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Chapter 12Chapter 12Chapter 12Chapter 12

Just-In-Time and Lean ManufacturingJust-In-Time and Lean Manufacturing

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OverviewOverviewOverviewOverview

The Just-in-Time Manufacturing PhilosophyThe Just-in-Time Manufacturing Philosophy Prerequisites for JIT ManufacturingPrerequisites for JIT Manufacturing Elements of JIT ManufacturingElements of JIT Manufacturing Benefits of JIT ManufacturingBenefits of JIT Manufacturing Success and JIT ManufacturingSuccess and JIT Manufacturing JIT in ServicesJIT in Services Wrap-Up: What World-Class Companies DoWrap-Up: What World-Class Companies Do

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MEANING OF JITMEANING OF JITMEANING OF JITMEANING OF JIT

Just-in-time manufacturing is a strategy used in the Just-in-time manufacturing is a strategy used in the business manufacturing process to reduce costs by business manufacturing process to reduce costs by reducing the in-process inventory level.reducing the in-process inventory level.

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APICS Definition of JITAPICS Definition of JITAPICS Definition of JITAPICS Definition of JIT

American Production and Inventory Control Society American Production and Inventory Control Society (APICS) is an organization for professionals working (APICS) is an organization for professionals working in the field of Operations Managementin the field of Operations Management

““A philosophy of manufacturing based on planned A philosophy of manufacturing based on planned elimination of waste and continuous improvement of elimination of waste and continuous improvement of productivity ……”productivity ……”

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APICS Definition of JITAPICS Definition of JITAPICS Definition of JITAPICS Definition of JIT

““The primary elements of Just-in-Time are:The primary elements of Just-in-Time are: to have only the required inventory when needed;to have only the required inventory when needed; to improve quality to zero defects;to improve quality to zero defects; to reduce lead times by reducing setup times, to reduce lead times by reducing setup times,

queue lengths, and lot sizes;queue lengths, and lot sizes; to incrementally revise the operations themselves;to incrementally revise the operations themselves; and to accomplish these things at minimum cost”.and to accomplish these things at minimum cost”.

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JIT SynonymsJIT SynonymsJIT SynonymsJIT Synonyms

IBM - Continuous Flow ManufacturingIBM - Continuous Flow Manufacturing HP - Stockless ProductionHP - Stockless Production

- Repetitive Manufacturing System- Repetitive Manufacturing System GE - Management by SightGE - Management by Sight Motorola - Short Cycle ManufacturingMotorola - Short Cycle Manufacturing Japanese - The Toyota SystemJapanese - The Toyota System Boeing - Boeing - Lean ManufacturingLean Manufacturing

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APICS Definition of Lean ManufacturingAPICS Definition of Lean ManufacturingAPICS Definition of Lean ManufacturingAPICS Definition of Lean Manufacturing

““A philosophy of production that emphasizes the minimization A philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the of the amount of all the resources (including time) used in the various activities of the enterprise. It involves:various activities of the enterprise. It involves:

… … identifying and eliminating non-value-adding activities,identifying and eliminating non-value-adding activities, … … employing teams of multi-skilled workers,employing teams of multi-skilled workers, … … using highly flexible, automated machines”using highly flexible, automated machines”

American Production and Inventory Control Society (American Production and Inventory Control Society (APICSAPICS) ) is an organization for professionals working in the field of is an organization for professionals working in the field of Operations ManagementOperations Management

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JIT Manufacturing PhilosophyJIT Manufacturing PhilosophyJIT Manufacturing PhilosophyJIT Manufacturing Philosophy

The main objective of JIT manufacturing is to reduce The main objective of JIT manufacturing is to reduce manufacturing lead timesmanufacturing lead times

This is primarily achieved by drastic reductions in This is primarily achieved by drastic reductions in work-in-process (WIP)work-in-process (WIP)

The result is a smooth, uninterrupted flow of small The result is a smooth, uninterrupted flow of small lots of products throughout productionlots of products throughout production

