Section C
Just-in-Time (JIT) Manufacturing
Definition: A production strategy minimizing inventory and maximizing efficiency, producing goods only when needed.
Origin: Developed in Japan, popularized by Toyota in the 1970s.
Key Philosophy: "Right material, at the right time, in the right place, and in the exact amount."
Principles of JIT Manufacturing
Demand-Pull System: Production driven by actual customer demand.
Elimination of Waste: Focus on reducing waste like overproduction, waiting time, and excess inventory.
Continuous Improvement (Kaizen): Emphasis on quality and efficiency.
Close Supplier Relationships: Ensures timely material delivery.
Advantages and Disadvantages of JIT
Advantages:
Reduced inventory costs.
Improved cash flow and ROI.
Enhanced product quality and customer satisfaction.
Greater flexibility to adapt to market changes.
Disadvantages:
High reliance on suppliers.
Zero tolerance for delays or errors.
Requires advanced planning and technological support.
Applications and Examples of JIT
Applications:
Automotive industry (e.g., Toyota Production System).
Electronics manufacturing.
Retail and supply chain management.
Examples:
Toyota's JIT system for lean manufacturing.
Dell's build-to-order model in computer manufacturing.
Business Process Reengineering (BPR)
Definition: A strategic approach redesigning business processes for dramatic improvements in performance, efficiency, and customer satisfaction.
Objective: Radical restructuring of workflows and operations.
Origin: Popularized by Michael Hammer and James Champy in the 1990s.
Key Principles of BPR
Process-Centric: Focus on holistic processes instead of individual tasks.
Radical Redesign: Challenge traditional assumptions to create new frameworks.
Use of Technology: Leverage advanced technologies for automation and innovation.
Customer-Driven: Prioritize customer needs and satisfaction.
Advantages and Disadvantages of BPR
Advantages:
Streamlined workflows and reduced costs.
Improved quality and faster response times.
Enhanced competitiveness in the market.
Disadvantages:
High implementation costs and time.
Resistance to change from employees.
Risk of failure due to poor planning or execution.
Examples and Applications of BPR
Applications:
Manufacturing: Automating production processes for efficiency.
Retail: Redesigning supply chain management to reduce lead times.
Service Industries: Digital transformation of customer support.
Examples:
Ford Motor Company's accounts payable process reengineering.
Kodak’s transformation to adapt to digital photography trends.
Lean Synchronization
Emerged post-World War II due to resource shortages in Japan's automobile sector.
Toyota developed the concept of optimizing resources by eliminating waste.
Lean Manufacturing now applies enterprise-wide, including supply chain, product development, and services.
Aim: Delivering customer needs exactly, minimizing costs.
Focus:
Elimination of waste.
Resource involvement.
Continuous process improvement.
Emphasizes working smarter, focusing on value.
Goal: Perfect value process with zero waste, adapting to customer changes with high quality, variety, low cost, and fast throughput.
Lean Synchronization Definition
"Lean synchronization is the aim of achieving the flow of products and services which is able to deliver exactly what customers want, in exact quantities, exactly when needed, exactly where required at the lowest possible cost"
Lean Principles in Hospital Operations
Objectives:
Reduce patient wait time.
Reduce costs and increase savings.
Improve staff efficiency.
Value stream assessment to identify waste in patient recovery and treatment.
Identified Wastes in Hospital Operations
Extra work for simple tasks.
Unnecessary tests.
Patient waiting times.
Redundancy in treatment.
Recommendations to Eliminate Waste in Hospitals
Avoid complex equipment.
Perform only necessary tests.
Ensure equipment readiness.
Ensure correct implementation in the first attempt.
Tools for Lean Manufacturing
Kaizen:
Continuous improvement in quality, technology, processes, productivity, culture, and safety.
Originated in post-WWII Japan.
Features:
Employee involvement from all levels.
Improvement suggestions from all areas.
Kaizen Events for rapid change (1-2 weeks).
