Operations Management Chapter 16 – Justin!ime an" #ean Pro"uction $%stems
© 2006 Prentice Hall, Inc.
 
OutlineOutline
Global Company Profile: GreenGlobal Company Profile: Green Gear Cycling Gear Cycling 
Just-in-Time and Lean ProductionJust-in-Time and Lean Production
SuppliersSuppliers
Concerns of SuppliersConcerns of Suppliers
 
Outline Continued Outline Continued 
JIT Layout JIT Layout 
 
Outline Continued Outline Continued 
In&entory In&entory 
"educe 'ariability "educe 'ariability 
"educe Lot Si(es"educe Lot Si(es
"educe Setup Costs"educe Setup Costs
Scheduling Scheduling 
)anban)anban
Outline Continued Outline Continued 
Lean ProductionLean Production
S.s S.s
JIT In Ser&icesJIT In Ser&ices
 
Learning Ob0ecti&esLearning Ob0ecti&es
/hen you complete this chapter1 you/hen you complete this chapter1 you should be able to:should be able to:
Identify or !efine:Identify or !efine:
'ariability 'ariability 
 
Learning Ob0ecti&esLearning Ob0ecti&es
/hen you complete this chapter1 you/hen you complete this chapter1 you should be able to:should be able to:
!escribe or %$plain:!escribe or %$plain:
Just-in-time 2JIT3 Philosophy Just-in-time 2JIT3 Philosophy 
Pull SystemsPull Systems
Push SystemsPush Systems
Lean ProductionLean Production
 
!esigns and manufactures high!esigns and manufactures high  performance tra&el bicycles 2bi4e-in-a-  performance tra&el bicycles 2bi4e-in-a-  suitcase3suitcase3
Strategy is mass customi(ation +ith lo+Strategy is mass customi(ation +ith lo+ in&entory1 +or4 cells1 and elimination ofin&entory1 +or4 cells1 and elimination of machine setupsmachine setups
5a0or focus on JIT and supply-chain5a0or focus on JIT and supply-chain management management 
One day throughput timeOne day throughput time
#ocus on 6uality #ocus on 6uality 
 
© 2006 Prentice Hall, Inc. 16 – 9
Just-In-Time andJust-In-Time and Lean ProductionLean Production
 
/aste "eduction/aste "eduction
/aste is anything that does not/aste is anything that does not add &alue from the customer pointadd &alue from the customer point of &ie+ of &ie+ 
 
/aste "eduction/aste "eduction
#aster deli&ery1 reduced +or4-in- #aster deli&ery1 reduced +or4-in-   process1 and faster throughput all process1 and faster throughput all reduce +astereduce +aste
 
'ariability "eduction'ariability "eduction
JIT systems re6uire managers toJIT systems re6uire managers to reduce &ariability caused by bothreduce &ariability caused by both internal and e$ternal factorsinternal and e$ternal factors
'ariability is any de&iation from the'ariability is any de&iation from the optimum processoptimum process
In&entory hides &ariability In&entory hides &ariability 
 
© 2006 Prentice Hall, Inc. 16 – 13
Causes of 'ariability Causes of 'ariability 
77 %mployees1 machines1 and suppliers%mployees1 machines1 and suppliers  produce units that do not conform to produce units that do not conform to standards1 are late1 or are not thestandards1 are late1 or are not the  proper 6uantity  proper 6uantity 
;; %ngineering dra+ings or specifications%ngineering dra+ings or specifications are inaccurateare inaccurate
<< Production personnel try to produceProduction personnel try to produce before dra+ings or specifications arebefore dra+ings or specifications are completecomplete
== Customer demands are un4no+nCustomer demands are un4no+n
 
Pull 'ersus Push SystemsPull 'ersus Push Systems
 > pull system uses signals to > pull system uses signals to re6uest production and deli&eryre6uest production and deli&ery from upstream stationsfrom upstream stations
?pstream stations only produce?pstream stations only produce +hen signaled +hen signaled 
 