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Order-to-Delivery CycleOrder-to-Delivery CycleOrder-to-Delivery CycleOrder-to-Delivery Cycle

Distri-Distri- bution andbution and CustomerCustomer

ServiceService

Custo-Custo-mermer

PlacesPlacesOrderOrder

OrderOrderEntryEntry

Engi-Engi-neeringneeringDesignDesign

Sched-Sched-ulinguling

ManufacturingManufacturingLead TimesLead Times

PurchasingPurchasingLead TimesLead Times

ManufacturingManufacturingCumulative Lead TimeCumulative Lead Time

Order-to-Delivery CycleOrder-to-Delivery Cycle

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PREREQUISITES FOR JIT PREREQUISITES FOR JIT MANUFACTURINGMANUFACTURING

PREREQUISITES FOR JIT PREREQUISITES FOR JIT MANUFACTURINGMANUFACTURING

The basic idea of JIT is simple-drastically reduce The basic idea of JIT is simple-drastically reduce WIP inventories.WIP inventories.

The main objective of JIT is to reduce manufacturing The main objective of JIT is to reduce manufacturing lead time.lead time.

The result is a smooth, uninterrupted flow of small The result is a smooth, uninterrupted flow of small lots of products throuhout production.lots of products throuhout production.

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Changes Required for JITChanges Required for JITChanges Required for JITChanges Required for JIT

JIT requires certain changes to the factory and the JIT requires certain changes to the factory and the way it is managed:way it is managed: Stabilize production schedulesStabilize production schedules Make the factories more focusedMake the factories more focused Increase work center capacitiesIncrease work center capacities Improve product qualityImprove product quality Cross-train workersCross-train workers Reduce equipment breakdownsReduce equipment breakdowns Develop long-term supplier relationsDevelop long-term supplier relations

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Successful JIT ApplicationsSuccessful JIT ApplicationsSuccessful JIT ApplicationsSuccessful JIT Applications

Most successful JIT applications have been in Most successful JIT applications have been in repetitive manufacturingrepetitive manufacturing, where batches of standard , where batches of standard products are produced at high speeds and in high products are produced at high speeds and in high volumes.volumes.

Successful use of JIT is rare in large, highly complex Successful use of JIT is rare in large, highly complex job shops where production planning and control is job shops where production planning and control is extremely complicated.extremely complicated.

Smaller, less complex job shops have used JIT, but Smaller, less complex job shops have used JIT, but operations have been changed so that they behave operations have been changed so that they behave somewhat like repetitive manufacturing.somewhat like repetitive manufacturing.

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Elements of JIT ManufacturingElements of JIT ManufacturingElements of JIT ManufacturingElements of JIT Manufacturing

Eliminating wasteEliminating waste Enforced problem solving and continuous Enforced problem solving and continuous

improvementimprovement People make JIT workPeople make JIT work Total Quality Management (TQM)Total Quality Management (TQM) Parallel processingParallel processing Kanban production controlKanban production control JIT purchasingJIT purchasing Reducing inventoriesReducing inventories Working toward repetitive manufacturingWorking toward repetitive manufacturing

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(1) Waste from overproduction(1) Waste from overproduction

(2) Waste of waiting time(2) Waste of waiting time

(3) Transportation waste(3) Transportation waste

(4) Inventory waste(4) Inventory waste

(5) Processing waste(5) Processing waste

(6) Waste of motion(6) Waste of motion

(7) Waste from product defects (7) Waste from product defects

Waste--OperationsWaste--OperationsWaste--OperationsWaste--Operations

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JIT: A Pull SystemJIT: A Pull SystemJIT: A Pull SystemJIT: A Pull System

In a In a push systempush system, such as an MRP system, we look at , such as an MRP system, we look at the schedule to determine what to produce nextthe schedule to determine what to produce next

In a In a pull systempull system, such as JIT, we look only at the next , such as JIT, we look only at the next stage of production and determine what is needed stage of production and determine what is needed there, and then we produce only thatthere, and then we produce only that

