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Just In Time, or Just In Case
Written by: Jack GreeneArticle Overview: The modern system of inventory control is Just in Time, from the Toyota Production System. The vendor ships just in time for the operation to process and assemble components. It is generally agreed that JIT demands the utmost in close scheduling, reliable vendors and supply chain cooperation; and results in best floor space utilization, lowest capital tied up in inventory, least spoilage and product damage, and best quality because any errors are caught more quickly. The alternative is Just In Case; inventory is ordered in advance to allow for eventualities. Your organization probably depends on some of each.
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Just In Time, or Just In Case
Just In Time, or Just In Case
The modern system of inventory control is Just in Time, from
the Toyota Production system. At best the vendor ships just in time for the
operation to process and assemble components, and finished goods immediately go
out to the customer. It is generally agreed that JIT demands the utmost in
close scheduling, reliable vendors and supply chain cooperation; and results in
best floor space utilization, lowest capital tied up in inventory, least
spoilage and product damage, and best quality because any errors are caught
more quickly.
The alternative is Just In Case; inventory is ordered in
advance to allow for eventualities.
The most appropriate
inventory system will depend on the unique circumstances of an organization,
its products, vendors, and geography. But your organization probably depends on
some of each
1. Products and their effect on inventory control.
A product with many component specification changes is
better satisfied by a Just in Time system, which has more frequent shipments
and smaller inventories on hand, so a spec change can be translated to the
product more quickly. A spec change won't obsolete as many parts.
Products with a low incidence of changes to go out of date may be satisfied by Just in
Case.
2. Geography
Near-by vendors fit a JIT system well, as they have a
shorter distance, and less hazard of weather, social, or political impedances.
Vendors further away will cause a longer lead time to
account for shipping, or cost more to use faster shipment methods. With a
longer lead time, there is greater hazard of damage, product obsolescence, and
of course inventory carrying cost.
3. Vendors
Vendors who are capable of the quick reaction, fast changes,
low cycle time typically required by JIT are valuable in any case, to meet any
quick schedule change. But even they will request a long term production plan,
into which they will fit their short term deliveries. Remember that they do not
like schedule changes any more than you do, and the reaction to your changes
will be affected by their other customers as well as their basic capacity and
changeover capability.
The first course, Purchasing 101 says on the first page,
"Thou shalt have at least two vendors for each part". JIT may be a
sticking point for some vendors, and it may be harder to keep two vendors, each
able to provide reliably.
4. Valuable, or commodity components
Commodity items, defined as being widely available for a
basic price, lend themselves easily to JIT purchases. If a construction
material, or standard bolt or screw is available at a chain store a few blocks
away, there is no reason to stock large quantities. For many line items, the
simple two-bin inventory plan works just fine; use from one bin and keep
another in stores, and when the first is depleted, issue from the second and
buy a replacement quantity.
Items in an ABC breakdown may be rated A or B or C because
of price, usage volume, floor space consumed, lead time, number of vendors who
can make the part, technology, complexity. Don't overlook the supply parts, those
not part of the product but perhaps a replacement part for a critical machine.
Such parts should be kept Just in Case to avoid the serious potential of an
interruption to production.
5. Set up and batch costs
Don't overlook the old concept of Economic Order Quantity.
This equation requires that you know the costs or ordering and of the changeover
between batches. Even in this era of JIT and Single Minute Change of Die, EOQ
can be valuable. An excellent article by Dave Piasecki of InventoryOps about it’s uses and
misuse within modern inventory control systems.
Some components, for instance shipping cartons, still have a
set up cost as part of their pricing. Cartons also are frequently purchased
locally to reduce shipping cost. Large batches cut acquisition cost but raises
storage and balance sheet value; smaller batches can be delivered JIT but at a
higher acquisition cost. Reach the optimum price for these components by
balancing cost and delivery.
6. Sales forecasting
In either JIT or JIC, a firm output forecast is vital to low
costs. Forecasting can be difficult and subject to error at best, but failure
to establish a firm (or frozen) forecast for a short term such as the next
month will increase production costs. Setup and changeover cost will rise,
scrap and down time are likely to increase.
7. Your computerized inventory control system and JIT
Please consider whether or not JIT is compatible with MRP,
or ERP, or whatever computer software you rely on. Just ask the question of
your inventory control system supplier, and listen carefully to the answers you
get; to the practicality of the implementation suggestions; and judge for
yourself whether you will reach the planned financial and organizational
benefits of both systems at the same time.
Thanks for
your attention; I'm happy to add to your perspective of
industrial engineering and productivity.
Jack
Greene Jackson
Productivity Research Inc.
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Article Tags: inventory sytems, JIT, just in time, manufacturing inventory, production inventory
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About the Author: Jack Greene RSS for Jack's articles - Visit Jack's website  Mr. Greene's articles demonstrate how principles of industrial engineering and productivity achieve results, and reflect consulting assignments with Fortune 250 companies, and much smaller ones, in industry, construction, government, service, and hotels. Jack Greene is the author of books on Amazon in print and Kindle editions; click these links and read about the books and what's inside. Plant Design, Facility Layout, Floor Planning. http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dstripbooks&field-keywords=Plant+Design%2C+Facility+Layout%2C+Floor+Planning&x=17&y=18 Cost Reduction How to Survive, Recover, and Thrive, Time and Motion Study What, Why, and How-To A client will expect certain results from a consultant, and these articles outline what may be expected from JPR because they reflect our experience, business approach and services. We offer hands-on consultancy, to lead or participate in activity; or if you choose we can train your resources to perform the work in-house. Jackson Productivity Research Inc., at http://jacksonproductivity.com, welcomes inquiry about practical actions to accomplish your organization's objectives and scope, within your timetable and budget. Please email jack@jacksonproductivity.com
Click here to visit Jack's website   Can a productivity consultant add enough value to justify the fee Offshoring and the tough questions to answer Priority Pareto and the Gorilla List Give the supervisor what he needs Relocate for cost reasons or to access qualified employees or support |
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