Pull 'ersus Push SystemsPull 'ersus Push Systems
,y pulling material in small lots1,y pulling material in small lots1 in&entory cushions are remo&ed1in&entory cushions are remo&ed1 e$posing problems and emphasi(inge$posing problems and emphasi(ing continual impro&ement continual impro&ement 
5anufacturing cycle time is reduced 5anufacturing cycle time is reduced 
 
© 2006 Prentice Hall, Inc. 16 – 16
JIT and Competiti&eJIT and Competiti&e  >d&antage >d&antage
Table 16.1Table 16.1
JIT "e6uires:JIT "e6uires:
© 2006 Prentice Hall, Inc. 16 – 17
JIT and Competiti&eJIT and Competiti&e  >d&antage >d&antage
Table 16.1Table 16.1
/hich @ields:/hich @ields:
SuppliersSuppliers
JIT partnerships e$ist +hen aJIT partnerships e$ist +hen a supplier and purchaser +or4supplier and purchaser +or4 together to remo&e +aste and dri&etogether to remo&e +aste and dri&e do+n costsdo+n costs
#our goals of JIT partnerships are:#our goals of JIT partnerships are:
%limination of unnecessary acti&ities%limination of unnecessary acti&ities
%limination of in-plant in&entory %limination of in-plant in&entory 
%limination of in-transit in&entory %limination of in-transit in&entory 
%limination of poor suppliers%limination of poor suppliers
 
JIT PartnershipsJIT Partnerships
"epeat business +ith same suppliers"epeat business +ith same suppliers
Support suppliers so they become or remainSupport suppliers so they become or remain  price competiti&e price competiti&e
Competiti&e bidding mostly limited to ne+Competiti&e bidding mostly limited to ne+  purchases purchases
,uyer resists &ertical integration and subse6uent,uyer resists &ertical integration and subse6uent +ipeout of supplier business+ipeout of supplier business
Suppliers encouraged to e$tend JIT buying toSuppliers encouraged to e$tend JIT buying to their supplierstheir suppliers
Table 16.2Table 16.2
JIT PartnershipsJIT Partnerships
Share forecasts of demand Share forecasts of demand 
#re6uent deli&eries of small-lot 6uantities#re6uent deli&eries of small-lot 6uantities
Long-term contract Long-term contract 
5inimal paper+or4 to release order 2%!I or the5inimal paper+or4 to release order 2%!I or the Internet3Internet3
Little or no permissible o&erage or underageLittle or no permissible o&erage or underage
Suppliers pac4age in e$act 6uantitiesSuppliers pac4age in e$act 6uantities
Suppliers reduce production lot si(esSuppliers reduce production lot si(es
Table 16.2Table 16.2
JIT PartnershipsJIT Partnerships
Belp suppliers meet 6uality re6uirementsBelp suppliers meet 6uality re6uirements
Close relationships bet+een buyers. andClose relationships bet+een buyers. and suppliers. 6uality assurance peoplesuppliers. 6uality assurance people
Suppliers use po4a-yo4e and process controlSuppliers use po4a-yo4e and process control chartscharts
Table 16.2Table 16.2
JIT PartnershipsJIT Partnerships
Scheduling inbound freight Scheduling inbound freight 
Gain control by using company-o+ned orGain control by using company-o+ned or contract shipping and +arehousing contract shipping and +arehousing 
?se of ad&anced shipping notice 2>SA3?se of ad&anced shipping notice 2>SA3
Table 16.2Table 16.2
JIT Layout JIT Layout 
Table 16.3Table 16.3
"educe +aste due to mo&ement "educe +aste due to mo&ement 
Layout TacticsLayout Tactics
,uild +or4 cells for families of products,uild +or4 cells for families of products
Include a large number operations in a small areaInclude a large number operations in a small area
5inimi(e distance5inimi(e distance
!esign little space for in&entory !esign little space for in&entory 
Impro&e employee communicationImpro&e employee communication
?se po4a-yo4e de&ices?se po4a-yo4e de&ices
 
