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IntroductionJust in time (JIT) is a production strategy that strives to improve a business' return on investment by reducing in-process inventory and associated carrying costs the process relies on signals or Kanban between different points, which are involved in the process, which tell production when to make the next part.JIT focuses on continuous improvement and can improve a manufacturing organization's return on investment, quality, and efficiency

The Toyota Way

Why Toyota?Total annual profit on March 2003 was $8.23 billion- larger than combined earnings of GM, Chrysler and Ford. Profit margin is 8.3 times higher than industry average.Toyota shares rose 24% from their 2002 values. Market capitalization was $105 billion as of 2003 higher than total of Big 3.In 2002, Lexus outsold BMW, Cadillac and Mercedes Benz in the US for the third year in a row.In 2003, sold more vehicles than Ford and Chevrolet.The company has made profit every year over the last 25 years and has approximately $20-$30 billion in cash on a consistent basis.

Why Toyota?In 2003, Toyota recalled 79% fewer vehicles in US than Ford and 92% fewer than Chrysler.According to Consumer Reports, 15 out of the 38 most reliable models from any manufacturer over the last seven year came from Toyota/Lexus.According to J.D. Powers ranking for initial quality and long-term durability, Lexus was #1 most reliable car in 2003 followed by Porsche, BMW and Honda.Not a single Toyota car is on the dreaded vehicles to avoid list published by Consumer Reports. About 50% of the GMs and more than 50% of the Chryslers are to be avoided.

The Toyota Way4P modelPhilosophy (Long-term thinking)Process (eliminate waste) KaizenPeople and partners (Respect, Challenge them to achieve more, Grow leaders)Problem-solving (Continuous improvement and learning) Genchi genbutsu

The Story of How (J)IT BeganStarts with Sakichi Toyoda who grew up in predominantly farming community in late 1800s. Weaving was a major industry promoted by the Japanese government.By 1894, Sakichi began to make manual looms that were cheaper but of better quality (more features and less failures).Started working on his own to develop power-driven loom. This approach of learning and doing yourself became integral part of TPS (genchi genbutsu). Among his inventions was a special mechanism to automatically stop a loom whenever a thread broke building in quality as you produce the material (jidoka or poka-yoke).

The Story of How (J)IT BeganThe mistake-proof loom became Toyodas most popular model and in 1929, his son Kichiro, negotiated the sale of patent rights to Platt Brothers of England for 100,000.In 1930, these funds were used to start building the Toyota Motor Corp.Kichiros contribution to the Toyota philosophy JIT.What is JIT? marriage between the Fords idea of assembly line and US supermarket system of replacing products on the shelves just in time as customer purchased them.Not much later WWII started.

The Story of How (J)IT BeganPost-WWII, rampant inflation meant getting paid by customers was very difficult. Cash-flow problems lead to pay cuts.When situation worsened, 1600 workers were asked to retire voluntarily.The resultant work stoppages and public demonstrations by workers led to resignation of Kichiro.Eiji Toyoda took over as president.Eijis main contribution leadership towards development of the TPS.Eiji hired Taiichi Ohno as the plant manager and asked him to improve Toyotas manufacturing process so that it equals the productivity of Ford.

The Story of How (J)IT BeganTaiichi Ohno benchmarked the competition by visiting Ford and studied Henry Fords book.Impressed with Fords philosophy of eliminating waste. Ford itself didnt seem to practice it.Took idea of reducing inventory by implementing pull system from the US supermarkets.Pull system was implemented by Kanban cards.Ohno also took ideas from Deming when he was lecturing in Japan about quality and productivity.Deming told the Japanese industry about meeting and exceeding customer satisfaction. Also broadened the definition of customer to include both internal as well as external customers.

The Story of How (J)IT BeganThe next process is the customer became the most significant expression for JIT, because in a pull system it means the proceeding process must always do what the subsequent process says. Otherwise JIT wont work.

The TPS house diagram

Dell Computers

Dell Computers

JIT at DellAt Dell, the JIT process is called "pull to order,

An order for a customized personal computer that comes in over the internet at 9 am, can be on a delivery truck to the customer by 9 p.m.

After getting an order, Dell notifies its suppliers about what components are needed, and they're delivered within an hour and a half.

Dell builds customized computers, workstations, and servers according to order; none are produced for inventory.

With the pull-to-order system, Dell eliminates warehouses in its factories and has improved factory output by double by adding production lines where warehouses used to be.

JIT at DellDell generally fulfills customer demands within five days

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.

In addition, Dells low cost production system allows it to under price its rivals by 10% to 15%.

How does Dells just in time system deliver lower costs?

While machines from Compaq and IBM can languish on dealer shelves for two months Dell does not start ordering components and assembling computers until an order is booked

By ordering right before assembly, Dell figures its parts, on average, are 60 days newer than those in an IBM or Compaq machine. That can translate into a 6% profit advantage in components alone.