As Robert Hall states, “You don’t never make As Robert Hall states, “You don’t never make nothing and send it no place. Somebody has got to nothing and send it no place. Somebody has got to come and get it”come and get it”

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Capacity UtilizationCapacity UtilizationCapacity UtilizationCapacity Utilization

10 10 20 20 30 30 40 50 40 50 60 70 80 60 70 80 90 100 90 100

3030

1010

2020

% Capacity% Capacity UtilizationUtilization

6060Production Lead Times (days)Production Lead Times (days)

4040

5050 TraditionalTraditionalManufacturingManufacturing

JITJITManufacturingManufacturing

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Increasing Production CapacityIncreasing Production CapacityReduces Manufacturing Lead TimesReduces Manufacturing Lead Times

Increasing Production CapacityIncreasing Production CapacityReduces Manufacturing Lead TimesReduces Manufacturing Lead Times

A manufacturing operation wants to reduce its A manufacturing operation wants to reduce its manufacturing lead time from 12 days to 4 days . If manufacturing lead time from 12 days to 4 days . If jobs are arriving at an average rate of 12 per day and jobs are arriving at an average rate of 12 per day and the operation can produce an average of 12.083 jobs the operation can produce an average of 12.083 jobs per day , what new production rate would allow a per day , what new production rate would allow a lead time of only 4 days? How much would work-in-lead time of only 4 days? How much would work-in-process (WIP) inventory be reduced with the new process (WIP) inventory be reduced with the new production rate?production rate?

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Use the formula for from model 1 in table Use the formula for from model 1 in table 9.6 ,chapter 99.6 ,chapter 9

If we have an average lead time in mind, we can If we have an average lead time in mind, we can solve for the required production rate:solve for the required production rate:

Necessary Production CapacityNecessary Production CapacityNecessary Production CapacityNecessary Production Capacity

1( )st

1

( )st

1

st

1

st

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Work-in-Process InventoryWork-in-Process InventoryWork-in-Process InventoryWork-in-Process Inventory

We also know from queuing theory that the average We also know from queuing theory that the average number of jobs in the system (work-in-process number of jobs in the system (work-in-process inventory) is:inventory) is:

( )sn

( )sn

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Example: Necessary Production CapacityExample: Necessary Production CapacityExample: Necessary Production CapacityExample: Necessary Production Capacity

A production manager believes reducing the A production manager believes reducing the firm’s manufacturing lead time will give the firm a firm’s manufacturing lead time will give the firm a significant competitive advantage. Two days is the significant competitive advantage. Two days is the lead time goal.lead time goal.

Currently, jobs are arriving at the rate of 6 per Currently, jobs are arriving at the rate of 6 per day and the operation can process an average of 6.125 day and the operation can process an average of 6.125 jobs per day.jobs per day.

What is the current average lead time for a job? What is the current average lead time for a job? What is the necessary production rate to achieve the What is the necessary production rate to achieve the two-day lead time goal?two-day lead time goal?

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Example: Necessary Production CapacityExample: Necessary Production CapacityExample: Necessary Production CapacityExample: Necessary Production Capacity

Current Lead TimeCurrent Lead Time

Necessary Production RateNecessary Production Rate

ConclusionConclusionA 6% increase in the production rate (from A 6% increase in the production rate (from

6.125 to 6.5) results in a 75% reduction in 6.125 to 6.5) results in a 75% reduction in manufacturing lead time (from 8 to 2).manufacturing lead time (from 8 to 2).

1 1 18 days

( ) (6.125 6.0) 0.125st

1 1 1

8 days( ) (6.125 6.0) 0.125st

1 16.0 6.5 jobs per day

2st

1 16.0 6.5 jobs per day

2st

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Example: Reduction in WIPExample: Reduction in WIPExample: Reduction in WIPExample: Reduction in WIP

In the preceding example, the production rate In the preceding example, the production rate was increased from 6.125 jobs per day to 6.5. This was increased from 6.125 jobs per day to 6.5. This 6% increase in the production rate yielded a 75% 6% increase in the production rate yielded a 75% reduction in manufacturing lead time! reduction in manufacturing lead time!