!istance "eduction!istance "eduction
Large lots and long productionLarge lots and long production lines +ith single-purposelines +ith single-purpose machinery are being replaced bymachinery are being replaced by smaller fle$ible cellssmaller fle$ible cells
Often ?-shaped for shorter pathsOften ?-shaped for shorter paths and impro&ed communicationand impro&ed communication
Often using group technologyOften using group technology conceptsconcepts
 
Increased #le$ibility Increased #le$ibility 
Cells designed to be rearrangedCells designed to be rearranged as &olume or designs changeas &olume or designs change
 >pplicable in office en&ironments >pplicable in office en&ironments as +ell as production settingsas +ell as production settings
 
Impact on %mployeesImpact on %mployees
%mployees are cross trained%mployees are cross trained for fle$ibility and efficiency for fle$ibility and efficiency 
Impro&ed communicationsImpro&ed communications facilitate the passing on offacilitate the passing on of important information aboutimportant information about the processthe process
 
"educed Space and"educed Space and In&entory In&entory 
/ith reduced space1 in&entory/ith reduced space1 in&entory must be in &ery small lotsmust be in &ery small lots
 
In&entory In&entory 
In&entory is at the minimum le&elIn&entory is at the minimum le&el necessary to 4eep operations running necessary to 4eep operations running 
JIT In&entory TacticsJIT In&entory Tactics
?se a pull system to mo&e in&entory ?se a pull system to mo&e in&entory 
"educe lot si(es"educe lot si(es
!e&elop 0ust-in-time deli&ery systems +ith suppliers!e&elop 0ust-in-time deli&ery systems +ith suppliers
!eli&er directly to point of use!eli&er directly to point of use
Perform to schedulePerform to schedule
"educe setup time"educe setup time
?se group technology ?se group technology  Table 16.4Table 16.4
 
"educe 'ariability "educe 'ariability 
Process do+ntime
In&entoryIn&entory le&el le&el 
"educe 'ariability "educe 'ariability 
"educe Lot Si(es"educe Lot Si(es
Figure 16.2Figure 16.2
     t    o     r     y
     I    n     &     e     n
     t    o     r     y
TimeTime
* * 22 /hen a&erage order si(e/hen a&erage order si(e = 100= 100
a&erage in&entory isa&erage in&entory is 5050
 
"educe Lot Si(es"educe Lot Si(es
Ideal situation is to ha&e lot si(esIdeal situation is to ha&e lot si(es of one pulled from one process toof one pulled from one process to the ne$t the ne$t 
Often not feasibleOften not feasible
Can use %O* analysis to calculateCan use %O* analysis to calculate desired setup timedesired setup time
T+o 4ey changesT+o 4ey changes
Impro&e material handling Impro&e material handling 
"educe setup time"educe setup time
 
Lot Si(e %$ampleLot Si(e %$ample
!!  >nnual demand >nnual demand = 400,000= 400,000 unitsunits
d d  !aily demand!aily demand = 400,000/250 = 1,600= 400,000/250 = 1,600  per day  per day 
 p p !aily production rate!aily production rate = 4,000= 4,000 unitsunits
* *  %O* desired%O* desired = 400= 400
B B  Bolding costBolding cost = $20= $20 per unit  per unit 
S S  Setup cost 2to be determined3Setup cost 2to be determined3
* * ;!S ;!S 
;!S ;!S 
SS = = = $2.40= = = $2.40 ((* * 22)()(B B )(1 -)(1 - dDpdDp))
22!!
(3,200,000)(0.6)(3,200,000)(0.6)
800,000800,000
Lo+er Setup CostsLo+er Setup Costs
Figure 16.3Figure 16.3
 