5S System:
Improves efficiency through workplace organization and cleanliness.
Five guidelines: Sort, Set, Shine, Standardize, Sustain.
Kanban:
Visual production system for as-needed part delivery.
Ensures workers have necessary parts when needed.
Historically used cards to signal demand for new parts.
Quality
Begins with product design according to customer specifications and includes measurement standards, proper materials, and manufacturing processes.
Relative term referring to end-use of the product.
Definitions:
Crosby: “Quality is conformance to requirement or specifications”.
Juran: “Quality is fitness for use”.
Overall: “The Quality of a product or service is the fitness of that product or service for meeting or exceeding its intended use as required by the customer.”
Predictable uniformity and dependability at low cost.
Importance of Quality
Maintains customer satisfaction and loyalty.
Reduces costs of replacing faulty goods.
Builds a company reputation through recognized quality standards.
Meets customer expectations by delivering well-made products or services.
Quality and Customer Satisfaction
Critical for customer satisfaction and loyalty.
Customers seek alternatives if expectations aren't met.
Reputation and Industry Standards
Quality affects company reputation, visible on social media and review sites.
Adherence to standards is essential for specific customers or compliance.
Cost Management and Quality
Poor quality increases costs from analyzing, reworking, or scrapping defective products.
Quality Management
Achieving high quality requires proper management of the production process.
Involves controlling activities to ensure products and services are fit for purpose and meet specifications.
Two main approaches:
Quality control.
Quality assurance.
Quality control
Definition: Inspecting products to ensure they meet required quality standards.
Traditional management method involving checking and reviewing production.
Focuses on detecting defective output.
Quality Control and Inspection Points
Used when:
Raw materials are received before production.
Products are going through production.
Products are finished before dispatch.
Problems with Quality Inspection
Costly, often too late in the process.
Inconsistent inspections.
Not compatible with modern production systems.
Inspectors, not workers, perform inspections.
Quality Assurance
Definition: Processes ensuring production quality meets customer requirements.
Quality Assurance vs. Quality Control
Quality Assurance:
Focus on processes.
Achieved by improving production processes.
Targeted at the whole organization.
Emphasizes the customer.
Quality is built into the product.
Quality Control:
Focus on outputs.
Achieved by sampling & checking (inspection).
Targeted at production activities.
Emphasizes required standards.
Defect products are inspected out
Total Quality Management (TQM)
A management philosophy committed to continuous improvement of products and services with full workforce involvement.
Whole business understands need for quality.
Everyone ensures quality at every stage, not just inspectors.
Advantages of TQM
Puts customer at the heart of the process.
Motivational as workers are involved in decisions.
Less wasteful than discarding defective products.
Eliminates inspection costs.
Disadvantages of TQM
Requires strong leadership, often lacking.
Needs substantial investment in training, with delayed ROI.
May become bureaucratic.
Disruption and costs may outweigh benefits.
Inventory Management
Systematic approach to sourcing, storing, and selling inventory (raw materials and finished goods).
Involves having the right stock levels, in the right place, at the right time, at the right cost and price.
Inventory Definition
A stock of items held to meet future demand.
List of goods and materials available in stock.
Types of Inventory
Raw Materials.
Work in Progress.
Finished Goods.
Supplies.
Nature of Inventories
Raw Materials: Basic inputs converted into finished products.
Work-in-Progress: Semi-manufactured products needing further work.
Finished Goods: Ready-for-sale products.
Supplies: Materials necessary for production that don't significantly affect investment.
Reasons to Hold Inventory
Meet variations in customer demand (unexpected, seasonal or cyclical).
Pricing considerations (discounts, hedging against increases, quantity discounts).
Process & supply disruptions (internal or external).
Objective of Inventory Management
Maintain an optimal inventory size for efficient production and sales.
Minimize investment in inventories to maximize profitability.
Order at the right time, from the right source, at the right quantity, price, and quality.
