MBA – Second Semester

Career Point University

KOTA (RAJ.)

OPERATION MANAGEMENT

“Project on JIT Analysis”

Submitted To: Submitted By:CMA Jai BansalSir (Astt. Prof.)

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Ashim Roy (K-13226)

Shalu Bharadwaj (K-13995)

Manoj Verma (K-14041)

Nitesh Agrawal (K-13364)

Sonam Sharma (K-13645)

Swati Sahu (K-314075)

MBA – Second Semester

Index

Abstract Pg. 03

Introduction Pg. 04

Theory of JIT Pg. 05

How to Use Just-In-Time Inventory Management Pg. 06

Pros/Cons Pg. 07

Advantages / Disadvantages Pg. 08

Case Study Pg. 09

Benefits Pg. 11

Limitations Pg. 12

Conclusion Pg. 14

Bibliography Pg. 15

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ABSTRACT

JIT production system identifies the hidden problems in the value chain and reduces the

production waste of the system while increasing the throughout (Sales-Raw Material Cost). Even

though the JIT system seems to be interesting and less complicated it requires lot of coordination

with supply chain to avoid delays in the production schedule. This article discusses in depth the

implementation of JIT manufacturing. The objectives are twofold. The first objective is to acquaint

the reader with the overall JIT concept and the factors necessary for its implementation; the concepts

presented here represent the ideal principles and methods of implementation.

Beginning in the early 1980’s, a number of US firms followed the pioneering efforts of

Shigeo Shingo and Taichi Ohno and adopted Just-In-Time (JIT) manufacturing in an attempt to

reshape their manufacturing environments (see Bragg, Duplaga, and Penlesky,2005). JIT requires

that a company have a few reliable suppliers and is believed to enhance productivity and build a

leaner manufacturing system which minimizes inventories (Helo, 2004) and reduces which reduces

risk and helps minimize the cost of manufacturing (Curry and Kennedy, 1999). The present work

will analyze what have been the results throughout the supply chain, in terms of inventory -

management, of those companies who do business with OEMs that utilize JIT systems. The results of

this study should enable managers that have or are considering implementing or participating in a JIT

inventory management system to become more effective.

Quality improvement and costs control are vital to organizations for work performance

enhancement and fulfilling customers’ requirement. Inventories that are stored in large amount of

quantities will result in waste and space usage. One effective solution is using Just in Time (JIT)

concept as a method to reduce costs, improve quality and meet the ever-changing customer needs.

The adoption of Just in Time (JIT) concepts seems to be the most effective way to overcome these

circumstances. JIT is management philosophy that emphasizes on eliminating waste and increase

productivity.

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INTRODUCTION

Just-In-Time (JIT) manufacturing is a Japanese management philosophy applied in

manufacturing which involves having the right items of the right quality and quantity in the right

place and the right time. It has been widely reported that the proper use of JIT manufacturing has

resulted in increases in quality, productivity and efficiency, improved communication and decreases

in costs and wastes. The potential of gaining these benefits has made many organizations question

and consider this approach to manufacturing. For these reasons, JIT has become a very popular

subject currently being investigated by many worldwide organizations. Just-In-Time management

involves the application of old management ideas; however, their adaptation to the modern

manufacturing firm is a relatively new practice. Presently, many firms are studying and applying the

JIT approach in response to an ever more competitive environment. North American organizations

are aware of the pressure placed upon them by the success of their Japanese competitors at obtaining

phenomenal levels of productivity. In order to remain competitive and experience economic success,

these companies have focused on increasing productivity, improving the quality their products and

raising the standards of efficiency within their products and raising the standards of efficiency within

their firms. The ability to achieve higher standards of productivity without sacrificing quality is also

an important goal of a manufacturing firm. Over the long run, application of JIT manufacturing may

assist these companies in achieving these goals of manufacturing excellence.