Old ProcedureDell had operated its assembly lines in traditional fashion, with workers each performing a single operation.

An order form accompanied each metal chassis across the production floor; drives, chips, and ancillary items were installed to match customer specifications.

As a partly assembled PC arrived at a new workstation, the operator, standing beside a tall steel rack with drawers full of components, was instructed what to do by little red and green lights flashing beside the drawers.

When the operator was finished, the components were automatically replenished from the other side of the drawers and the PC chassis glided down the line to the next workstationWork Station 1Work Station 2Work Station 3Work Station 4Work Station 5

New ProcedureDell shifted to "cell manufacturing" techniques whereby a team of workers operating at a group workstation (or cell) assembled an entire PC according to customer specifications.

The result had been to reduce assembly times by 75 percent and to double productivity per square foot of assembly space.

Assembled computers were tested, then loaded with the desired software, shipped, and typically delivered within five to six business days of the initial order.

This sell-direct strategy meant, of course, that Dell had no in-house stock of finished goods inventories and that, unlike competitors using the traditional value chain model, it did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace

Cell 1Cell 2Cell 3Tested OKTested OKTested OK

Software InstallationSoftware InstallationSoftware InstallationShipping

Virtual IntegrationDell required a highly reliable supply of top-quality PC components, but management did not want to integrate backward.

Instead, the company sought to develop long-term relationships with select, name-brand PC component manufacturers. Dell also required its key suppliers to establish inventory hubs near its own assembly plants.

This allowed the company to communicate with supplier inventory hubs in real time for the delivery of a precise number of required components on short notice.

This just-in-time, low-inventory strategy reduced the time it took for Dell to bring new PC models to market and resulted in significant cost advantages over the traditional stored-inventory method.

Why did Dell believe it needed to change its inventory process?

Because computers depreciated at a very high rate. sitting in inventory, a computer loses a ton of value.

How Dell Was Benefited by JITCustomer Satisfaction

Enabled Dell to compete on both price and service. Dells low cost production system allows it to under price its rivals by 10% to 15%.

JIT $shortened the time it took for Dell to get new generations of its computer models into the market place

The economics of minimal component inventories were dramatic. Michael Dell explained:If I've got 11 days of inventory and my competitor has 80 and Intel comes out with a new 450-megahertz chip, that means I'm going to get to market 69 days sooner.

Important Factors to Dells Success: Dependable suppliers with the ability to meet Dells 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 fulfill its lead times. A willingness of suppliers to keep inventory on hand allowing Dell to be free of this responsibility

Dell Today13 years ago, Dell carried 20-25 days of inventory in a sprawling network of warehousesToday, Dell has no warehouses. And although it assembles nearly 80,000 computers every 24 hours, it carries no more that 2 hours of inventory in its factories and a maximum of 72 hours across its entire operation.

Harley Davidson

HistoryHarley-Davidson Motorcycle Company was established in 1903 Taken over by the American Machine and Foundry (AMF) in 1969 In 1981, original members of Harley-Davidson purchased the company from AMF in a leveraged buy-out. In 1985 Harley-Davidson underwent a restructuring plan by adopting Japanese techniques for management and marketing saving them from bankruptcy

1985 Corporate Results from Hoover's Company Profile Database Net Sales - $288 millionNet Income - $3 million Earnings per Share - $0.09

1995 Corporate Results from 1995 Annual Report Net Sales - $1.35 billion Net Income - $112 million Earnings per Share - $1.50

Original ProcessBatch Productionneither inflow or outflow of materials while the process is running disadvantage of high labor costs per unit production difficult with large-scale production production system was a maze-like operation in which parts were moved from one machine to another all over the plant no straight flow process; therefore, setup times were very high and output rates

Just-In-TimeHarley-Davidson adopted JIT inventory which helped in its quality-improvement If only a few parts are going to be available they all have to be good ones Suppliers had to implement JIT into their production process in order to compliment Harley's system Component faults can be detected and quickly corrected

IMPROVEMENTSInventory turns up from 5 to 20. Inventory levels down 75 %. Percentage of motorcycles coming off the line completed up from 76% to 99%. Scrap and rework reduced by 68%. Productivity up by 50%. Space requirements down by 25%

Analysis of JITPros and Cons

Advantages Of JIT Reductions in the cost of holding stock Space that was used for storing stock can be released for other activities Minimal inventory releases cash flow for use elsewhere in the business Reduces the chance of holding obsolescent stock with less chance of damaged stock Allows a firm to lower its break-even point

Advantages Of JIT Improved motivation and teamwork with more flexible and multi-skilled employees Promotes customer focus and increased flexibility and responsiveness to individual customer needs Allows for greater customisation in the production process Greater focus on quality and zero defects and lowering of waste levels Strengthens collaboration along the supply chain

Disadvantages Of JITReliant on suppliersCoordinationExcess demandNo room for mistakesInput price changesLonger time to customer

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