Effective Inventory Management
Ensures continuous raw material supply.
Maintains sufficient stock during shortages and anticipates price changes.
Maintains sufficient finished goods for sales and customer service.
Minimizes carrying costs and time.
Controls investment and keeps it at an optimum level.
Optimum Inventory Level Costs
Ordering Costs:
Quotation or tendering.
Requisitioning.
Order placing.
Transportation.
Receiving, inspecting and storing.
Quality control.
Clerical and staff.
Carrying Costs:
Warehousing or storage.
Handling.
Clerical and staff.
Insurance.
Interest.
Deterioration, shrinkage, evaporation and obsolescence.
Taxes.
Cost of capital.
Stock-out Costs:
Loss of sale.
Failure to meet delivery commitments.
Dangers of Over-Investment
Unnecessary tie-up of funds.
Excessive carrying costs.
Risk of liquidity.
Physical deterioration due to mishandling.
Dangers of Under-Investment
Production delays (loss of labor hours).
Failure to meet delivery commitments.
Loss of customers shifting to competitors.
Functions of Inventory Management
Track inventory.
Determine order quantities.
Determine order timing.
Classification of Inventory
ABC Classification.
HML Classification.
XYZ Classification.
VED Classification.
FSN Classification.
SDF Classification.
GOLF Classification.
SOS Classification.
XYZ Classification
Based on the value of inventory stored.
X - High Value.
Y - Medium value.
Z - Least value.
Aimed to identify items which are extensively stocked.
HML Classification
On the basis of unit value of item.
H-High, M- Medium, L - Low.
VED Classification
Mainly for spare parts.
V items has to be stocked more and D Items has to be less stocked
V Vital, E- Essential, D - Desirable.
FSN Classification
According to the consumption pattern.
Combat obsolete items
F - Fast moving
S - Slow moving
N - Non Moving
SDF & GOLF Classification
Based on source of procurement
S - Scarce, D- Difficult, E- Easy.
GOLF
G - Government, O - Ordinary, L - Local, F - Foreign.
SOS Classification
Raw materials especially for agriculture units
S - Seasonal
OS - Off seasonal
Inventory Management Models
Failure to apply the correct model will produce errors.
Inventory Management Formulas
Basic EOQ Model:
Assumptions:
Seasonal fluctuation in demand are ruled out.
Zero lead time - Time lapsed between purchase order and inventory usage.
Cost of placing an order and receiving are same and independent of the units ordered.
Annual cost of carrying the inventory is constant
Total inventory cost = Ordering cost + carrying cost
Economic Order Quantity (EOQ) Formula
Where:
= Demand rate (quantity sold per year)
= Setup or order costs (per order, generally includes shipping and handling)
= Holding or carrying costs (per year, per unit)
EOQ - Three Approaches
Trial and Error method.
Order-formula approach.
Graphical approach.
EOQ & Re-Order Point
EOQ - gives answer to question "How much to Order"
Re-order point - gives answer to question "when to order"
Trial & Error Method
Calculates total annual cost for different order sizes to find the minimum cost.
Safety Stock & Safety Lead Times
Safety stock and safety lead time are both hedges.
Safety lead time is more based on the uncertainty in the timing rather than the quantity.
Safety stock tends to be used in MRP where uncertainty about quantities is the problem - scrap.
Safety Stock Reasons - Components
Not all demand is dependent - spares may have a service requirement that has an independent demand.
Variable lead times form suppliers due to uncertainty.
Firms may experience machine breakdowns, scrap or last minute customer changes.
Inventory Control Systems
Continuous system
constant amount ordered when inventory declines to predetermined level.
Periodic system
order placed for variable amount after fixed passage of time.
Reorder Point
Reorder Point - When the quantity on hand of an item drops to this amount, the item is reordered.
Safety Stock Stock that is held in excess of expected demand due to variable demand rate and/or lead time.
Service Level - Probability that demand will not exceed supply during lead time. .