JIT in time concept was initiated in Japan making the Toyota as its mater piece. JIT is system

whether company starts manufacturing / purchasing once the customer orders the good effectively

making zero inventories. In other words, in a JIT environment materials are purchased and produced

as and when it is needed. The whole idea is based on the phrase provide the goods just in time as

promised when the order is placed by the customer. The opposite of the JIT production is known as

JIC (Just in case) system where it produces goods for inventory with the intention of having goods

just in case a customer places an immediate order. JIT production system identifies the hidden

problems in the value chain and reduces the production waste of the system while increasing the

throughout (Sales - Raw Material Cost). Even though the JIT system seems to be interesting and less

complicated it requires lot of coordination with supply chain to avoid delays in the production

schedule. The whole concept of the JIT is differentiated from traditional productions systems using

push vs. pull systems of production. The push system of production pushes materials to the next

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stage of the production irrespective of whether time and resources are needed at the next level of

production creating lot of inventories at each level of the production flow. The traditional

manufacturing organizations adopt push system where they produce for inventory and work in

progress. The pull system of production is where the materials are pulled by next level of the

production only when is signalled or required by the next stage of production. This drastically

reduces the inventory held as it does not keep any work in progress. JIT concept is built based on the

concept of pull production which eliminates the total inventory. This article discusses in depth the

implementation of JIT manufacturing. The objectives are twofold. The first objective is to acquaint

the reader with the overall JIT concept and the factors necessary for its implementation; the concepts

presented here represent the ideal principles and methods of implementation.

What does 'Just in Time - JIT' mean?

Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and

decrease waste by receiving goods only as they are needed in the production process, thereby

reducing inventory costs. This method requires producers to forecast demand accurately. This

inventory supply system represents a shift away from the older just-in-case strategy, in which

producers carried large inventories in case higher demand had to be met.

Theory of JIT production:

JIT Based Quality management is combination of inventory control, quality control and

production management functions that makes sincere efforts for quality improvement by two ways.

First, it concentrates on philosophical aspect of quality improvement by making the quality

everyone’s responsibility, and then focused on effective implementation of quality control

techniques. It recognized that most valuable resources of an organization are its workers, and

workers work best when they are motivated, valued, encouraged to contribute, and allowed to make

their own decisions. Under this approach, Workers inspect the product quality after each successive

operation. They are trained along with managers in preparation and interpretation of process control

charts. Managers motivate the workers to think quality first and production rate second. The workers

have authority to halt the production line or cell, if quality problems are uncovered. Thus, this

concept not only gives the quality responsibility to workers but also match that responsibility with

authority to share the quality control functions so that quality problems can be uncovered and solved

quickly. Also, JIT production system demands to buy parts in small lots. Small lots require less space 5 | P a g e

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and time. Less space and time require less peoples and facilities to complete the same job. Besides,

small lots easy to inspect, and defects can be immediately detected. Thus, the parts those are

purchased steadily in small lot sizes with frequent deliveries contribute to higher quality and

productivity through lower levels of inventory and scrap, lower inspection costs for incoming parts,

and early detection of defects. In short, JIT based approaches has potential to improve the product

quality and productivity to significant level but organizations must adopt its principles in way that

meet their own organizational structure, design and processes.

How to Use Just-In-Time Inventory Management:

A challenging economy often forces small business owners to look for new and innovative

ways to conduct business. Those unwilling to think outside the box may wake up to find themselves

at a serious competitive disadvantage. Inventory management is a good example. Not too long ago,

business owners and managers took pride in warehouses and stockrooms full of products and raw

materials ready to ship or move into production at a moment’s notice. But savvy entrepreneurs know

that lean is the word today when it comes to managing inventory. Unfortunately, many owners don’t

realize the true cost of carrying inventory that must be measured against the benefits of potentially

faster product delivery or greater availability. When you add the costs of inventory storage, handling,

damage, obsolescence, spoilage, and warehouse space, this cost can be as high as 30 percent of the

inventory’s value per year. The fact is, excess inventory is really excess cash that may — or may not

— be benefiting your company.

One of the best ways to improve profitability is to use a process known as just-in-time

inventory management. As the name implies, with JIT, inventory is ordered and received just as it is

needed, rather than days (or weeks) in advance. The concept of just-in-time isn’t new — it was first

used by the Ford Motor Company in the early 20th century — but today’s sophisticated inventory

management software makes it practical for even relatively small companies. The idea is to manage

inventory so that you have just the right material, at just the right time, in just the right location, and

in just the amount needed. When combined with modern computerized inventory management

systems, JIT helps companies to keep better track of inventory that’s on the shelf and to reorder as

soon as items get to a certain level.

A great example of a company using JIT is Dell, which revolutionized the computer world in

the 1990s by selling “custom-made” computers to customers over the phone and, later, online. Dell

does not possess the raw materials needed to build a computer until a customer places an order. The 6 | P a g e

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company’s processes and systems enable it to order and receive inventory and build computers to

exact customer specifications in about the same time it takes competitors to ship computers sitting on

warehouse shelves. The philosophy behind JIT is simple: Excess inventory is wasteful and should be

minimized or eliminated if possible. Therefore, JIT systems aim to increase profitability and return

on investment by reducing ordering and inventory holding costs. In a best case scenario, finished

goods and services are produced only when needed at the point of sale and never even put into what

would traditionally be called inventory.