How much of a reduction in WIP will result How much of a reduction in WIP will result from the 6 % production rate increase?from the 6 % production rate increase?

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Example: Reduction in WIPExample: Reduction in WIPExample: Reduction in WIPExample: Reduction in WIP

WIP WIP beforebefore production rate increase production rate increase

WIP WIP afterafter production rate increase production rate increase

ConclusionConclusionA 6% increase in the production rate (from A 6% increase in the production rate (from

6.125 to 6.5) results in a 75% reduction in work-in-6.125 to 6.5) results in a 75% reduction in work-in-process (from 48 to 12).process (from 48 to 12).

6old 48 jobs

( ) (6.125 6)sn

6

old 48 jobs( ) (6.125 6)sn

6new 12 jobs

( ) (6.500 6)sn

6

new 12 jobs( ) (6.500 6)sn

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Problem Solving and Continuous ImprovementProblem Solving and Continuous ImprovementProblem Solving and Continuous ImprovementProblem Solving and Continuous Improvement

JIT is a system of enforced problem solving.JIT is a system of enforced problem solving. One approach is to lower inventory gradually to One approach is to lower inventory gradually to

expose problems and force their solution.expose problems and force their solution. With no buffer inventories to rely on in times of With no buffer inventories to rely on in times of

production interruptions, problems are highly visible production interruptions, problems are highly visible and cannot be ignored.and cannot be ignored.

The job of eliminating production problems is never The job of eliminating production problems is never finished.finished.

Continuous improvement - a practice the Japanese Continuous improvement - a practice the Japanese call call kaizenkaizen - is central to the philosophy of JIT. - is central to the philosophy of JIT.

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Uncovering Production ProblemsUncovering Production ProblemsUncovering Production ProblemsUncovering Production Problems

QualityQualityProblemsProblems

MaterialMaterialShortagesShortages

MachineMachineBreakdownsBreakdowns

WorkloadWorkloadImbalancesImbalances

WorkerWorkerAbsenteeismAbsenteeism

Out-of-SpecOut-of-SpecMaterialsMaterials

QualityQualityProblemsProblems

In-ProcessIn-ProcessInventoryInventory

We must lower the water level!We must lower the water level! Visible ProductionVisible ProductionProblems are Only Problems are Only 5% of the Total!5% of the Total!

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People Make JIT WorkPeople Make JIT WorkPeople Make JIT WorkPeople Make JIT Work

JIT has a strong element of training and involvement JIT has a strong element of training and involvement of workers.of workers.

A culture of mutual trust and teamwork must be A culture of mutual trust and teamwork must be developed.developed.

An attitude of loyalty to the team and self-discipline An attitude of loyalty to the team and self-discipline must be developed.must be developed.

Another crucial element of JIT is Another crucial element of JIT is empowerment of empowerment of workersworkers, giving them the authority to solve , giving them the authority to solve production problems.production problems.

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TQM and JITTQM and JITTQM and JITTQM and JIT

Long-term relationships with suppliersLong-term relationships with suppliers Certified suppliers eliminate incoming inspectionCertified suppliers eliminate incoming inspection Share design process for new productsShare design process for new products

Simplify design/processesSimplify design/processes Poka-yokePoka-yoke Process capable of meeting tolerancesProcess capable of meeting tolerances Operators responsible for quality of own workOperators responsible for quality of own work

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• Operations performed in series:Operations performed in series:

Op 1Op 1 Op 2Op 2 Op 3Op 3 Op 4Op 4 Op 5Op 5 Op 6Op 6 Op 7Op 7 Op 8Op 8

• Operations performed in parallel:Operations performed in parallel:Cycle Time for Each Operation = 1 HourCycle Time for Each Operation = 1 HourTotal Product Cycle Time = 1 x 5 =Total Product Cycle Time = 1 x 5 = 5 Hours5 Hours

