved remarkable progress by JIT purchasing implementation.

9.1 Indian companies

-Eicher Tractor Ltd. Faridabad [50]

-Maruti Udyog Ltd., Gurgaon [39, 54]

-Sohna Steering, Gurgaon [39]

-Hero Honda, Gurgaon [39]

-Kirlosker, Harihar [5,53]

-Gabriel, Nasik [52]


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9.2 International Companies

-Hewlett- Packard, Bristol (UK), California (USA) [23, 25]

-Mereen Johnson Machine Co., New York [24]

-General Food Corporation, USA [24]

-Truck-light Company, New York [24]

-Cosmair, New Jersey [24,19]

-General Motors (Buick Division), USA [4,5,24,40]

-Apple computers, USA [30, 43]

-Black and Decker, USA [30]

-Deere and Company, USA [30]

-General Electric, USA [30]

-Dynaprt Company, USA [37, 56]

-Lucas Industries, USA [45]

-Nissan Motors (Smirna Plant), USA [4,5, 52]

-Hewlett-Packard (Greenley Division), USA [4, 5, 52]

-Lucas electrical, UK [52]

-Rank Xerox, Netherland [52]

-New United Motor Manufacturing, USA [52]

-Repco Clutch,Melbourne [52]

-Kawasaki Motors (Lincoln Plant), USA [52]

-IBM Ltd. UK [52]

-Ford Motor Company, USA [52]

10. SUMMARY

In this paper JIT purchasing and traditional Indian purchasing strategy has been described. Traditional purchasing vs JIT purchasing practices have been explained. It is observed that both type of purchasing include the same activities, but they differ in their approach. For instance, JIT purchasing suggests that parts be purchased in small lots with frequent deliveries which are opposite to the traditional purchasing practices of large lot size and infrequent deliveries. Implementation of JIT purchasing requires the support, commitment, and participation of human resources at all levels of the organization whereas in traditional purchasing it is not necessary. It also requires coordination and good planning among different departments within the same organization as well as careful co-ordination with outside companies, such as supplier and transportation companies. The philosophy also involves fundamental changes in corporate culture and employee attitude, training programme, and internal organizational structure, but these are not found in traditional purchasing Major problems encountered in the implementation process include lack of supplier support, low product quality etc. Implementation of JIT purchasing benefits many areas such as quality, production management, cost, design, administrative efficiency, human factors etc. Many company throughout the world have been benefited by fully or partly implementation of JIT purchasing.


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Dr. Sultan Singh is working as Associate Professor in the Department of Mechanical Engineering at DCR University of Science and Technology Murthal,Sonepat (Haryana). He did his B.Tech, M.Tech. and PhD in Mechanical Engineering from NIT Kurukshetra. Performed as Member, Board of Governors of HSBTE Haryana . Expert member Technical Education Department of Haryana Government and Haryana Staff Selection Commission Panchkula. Published many books and Research papers in various reputed National Journals. Received many National and International Awards for meritorious services, outstanding performance and remarkable role in Technical Education. Life member of ‘Institution of Engineers India Kolkata’.

Dr. Dixit Garg is working as Professor in the Department of Mechanical Engineering at NIT Kurukshetra. Published more than 70 research papers in various reputed Journals and conferences at National and International Level. Acted as editor/ reviewer in International Journals/ Conferences and Short Term Training Programmed. Delivered many expert lecturers and participated in panel discussions. Performed a number of academic duties such as Member Senate, BOS, DRC. Presently acting as Member, Board of Governors of many institutes. Expert Member for various committees of AICTE New Delhi, UPSC New Delhi, Technical Education Department of Haryana Government, Kurukshetra University, Awarded ‘Eminent Engineering Personality Award’, selected for ‘Shiksha Ratan

Puruskar’ and ‘Best Citizens of India award’. Life member of ISTE New Delhi and ISME New Delhi.


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comparative analysis of jit purchasing

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