Bolding cost Bolding cost 
Setup cost cur&esSetup cost cur&es ((S S 111 S 1 S 22)) T T 11
S S 11
T T 22
S S 22
     C     o     s
"educe Setup Costs"educe Setup Costs
Bigh setup costs encourage largeBigh setup costs encourage large lot si(eslot si(es
"educing setup costs reduces lot"educing setup costs reduces lot si(e and reduces a&eragesi(e and reduces a&erage in&entory in&entory 
 
"educe Setup Times"educe Setup Times
Figure 16.4Figure 16.4
?se one-touch system to eliminate?se one-touch system to eliminate ad0ustments 2sa&e 78 minutes3ad0ustments 2sa&e 78 minutes3Step =Step =
Step  Step   Training operators and standardi(ingTraining operators and standardi(ing +or4 procedures 2sa&e ; minutes3+or4 procedures 2sa&e ; minutes3
"epeat cycle until subminute"epeat cycle until subminute setup is achie&ed setup is achie&ed 
Initial Setup Time
2sa&e ;8 minutes3
Step 7Step 7
Separate setup into preparation and actual setup1 doing as much as possible +hile the
machineDprocess is operating 2sa&e <8 minutes3
Step <Step <
2sa&e 7 minutes3
8 min F8 min F
= min F= min F
; min F; min F
FF
Scheduling Scheduling 
Schedules must be communicatedSchedules must be communicated inside and outside the organi(ationinside and outside the organi(ation
Le&el schedulesLe&el schedules
Process fre6uent small batchesProcess fre6uent small batches
#ree(ing the schedule helps#ree(ing the schedule helps stability stability 
)anban)anban
 
)anban)anban
77 ?ser remo&es a?ser remo&es a standard si(edstandard si(ed container container 
;; Signal is seen bySignal is seen by the producingthe producing department asdepartment as authori(ation toauthori(ation to replenishreplenish
Part numbersPart numbers mar4 locationmar4 location
Signal mar4erSignal mar4er on bo$eson bo$es
Figure 16.6Figure 16.6
Scheduling Small LotsScheduling Small Lots
 > > ,, C C  > >  > > > >,, ,, ,, ,, ,, C C 
 > > C C  > >  > > > > ,, ,, ,, ,, ,, C C  C C ,, ,, ,, ,, > >  > >
Large-Lot >pproachLarge-Lot >pproach
5ore )anban5ore )anban
/hen the producer and user are not/hen the producer and user are not in &isual contact1 a card can be used in &isual contact1 a card can be used 
/hen the producer and user are in/hen the producer and user are in &isual contact1 a light or flag or&isual contact1 a light or flag or empty spot on the floor may beempty spot on the floor may be ade6uateade6uate
 
5ore )anban5ore )anban
?sually each card controls a specific?sually each card controls a specific 6uantity or parts6uantity or parts
5ultiple card systems may be used if5ultiple card systems may be used if there are se&eral components orthere are se&eral components or different lot si(esdifferent lot si(es
 
5ore )anban5ore )anban
In an 5"P system1 the schedule canIn an 5"P system1 the schedule can be thought of as a build authori(ationbe thought of as a build authori(ation and the 4anban a type of pull systemand the 4anban a type of pull system that initiates actual productionthat initiates actual production
 
)anban Signals)anban Signals
/or4/or4 cell cell 
)anban)anban
The Aumber of CardsThe Aumber of Cards or Containersor Containers
Aeed to 4no+ the lead time needed to
 produce a container of parts
Aeed to 4no+ the amount of safety stoc4 needed 
Aumber of 4anbans Aumber of 4anbans
!emand during!emand during Safety Safety  lead timelead time HH stoc4 stoc4 
Si(e of container Si(e of container 
 