• Operations 2 and 4 start the Operations 2 and 4 start the same time as Operation 1same time as Operation 1

Parallel ProcessingParallel ProcessingParallel ProcessingParallel Processing

Cycle Time for Each Operation = 1 HourCycle Time for Each Operation = 1 HourTotal Product Cycle Time = 1 x 8 =Total Product Cycle Time = 1 x 8 = 8 Hours8 Hours

Op 1Op 1

Op 2Op 2

Op 3Op 3

Op 4Op 4Op 5Op 5

Op 6Op 6 Op 7Op 7 Op 8Op 8

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Group Technology & JITGroup Technology & JITGroup Technology & JITGroup Technology & JIT

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Kanban Production ControlKanban Production ControlKanban Production ControlKanban Production Control

At the core of JIT manufacturing at Toyota is At the core of JIT manufacturing at Toyota is KanbanKanban, an amazingly simple system of planning and , an amazingly simple system of planning and controlling productioncontrolling production

KanbanKanban, in Japanese, means card or marquee, in Japanese, means card or marquee KanbanKanban is the means of signaling to the upstream is the means of signaling to the upstream

workstation that the downstream workstation is ready workstation that the downstream workstation is ready for the upstream workstation to produce another for the upstream workstation to produce another batch of partsbatch of parts

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Kanbans and Other SignalsKanbans and Other SignalsKanbans and Other SignalsKanbans and Other Signals

There are two types of Kanban cards:There are two types of Kanban cards: a conveyance card (C-Kanban)a conveyance card (C-Kanban) a production card (P-Kanban)a production card (P-Kanban)

Signals come in many forms other than cards, Signals come in many forms other than cards, including:including: an empty cratean empty crate an empty designated location on the flooran empty designated location on the floor

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How Kanban OperatesHow Kanban OperatesHow Kanban OperatesHow Kanban Operates

When a worker at downstream Work Center #2 needs aWhen a worker at downstream Work Center #2 needs acontainer of parts, she does the following:container of parts, she does the following:

She takes the C-Kanban from the container she just She takes the C-Kanban from the container she just emptiedemptied

She finds a full container of the needed part in She finds a full container of the needed part in storagestorage

She places the C-Kanban in the full container and She places the C-Kanban in the full container and removes the P-Kanban from the full container and removes the P-Kanban from the full container and places it on a post at Work Center #1places it on a post at Work Center #1

She takes the full container of parts with its C-She takes the full container of parts with its C-Kanban back to Work Center #2Kanban back to Work Center #2

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Kanban CardsKanban CardsKanban CardsKanban Cards

Conveyance Kanban CardConveyance Kanban Card

Part number to produce: Part number to produce: M471-36M471-36 Part description: Part description: Valve HousingValve Housing

Lot size needed: Lot size needed: 4040 Container type: Container type: RED CrateRED Crate

Card number: Card number: 2 of 52 of 5 Retrieval storage location: Retrieval storage location: NW53DNW53D

From work center: From work center: 2222 To work center: To work center: 3535

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Kanban CardsKanban CardsKanban CardsKanban Cards

Production Kanban CardProduction Kanban Card

Part number to produce: Part number to produce: M471-36M471-36 Part description: Part description: Valve HousingValve Housing

Lot size needed: Lot size needed: 4040 Container type: Container type: RED crateRED crate

Card number: Card number: 4 of 54 of 5 Completed storage location: Completed storage location: NW53DNW53D

From work center: From work center: 2222 To work center: To work center: 3535

Materials required:Materials required:Material no. Material no. 744B744B Storage location: Storage location: NW48CNW48CPart no. Part no. B238-5B238-5 Storage location: Storage location: NW47BNW47B

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How Kanban OperatesHow Kanban OperatesHow Kanban OperatesHow Kanban Operates

When a worker at downstream Work Center #2 needs aWhen a worker at downstream Work Center #2 needs a

container of parts, he does the following:container of parts, he does the following: He takes the C-Kanban from the container he just He takes the C-Kanban from the container he just

emptied.emptied. He finds a full container of the needed part in storage.He finds a full container of the needed part in storage. He places the C-Kanban in the full container and He places the C-Kanban in the full container and

removes the P-Kanban from the full container and removes the P-Kanban from the full container and places it on a post at Work Center #1.places it on a post at Work Center #1.