In a manufacturing environment, the JIT process relies on signals (sometimes referred to as

kanban, a Japanese word literally meaning signboard) between different points in the manufacturing

process that tell production when to make the next part. This can result in significant reductions in

work-in-process inventory due to more efficient movement of raw materials between workstations on

the manufacturing floor. In a retail/supplier environment, JIT aims for close coordination between

suppliers and retailers to maximize the relationship between production and sales levels and

inventory, thus reducing carrying costs. JIT systems are often linked with computerized point-of-sale

systems so that inventory levels can be monitored and maintained via automatic reordering systems

to minimize the number of out-of-stock items in a store. To implement JIT successfully, businesses

must have strong relationships with a relatively small number of suppliers. These suppliers will

become your partners in the manufacturing or stocking process, and must be willing and able to

provide smaller and more frequent deliveries. Before deciding to implement a JIT system, therefore,

it’s wise to speak with your current and potential new suppliers to determine their ability to meet

your new requirements.

Pros:

By minimizing inventory, JIT frees up resources to employ elsewhere in the company. A

retail store using JIT can remodel the warehouse space into more retail sales floor space without

expanding the physical store. A manufacturer gets more space to produce goods. Both companies

free the workforce to focus on primary tasks, from making goods to interacting with customers rather

than stocking merchandise. Manufacturers can train employees to work at different stages of the

assembly line or at different workstations, to meet shifts in demand. A better-trained, more flexible

workforce focusing on quality production can mean faster set-up or customization of workstations

and lower defect rates, which lower costs and increase customer satisfaction.

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Cons:

The primary disadvantage to JIT is its relative complexity. Management must rethink the

entire work flow of the company, from initial intake of raw materials to final output of finished

product. Supply-chain relationships require retooling that involves multiple suppliers, closer

locations, or companies that can supply materials with little advance notice. Companies ordering

smaller amounts of goods may encounter difficulty meeting minimum orders, requiring a different

contract or a way to break up a large order over time or among several smaller manufacturers. All

goods must meet quality requirements to avoid shutdown due to defects. Staff must understand more

of the entire process and shift to where they are needed as work flow ebbs and surges to meet

customer demand swings. This overhaul requires a sizable commitment of time and money initially,

plus a change in mind-set and a commitment to stay the course in implementing JIT, at the risk of the

system's never gaining traction within the corporate culture.

Advantages:

Just-in-time inventory control has several advantages over traditional models. Production

runs remain short, which means manufacturers can move from one type of product to another very

easily. This method reduces costs by eliminating warehouse storage needs. Companies also spend

less money on raw materials because they buy just enough to make the products and no more.

a. Just in time inventory system reduces the amount of money tied up in inventory of raw material

and finished goods.

b. This systems creates saving of space.

c. It does not required maintaining large inventory storage facilities.

d. Just in time inventory systems minimizes wastage.

e. It helps to improve the labour efficiency.

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Disadvantages:

The disadvantages of just-in-time inventories involve disruptions in the supply chain. If a

supplier of raw materials has a breakdown and cannot deliver the goods on time, one supplier can

shut down the entire production process. A sudden order for goods that surpasses expectations may

delay delivery of finished products to clients.

a. The effectiveness of this system depends on the co-operation and faith with the supplier.

b. This systems works well when there is proper knowledge of quality and quantity of materials

needed.

c. There must be some alternative suppliers as the regular suppliers may not be able to dispatch the

material all the times.

Case Study:

JIT manufacturing is a powerful and proven system of producing products efficiently

while keeping costs low. Some of the most successful companies in the world have used this

philosophy to improve their manufacturing processes and better meet customer demand.

Just in Time Manufacturing (JIT) refers to a system of manufacturing in which products are

not built until the product is ordered and paid for. Some companies that have successfully

implemented JIT include Toyota, Dell and Harley Davidson.

Toyota:

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Toyota is considered by many to be the poster child for JIT success. The Toyota production strategy

is highlighted by the fact that raw materials are not brought to the production floor until an order is

received and this product is ready to be built. No parts are allowed at a node unless they are required

for the next node, or they are part of an assembly for the next node. This philosophy has allowed

Toyota to keep a minimum amount of inventory which means lower costs. This also means that

Toyota can adapt quickly to changes in demand without having to worry about disposing of

expensive inventory.