Aumber of )anbans %$ampleAumber of )anbans %$ample
!aily demand !aily demand  == 500500 ca4esca4es
Production lead timeProduction lead time == 22 daysdays 2+ait time H2+ait time H material handling time Hmaterial handling time H  processing time3 processing time3
Safety stoc4 Safety stoc4  == 1/21/2 day day 
Container si(eContainer si(e == 250250 ca4esca4es
!emand during lead time!emand during lead time = 2= 2 daysdays x 500x 500 ca4esca4es = 1,000= 1,000
Aumber of 4anbansAumber of 4anbans = = 5= = 5 1,000 2501,000 250
250250
 >d&antages of )anban >d&antages of )anban
 >llo+ only limited amount of faulty or >llo+ only limited amount of faulty or delayed material delayed material 
Problems are immediately e&ident Problems are immediately e&ident 
Puts do+n+ard pressure on badPuts do+n+ard pressure on bad aspects of in&entory aspects of in&entory 
Standardi(ed containers reduceStandardi(ed containers reduce +eight1 disposal costs1 +asted space1+eight1 disposal costs1 +asted space1 and labor and labor 
 
*uality *uality 
Strong relationshipStrong relationship
JIT cuts the cost of obtaining goodJIT cuts the cost of obtaining good 6uality because JIT e$poses poor6uality because JIT e$poses poor 6uality 6uality 
,ecause lead times are shorter1,ecause lead times are shorter1 6uality problems are e$posed sooner 6uality problems are e$posed sooner 
 
JIT *uality TacticsJIT *uality Tactics
?se statistical process control ?se statistical process control 
%mpo+er employees%mpo+er employees
,uild fail-safe methods 2po4a- ,uild fail-safe methods 2po4a-  yo4e1 chec4lists1 etc3yo4e1 chec4lists1 etc3
%$pose poor 6uality +ith small%$pose poor 6uality +ith small lot JIT lot JIT 
Pro&ide immediate feedbac4 Pro&ide immediate feedbac4 
Table 16.6Table 16.6
© 2006 Prentice Hall, Inc. 16 – 49
%mployee %mpo+erment %mployee %mpo+erment 
%mpo+ered employees bring their%mpo+ered employees bring their 4no+ledge and in&ol&ement to daily4no+ledge and in&ol&ement to daily operationsoperations
Some traditional staff tas4s can mo&e toSome traditional staff tas4s can mo&e to empo+ered employeesempo+ered employees
Training1 cross-training1 and fe+er 0obTraining1 cross-training1 and fe+er 0ob classifications can mean enriched 0obsclassifications can mean enriched 0obs
Companies gain from increasedCompanies gain from increased commitment from employeescommitment from employees
 
Lean ProductionLean Production
!ifferent from JIT in that it is!ifferent from JIT in that it is e$ternally focused on the customer e$ternally focused on the customer 
Often called the Toyota ProductionOften called the Toyota Production System 2TPS3System 2TPS3
 
Toyota Production SystemToyota Production System
/or4 shall be completely specified as to/or4 shall be completely specified as to content1 se6uence1 timing1 and outcomecontent1 se6uence1 timing1 and outcome
%&ery customer-supplier connection must%&ery customer-supplier connection must be direct be direct 
Product and ser&ice flo+s must be simpleProduct and ser&ice flo+s must be simple and direct and direct 
 
Lean SystemsLean Systems
,uild systems that help employees,uild systems that help employees  produce perfect parts produce perfect parts
"educe space re6uirements"educe space re6uirements
!e&elop close relationships +ith!e&elop close relationships +ith supplierssuppliers
 
Lean SystemsLean Systems
%ducate suppliers%ducate suppliers
%liminate all but &alue-added%liminate all but &alue-added acti&itiesacti&ities
!e&elop the +or4force!e&elop the +or4force
5a4e 0obs more challenging 5a4e 0obs more challenging 
 
The S.sThe S.s
Se&en /astesSe&en /astes
O&erproductionO&erproduction
 > broader  perspecti&e
 
JIT in Ser&icesJIT in Ser&ices
The JIT techni6ues used inThe JIT techni6ues used in manufacturing are used in ser&icesmanufacturing are used in ser&ices
SuppliersSuppliers
LayoutsLayouts