He takes the full container of parts with its C-Kanban He takes the full container of parts with its C-Kanban back to Work Center #2.back to Work Center #2.

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Flow of Kanban Cards and ContainersFlow of Kanban Cards and ContainersFlow of Kanban Cards and ContainersFlow of Kanban Cards and Containers

UpstreamUpstreamWork Center #1Work Center #1

DownstreamDownstreamWork Center #2Work Center #2

In-processIn-processstoragestorage

Parts FlowParts Flow

P-Kanban andP-Kanban andempty containerempty container

Full containerFull containerand P-Kanbanand P-Kanban

C-Kanban andC-Kanban andempty containerempty container

Full containerFull containerand C-Kanbanand C-Kanban

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Containers in a Kanban SystemContainers in a Kanban SystemContainers in a Kanban SystemContainers in a Kanban System

Kanban is based on the simple idea of replacement of Kanban is based on the simple idea of replacement of containers of parts, one at a time.containers of parts, one at a time.

Containers are reserved for specific parts, are Containers are reserved for specific parts, are purposely kept small, and always contain the same purposely kept small, and always contain the same standard number of parts for each part number.standard number of parts for each part number.

At Toyota the containers must not hold more than At Toyota the containers must not hold more than about 10% of a day’s requirements.about 10% of a day’s requirements.

There is a minimum of two containers for each part There is a minimum of two containers for each part number, one at the upstream “producing” work center number, one at the upstream “producing” work center and one at the downstream “using” work center.and one at the downstream “using” work center.

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N = Total number of containers between 2 stationsN = Total number of containers between 2 stationsU = Usage rate of downstream operationU = Usage rate of downstream operationT = Average elapsed time for container to makeT = Average elapsed time for container to make entire cycleentire cycleP = Policy variable indicating efficiency... 0 - 1P = Policy variable indicating efficiency... 0 - 1C = Capacity (number of parts) of standard containerC = Capacity (number of parts) of standard container

UT(1+P)N=

C

UT(1+P)N=

C

Calculating the Number of ContainersCalculating the Number of Containersbetween Work Centersbetween Work Centers

Calculating the Number of ContainersCalculating the Number of Containersbetween Work Centersbetween Work Centers

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Example: Number of ContainersExample: Number of ContainersExample: Number of ContainersExample: Number of Containers

There are two adjacent work centers, one of There are two adjacent work centers, one of which is fed parts from the other. The production which is fed parts from the other. The production rate of the using work center is 165 parts per hour. rate of the using work center is 165 parts per hour. Each standard Kanban container holds 24 parts.Each standard Kanban container holds 24 parts.

It takes an average of 0.6 hour for a container It takes an average of 0.6 hour for a container to make the entire cycle from the time it leaves the to make the entire cycle from the time it leaves the upstream center until it is returned, filled with upstream center until it is returned, filled with production, and leaves again. The efficiency of the production, and leaves again. The efficiency of the system is observed to be 0.2.system is observed to be 0.2.

How many containers are needed?How many containers are needed?

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Example: Number of ContainersExample: Number of ContainersExample: Number of ContainersExample: Number of Containers

Number of Containers, NNumber of Containers, N

N = UT(1 + P) / CN = UT(1 + P) / C

= 165(0.6)(1 + 0.2) / 24= 165(0.6)(1 + 0.2) / 24

= 99(1.2) / 24= 99(1.2) / 24

= 118.8 / 24= 118.8 / 24

= 4.95 or 5 containers= 4.95 or 5 containers

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Essential Elements of JIT PurchasingEssential Elements of JIT PurchasingEssential Elements of JIT PurchasingEssential Elements of JIT Purchasing

Cooperative and long-term relationship between Cooperative and long-term relationship between customer and supplier.customer and supplier.