Important Factors to Toyota Success:

Small amounts of raw material inventory must be kept at each node in production, so that

production can take place for any product. These parts are then replenished when they are

used.

Accuracy of forecasting is important so the correct amount of raw materials can be stocked.

Dell:

Dell has also leveraged JIT Principles to make its manufacturing process a success. Dell’s

approach to JIT is different in that they leverage their suppliers to achieve the JIT goal. They are also

unique in that Dell is able to provide exceptionally short lead times to their customers, by forcing

their suppliers to carry inventory instead of carrying it themselves and then demanding (and

receiving) short lead times on components so that products can be simply assembled by Dell quickly

and then shipped to the customer.

Important Factors to Dell’s Success:

Dependable suppliers with the ability to meet Dell are demanding lead time requirements.

A seamless system that allows Dell to transmit its component requirements so that they will

arrive at Dell in time to fulfil its lead times.

A willingness of suppliers to keep inventory on hand allowing Dell to be free of this

responsibility.

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Harley Davidson:

Harley Davidson’s use of JIT is mostly characterized by its transformation in the late World

War 2 era from an inefficient manufacturer that solved all of its problems with extra inventory to a

nimble manufacturer able to meet demand and provide short lead times.

Results of Harley Davidson’s JIT Implementation:

Inventory levels decreased 75 percent.

Increased productivity.

Harley Davidson’s success with the implementation of JIT had a lot to do with the fact that when

JIT was put into practice, process problems could no longer be hidden by costly inventory that

helped to meet ship dates. The inefficiencies in the processes were quickly identified and solved.

Benefits:

The potential benefits of JIT are numerous. First, JIT practice reduces inventory levels, which

means lower investments in inventories. Since the system requires only the smallest quantity of

materials needed immediately, it substantially reduces the overall inventory level. In many Japanese

companies that use the JIT concept, inventory levels have been reduced to a point at which the

annual working-capital turnover ratio is much higher than experienced by U.S. counterparts. For

instance, Toyota reported inventory-turnover ratios of 41 to 63, while comparable U.S. companies

reported inventory-turnover ratios of 5 to 8. Since purchasing under JIT requires a significantly

shorter delivery lead time, lead-time reliability is greatly improved. Reduced lead time and increased

reliability also contribute to a significant reduction in the safety-stock requirements. Safety stock

extra units of inventory carried as production against possible stock outs reduced lead times and

setup times increase scheduling flexibility. The cumulative lead time, which includes both

purchasing and production lead times, is reduced. Thus, the firm schedule within the production

planning horizon is reduced. This results in a longer “look-ahead” time that can be used to meet 11 | P a g e

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shifts in market demand. The smaller lot-size production made possible by reduced setup time also

adds flexibility.

Improved quality levels have been reported by many companies. When the order quantity is small,

sources of quality problems are quickly identifiable, and can be corrected immediately. In many

cases, employee quality consciousness also tends to improve, producing an improvement in quality

at the production source.

The costs of purchased materials may be reduced through more extensive value analysis and

cooperative supplier development activities. Other financial benefits of JIT include:

1. Lower investments in factory space for inventories and production;

2. Less obsolescence risk in inventories;

3. Reduction in scarp and rework;

4. Decline in paperwork;

5. Reduction in direct material costs through quantity purchases.

Limitations:

Although the benefits of using JIT are numerous and cited more frequently than any potential

limitations, several shortcomings have been identified as follows:

Cultural differences have been cited as a possible limitation of JIT. There exist many cultural

differences which may be intrinsically tied to JIT success. These will be problems that may be

difficult to overcome or work around without changes in attitudes and worker philosophy. The

magnitude of their impact may be difficult to measure because of their nature.

The traditional approach to manufacturing involves the use of large inventories with safety stocks.

Safety stocks can act as a buffer for companies to fall back on to offset inaccurate demand forecasts.

This has the potential to cause problems for the organization which relies heavily on safety stocks to

absorb any increases in demand.

The benefits associated with increased employee involvement and participation resulting from the

use of quality circles may be evident in Japanese organizations. However, Western ideas of

participation involve largely ‘empowering’ the workforce with respect to decision making. This

suggests that the level of involvement established within Japanese organizations using JIT is not 12 | P a g e

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compatible with the degree of employee participation required to satisfy Western workers. The

benefits associated with JIT may be culturally bound and somewhat limited to the Japanese

environment.

