Operations

Just-in-time production

Just-in-time (JIT) production strives to coordinate the flow of components and inputs in a supply chain to minimise costs

JIT production aims to minimize costs by coordinating the flow of components and inputs in a supply chain. Parts are planned to come as needed, as the name implies, thus there is no need for extensive inventory. JIT began as a manufacturing idea, but it is now widely used in service businesses.

When to use it

● To improve the efficiency of your manufacturing process.
● To locate supply chain bottlenecks and inefficiencies.

Origins

While 'just-in-time' is commonly seen as a Japanese creation, the original ideas that underpin it can be traced back to the Ford Motor Company and Ernest Kanzler's work in 1919 at Ford's Highland Park facility. Kanzler presented innovative strategies to cut labor and inventory costs, as well as shifting inventory carrying costs to dealers, who were obliged to borrow to pay for the extra spare parts they were sent.

Japanese enterprises experimented with a variety of novel production procedures in the postwar years, influenced by Edwards Deming's 'quality' ideals as well as some of the revolutionary methods pioneered by Ford much earlier. Taiichi Ohno, the 'father of JIT,' established the first JIT inventory management system at Toyota in the early 1950s, and steadily improved it to include the 'Kanban' pull method by the early 1960s. This became a key component of the so-called "Toyota production system," which swept the automobile industry. Toyota manufactured automobiles that were both higher in quality and lower in price than its competitors using this new approach, and these improved manufacturing processes were gradually replicated throughout the world and in a variety of industries.

The inventory management process at the heart of the Toyota production system is referred to as JIT. The high-efficiency/high-quality mode of working developed by Toyota and other corporations in the 1960s and 1970s was dubbed "lean manufacturing." Total quality management is a broader management philosophy that includes JIT principles as well as related concepts like 'Kaizen' (continuous improvement) and problem-solving quality circles.

What it is

The previous manufacturing method was push-based, with inputs and component parts purchased in advance of the requirement to produce the final product. Just-in-time is a pull-based system in which actual orders trigger the acquisition of additional inventory, which is then made available on a just-in-time basis.

Stock levels of raw materials, components, work in progress, and finished goods are kept to a bare minimum in a JIT system. To make this work, the mechanism for scheduling the flow of resources must be well considered. When orders were confirmed, actual cards were handed down the production chain, prompting the replenishment of the minimal inventory levels at each step in the manufacturing process. The card-based system has since been replaced by sophisticated production scheduling software, but the logic remains the same.

EDI (electronic data interchange) software is typically used to extend JIT processes back into the manufacturer's supply chain, frequently through several tiers of suppliers. A vehicle manufacturing factory, for example, might receive exactly the proper amount and kind of tyres for one day's production, and the supplier would be expected to deliver them to the correct loading bay on the production line within a very tight time frame. Many of the benefits of a JIT system are around cost savings. Stock-holding expenses can be minimized, which leads to less wastage. In general, JIT systems have lower working-capital costs; in fact, some have negative working capital, meaning they are paid before purchasing components and assembling the output.

Because you don't create things in advance of demand, JIT methods are more adaptable. JIT systems also have the advantage of exposing and addressing inefficiencies in the process because of their 'lean' character.

However, JIT manufacturing has some important drawbacks. First, because inventory levels are so low, there is little space for error. The entire procedure comes to a standstill when an error occurs (whereas under a push-based system, the inventory acts as a buffer). Second, JIT relies on external suppliers to produce on time, therefore if they can't, the manufacturing process suffers. Furthermore, external causes beyond anyone's control might disrupt the manufacturing process — an Icelandic volcano, for example, caused all flights in Europe to be canceled for a week, and many JIT systems to fail a few years ago.

How to use it

JIT is an integral part of the production process in many industries today, because its advantages in terms of efficiency and quality clearly outweigh its limitations. However, there are also many small firms, or firms in less technologically-sophisticated sectors, that use a more traditional push-based inventory management system. If you work for such a firm, the question of how or when to use JIT is an important one.

The first thing to remember is that JIT is extremely difficult to construct on its own. It necessitates a shift in how you deal with your customers and, most likely, your suppliers, as well as the purchase of new software solutions to ensure that the supply chain's links function properly. You may also be required to learn about alternate shipping techniques, such as less-than-truckload (LTL) carriers that combine loads and routes to fill a trailer, and you may be required to invest in new facilities to be physically closer to the clients you serve.

Top practical tip

Because it needs a different mindset than traditional production, a JIT system requires management buy-in and support at all levels of the organization. Because JIT entails reengineering the system, purchasing and implementing the necessary software, and training people, significant resources are required. It's also vital to establish a close, trusted connection with suppliers, which requires time and work.

Top pitfall

There is no room for error if you just produce what you need when you need it, but this has two consequences. To begin, many key aspects must be in place for JIT to work: consistent output, flexible resources, extremely high quality, no machine breakdowns, dependable suppliers, quick machine set-ups, and enough of discipline to keep the other elements in check. Second, putting these pieces together will almost certainly result in mistakes and delays in your production process. To put it another way, creating a JIT system necessitates a willingness to accept failure and the ability to learn from your failures.