Supplier selection based not only on price, but also Supplier selection based not only on price, but also delivery schedules, product quality, and mutual trust.delivery schedules, product quality, and mutual trust.

Suppliers are usually located near the buyer’s factory.Suppliers are usually located near the buyer’s factory. Shipments are delivered directly to the customer’s Shipments are delivered directly to the customer’s

production line.production line. Parts are delivered in small, standard-size containers Parts are delivered in small, standard-size containers

with a minimum of paperwork and in exact with a minimum of paperwork and in exact quantities.quantities.

Delivered material is of near-perfect quality.Delivered material is of near-perfect quality.

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E-Commerce and JIT PurchasingE-Commerce and JIT PurchasingE-Commerce and JIT PurchasingE-Commerce and JIT Purchasing

Internet-based information systems allow firms to Internet-based information systems allow firms to quickly place orders for materials with their suppliersquickly place orders for materials with their suppliers

This is an efficient and effective purchasing processThis is an efficient and effective purchasing process Saves the time of paperworkSaves the time of paperwork Avoids errors associated with paperworkAvoids errors associated with paperwork Reduces procurement lead timeReduces procurement lead time Reduces labor costsReduces labor costs … … and Kanbans can be sent to suppliersand Kanbans can be sent to suppliers

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Reducing InventoriesReducing Inventoriesthrough Setup Time Reductionthrough Setup Time Reduction

Reducing InventoriesReducing Inventoriesthrough Setup Time Reductionthrough Setup Time Reduction

Central to JIT is the reduction of production lot sizes Central to JIT is the reduction of production lot sizes so that inventory levels are reduced.so that inventory levels are reduced.

Smaller lot sizes result in more machine setupsSmaller lot sizes result in more machine setups More machine setups, if they are lengthy, result in:More machine setups, if they are lengthy, result in:

Increased production costsIncreased production costs Lost capacity (idle machines during setup)Lost capacity (idle machines during setup)

The answer is: REDUCE MACHINE SETUP TIMESThe answer is: REDUCE MACHINE SETUP TIMES

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Setup Time Required for an EOQSetup Time Required for an EOQSetup Time Required for an EOQSetup Time Required for an EOQ

The economic production lot size (EOQ) model The economic production lot size (EOQ) model (detailed in Chapter 14) is: (detailed in Chapter 14) is:

where:where: D = annual demand rateD = annual demand rated = daily demand rated = daily demand rate

p = daily production ratep = daily production rateC = carrying cost per unit per C = carrying cost per unit per

yearyearS = cost per setupS = cost per setup

… … moremore

2DS pEOQ =

C p-d

2DS pEOQ =

C p-d

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Setup Time Required for an EOQSetup Time Required for an EOQSetup Time Required for an EOQSetup Time Required for an EOQ

The setup The setup costcost required for a given lot size can be required for a given lot size can be derived from the EOQ model as:derived from the EOQ model as:

The setup The setup timetime can be derived from the setup cost, S: can be derived from the setup cost, S:

2C(EOQ) p-dS =

2D p

2C(EOQ) p-dS =

2D p

SSetup Time =

Labor rate

SSetup Time =

Labor rate

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Example: Setup Time RequiredExample: Setup Time RequiredExample: Setup Time RequiredExample: Setup Time Required

A firm wants to determine what the length of A firm wants to determine what the length of the setup time of an operation should be in order to the setup time of an operation should be in order to make an production lot size (EOQ) of 50 economical. make an production lot size (EOQ) of 50 economical. An analyst has made the following estimates:An analyst has made the following estimates:

D = 16,800 units (annual demand)D = 16,800 units (annual demand) d = 84 units (daily demand rate @ 200 d = 84 units (daily demand rate @ 200

days/yr)days/yr) p = 140 units (daily production rate)p = 140 units (daily production rate) C = $20 (carrying cost per unit per year)C = $20 (carrying cost per unit per year) Labor rate = $25.00/hourLabor rate = $25.00/hour