Loss of individual autonomy has been suggested as another possible short-coming of JIT. Loss of

autonomy has largely been attributed to limited cycle times or the ‘time between recurring activities’.

Buffers such as slack or idle time are significantly reduced resulting in greater amounts of stress and

pressure placed upon the worker to perform. The time which would otherwise be present would

allow the worker more freedom to perform ‘vertical tasks’ which constitute administrative tasks or

team meeting. In addition, reduced cycle times force workers to adjust immediately to changes in

demand without taking their needs into consideration.

Loss of team autonomy is a possible result of reducing or eliminating buffer inventories. This

serves to reduce the flexibility of workers to discuss possible solutions to problems. This is a

function of quality circles, which are an important part of JIT. Reduced buffer inventories and

workers flexibility contradict the other aspects of JIT concerning quality circles.

Loss of autonomy over methods involves the idea that, under JIT, employees must adhere to strict

methods of production in order to maintain the system. This idea diminishes the ‘entrepreneurial

spirit’ which many workers may have previously enjoyed prior to JIT implementation.

JIT success may be ‘industry specific’, i.e. craft-oriented businesses are considered to be better

candidates for a JIT programme than organizations producing commodity-type products.

Resistance to change may be experienced since JIT involves an organizational level of change

which will affect almost every member of the organization. Employees may resist the change based

on two different levels: emotional and rational resistance. Rational resistance occurs when an

individual is deficient of the necessary information and facts pertaining to the degree to which the

change will affect them. Emotional resistance refers to the psychological processes of fear, anxiety

and suspicion which arise which arise from inducing change and cause resistance.

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Conclusion:

Just-In-Time is a manufacturing philosophy which leads to producing the required items, at

the required quality and in the right quantities at the precise time as they are required.  It is an

approach to achieving excellence in elimination of waste.  In this case waste can be thought of as all

things that don’t add value to the product.  Overproduction, Inventory, defect products, transport and

waiting time are some examples of what can be waste according to JIT. Just-In-Time manufacturing

is a system of enforced problem solving.  Managers have the choice between putting a huge effort in

finding and solving causes of production problems, or they can learn to live with an intolerable level

of interruptions in production. 

As everybody knows, the situation in which one has to put huge efforts is highly undesirable,

and therefore the system is called enforced. Quality within JIT manufacturing is necessary, because

without a quality program in JIT, the JIT will fail.  Here we think about quality at the source and the

Plan, Do, Check, Action with its statistical process control.  Furthermore, techniques are also very

important.  The JIT technique is a pull system rather than a pull system, based on not producing

things until they are needed.  The well-known Kanban card is used as a signal to produce.  Moreover,

integration also plays a key role in JIT systems.  JIT integration can be found in four points of the

manufacturing firm. The Accounting side, Engineering side, Customer side and Supplier side.  At the

accounting side, JIT has concern for WIP, utilization and overhead allocation and at the engineering

side of JIT focuses on simultaneously and participative design of products and processes.

Just-In-Time has its influence in ordering, scheduling and producing sides of a manufacturing firm. 

JIT production contains the well-known Kanban System.  This influence in the manufacturing firm is

depending on employees, suppliers or customers. 

Therefore a large element of training is put toward the JIT to reach certain goals.  One of

these goals is mutual trust and teamwork.  This is an important factor in the JIT principle.  When

managers and workers see each other as equal, committed to the organization and its success, they

are more willing to co-operate with each other in order to find the problems and solve these

problems.  Moreover, a firm which empowers it’s workers, gives the workers the authority to solve

problems on their own.  When

this is done, workers have the authority to stop production and to solve problems, instead of first

waiting for guidance from a supervisor.  The objective of worker empowerment is having workers

involved in the problem as it occurs. In all, JIT is an important operational system for manufacturing 14 | P a g e

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and supplying companies to adopt

and implement.  Technically, procedurally and managerially it requires attention to data,

information and communication.  But if looked at through the eyes of the corporation that has

implemented the JIT system, the positive outcomes that arise from the use of the system is far greater

than those that are not.  The JIT system really is a state of the art idea that is beginning to catch on in

a tremendous way all over the world.

BIBLIOGRAPHY:

www.google.com www.wikipedia.com http://onlineaccountreading.blogspot.in http://files.eric.ed.gov http://smallbusiness.chron.com

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