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Example: Setup Time RequiredExample: Setup Time RequiredExample: Setup Time RequiredExample: Setup Time Required

Setup Cost Required for EOQ = 50Setup Cost Required for EOQ = 502C(EOQ) p-d

S = 2D p

2C(EOQ) p-dS =

2D p

2$42(50) 140 84 = $1.25

2(16,800) 140

2$42(50) 140 84 = $1.25

2(16,800) 140

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Example: Setup Time RequiredExample: Setup Time RequiredExample: Setup Time RequiredExample: Setup Time Required

Setup Time Required for EOQ = 50Setup Time Required for EOQ = 50

.0833 hours = 5.0 minutes.0833 hours = 5.0 minutes

S $1.25Setup Time = = = 0.833 hours

Labor rate $15.00/hr

S $1.25Setup Time = = = 0.833 hours

Labor rate $15.00/hr

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Working Toward Repetitive ManufacturingWorking Toward Repetitive ManufacturingWorking Toward Repetitive ManufacturingWorking Toward Repetitive Manufacturing

Reduce setup times and lot sizes to reduce inventoriesReduce setup times and lot sizes to reduce inventories Change factory layout to allow streamlined flowsChange factory layout to allow streamlined flows Convert process-focused layout to cellular Convert process-focused layout to cellular

manufacturing (CM) centersmanufacturing (CM) centers Install flexible manufacturing systems (FMS)Install flexible manufacturing systems (FMS) ……..more..more

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Working Toward Repetitive ManufacturingWorking Toward Repetitive ManufacturingWorking Toward Repetitive ManufacturingWorking Toward Repetitive Manufacturing

Standardize parts designsStandardize parts designs Train workers for several jobsTrain workers for several jobs Implement preventive maintenance (PM) programsImplement preventive maintenance (PM) programs Install effective quality control programsInstall effective quality control programs Develop an effective subcontractor networkDevelop an effective subcontractor network

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Benefits of JITBenefits of JITBenefits of JITBenefits of JIT

Inventory levels are drastically reduced:Inventory levels are drastically reduced: frees up working capital for other projectsfrees up working capital for other projects less space is neededless space is needed customer responsiveness increasescustomer responsiveness increases

Total product cycle time dropsTotal product cycle time drops Product quality is improvedProduct quality is improved Scrap and rework costs go downScrap and rework costs go down Forces managers to fix problems and eliminate Forces managers to fix problems and eliminate

waste .... or it won’t work!waste .... or it won’t work!

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Organize Problem-Solving GroupsOrganize Problem-Solving Groups

Upgrade HousekeepingUpgrade Housekeeping

Upgrade QualityUpgrade Quality

Clarify Process FlowsClarify Process Flows

Revise Equipment and Process Technologies Revise Equipment and Process Technologies

JIT in Services (Examples)JIT in Services (Examples)JIT in Services (Examples)JIT in Services (Examples)

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Level the Facility LoadLevel the Facility Load

Eliminate Unnecessary ActivitiesEliminate Unnecessary Activities

Reorganize Physical ConfigurationReorganize Physical Configuration

Introduce Demand-Pull SchedulingIntroduce Demand-Pull Scheduling

Develop Supplier Networks Develop Supplier Networks

JIT in Services (Examples)JIT in Services (Examples)JIT in Services (Examples)JIT in Services (Examples)

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Wrap-Up: World-Class PracticeWrap-Up: World-Class PracticeWrap-Up: World-Class PracticeWrap-Up: World-Class Practice

Focus on time-based competition to capture market Focus on time-based competition to capture market shareshare

JIT method to reduce order-to-delivery cycleJIT method to reduce order-to-delivery cycle Prerequisites must be present to successfully Prerequisites must be present to successfully

implement JITimplement JIT behave like repetitive manufacturingbehave like repetitive manufacturing stable schedulesstable schedules

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End of Chapter 12End of Chapter 12End of Chapter 12End of Chapter 12