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JUST-IN-TIME

To gain and maintain a competitive advantage, firms are using the just-in-time
(JIT) philosophy, which is to eliminate waste by cutting unnecessary inventory and
removing delays in operations. The goals are to produce goods and services as needed
and to continuously improve the value-added benefits of operations. A JIT system is the
organization of resources, information flows, and decision rules that can enable an
organization to realize the benefits of the JIT philosophy. Often a crisis (such as being
faced with going out of business or closing a plant) galvanizes management and labor to
work together to change traditional operating practices. Converting from traditional
manufacturing to a just-in-time system brings up not only inventory control issues, but
also process management and scheduling issues. In this chapter we identify the
characteristics of JIT systems, discuss how they can be used for continuous improvement
of operations, and indicate how manufacturing and service operations utilize such
systems. We also address the strategic implications of JIT systems and some of the
implementation issues that companies face. Finally, we discuss the choice of an
appropriate production and inventory management system for a particular environment.

CHARACTERISTICS OF JUST-IN-TIME SYSTEMS

Just-in-time systems focus on reducing inefficiency and unproductive time in the


production process to improve continuously the process and the quality of the product or
service. Employee involvement and inventory reduction are essential to JIT operations.
Just-in-time systems are known by many different names, including zero inventory,
synchronous manufacturing, lean production, stockless production (Hewlett-Packard),
material as needed (Harley-Davidson), and continuous flow manufacturing (IBM). In this
section we discuss the following characteristics of JIT systems: pull method of material
mow, consistently high quality, small lot sizes, uniform workstation loads, standardized
components and work methods, close supplier ties, flexible work force, line flow
strategy, automated production, and preventive maintenance.

Pull Method of Materials Flow

Just-in-time systems utilize the pull method of materials flow. However, another popular
method is the push method. To differentiate between these two systems, let's first
consider the production system for a Quarter Pounder at a McDonald's restaurant. There
are two workstations. The burger maker is the person responsible for producing this
burger: Burger patties must be fried; buns must be toasted and then dressed with ketchup,
pickles, mayonnaise lettuce, and cheese; and the patties must be inserted into buns and
put on a tray. The final assembler takes the tray, wraps the burgers in paper, and restocks
the inventory. Inventories must be kept low because any burgers left unsold after seven
minutes must be destroyed.
The flow of materials is from the burger maker to the final assembler to the customer.
One way to manage this flow is by using the push method, in which the production of the
item begins in advance of customer needs. With this method, management schedules the
receipt of all raw materials (e.g., meat, buns, and condiments) and authorizes the start of

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production, all in advance of Quarter Pounder needs. The burger maker starts production
of 24 burgers (the capacity of the griddle) and, when they are completed, pushes them
along to the final assembler's station, where they might have to wait until she is ready for
them. The packaged burgers then wait on a warming tray until a customer purchases one.
The other way to manage the flow among the burger maker, the final assembler, and the
customer is to use the pull method, in which customer demand activates production of the
item. With the pull method, as customers purchase burgers, the final assembler checks the
inventory level of burgers and, when they are almost depleted, orders six more. The
burger maker produces the six burgers and gives the tray to the final assembler, who
completes the assembly and places the burgers in the inventory for sale. The pull method
is better for the production of burgers: The two workers can coordinate the two
workstations to keep inventory low, important because of the seven-minute time limit.
The production of burgers is a highly repetitive process, setup times and process times
are low, and the flow of materials is well defined. There is no need to produce to
anticipated needs more than a few minutes ahead.
Firms that tend to have highly repetitive manufacturing processes and well-defined
material flows use just-in-time systems because the pull method allows closer control of
inventory and production at the workstations. Other firms, such as those producing a
large variety of products in low volumes with low repeatability in the production process,
tend to use a push method such as MRP. In this case a customer order is promised for
delivery on some future date. Production is started at the first workstation and pushed
ahead to the next one. Inventory can accumulate at each workstation because
workstations are responsible for producing many other orders and may be busy at any
particular time.

Consistently High Quality

Just-in-time systems seek to eliminate scrap and rework in order to achieve a uniform
flow of materials. Efficient JIT operations require conformance to product or service
specifications and implementation of the behavioral and statistical methods of total
quality management (TQM). JIT systems control quality at the source, with workers
acting as their own quality inspectors. For example, a soldering operation at the Texas
Instruments antenna department had a defect rate that varied from zero to 50 percent on a
daily basis, averaging about 20 percent. To compensate, production planners increased
the lot sizes, which only increased inventory levels and did nothing to reduce the number
of defective items. Engineers discovered through experimentation that gas temperature
was a critical variable in producing defect-free items. They devised statistical control
charts for the operators to use to monitor gas temperature and adjust it themselves.
Process yields immediately improved and stabilized at 95 percent, eventually enabling
management to implement a JIT system.
Management must realize the enormous responsibility this method places on the
workers and must prepare them properly, as one GM division quickly learned. When
Buick City began using JIT in 1985, management authorized its workers to stop the
production line by pulling a cord if quality problems arose at their stations-a practice the
Japanese call andon. GM also eliminated production-line inspectors and cut the number
of supervisors by half. Stopping the line, however, is a costly action that brings a problem

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to everyone's attention. The workers weren't prepared for that responsibility; productivity
and quality took a nose-dive. The paint on Le Sabres wasn't shiny enough. The seams
weren't straight. The top of the dashboard had an unintended wave. Management, labor,
and engineering formed a team to correct the problems. Work methods were changed,
and the andon system was modified to include a yellow warning cord so that workers
could call for help without stopping the line.

Small Lot Sizes

Rather than building up a cushion of inventory, users of JIT systems maintain inventory
with lot sizes that are as small as possible. Small lot sizes have three benefits. First, small
lot sizes reduce cycle inventory, the inventory in excess of the safety stock carried
between orders (see the Inventory Management chapter). The average cycle inventory
equals one-half the lot size: As the lot size gets smaller, so does cycle inventory.
Reducing cycle inventory reduces the time and space involved in manufacturing and
holding inventory
Second, small lot sizes help cut lead times. A decline in lead-time in turn cuts pipeline
(WIP) inventory because the total processing time at each workstation is greater for large
lots than for small lots. Also, a large lot often has to wait longer to be processed at the
next workstation while that workstation finishes working on another large lot. In addition,
if any defective items are discovered, large lots cause longer delays because the entire lot
must be inspected to find all the items that need rework.
Finally, small lots help achieve a uniform operating system workload. Large lots
consume large chunks of processing time on workstations and therefore complicate
scheduling. Small lots can be juggled more effectively, enabling schedulers to utilize
capacities more efficiently. In addition, small lots allow workstations to accommodate
mixed-model production (more than one item) by reducing waiting line times for
production. We return to this point when we discuss uniform workstation loads.
Although small lot sizes are beneficial to operations, they have the disadvantage of
increased setup frequency. In operations where the setup times are normally low, as in the
McDonald's example, small lots are feasible. However, in fabrication operations with
sizable setup times, increasing the frequency of setups may result in wasting employee
and equipment time. These operations must reduce setup times to realize the benefits of
small-lot production.
Achieving low setup times often requires close cooperation among engineering,
management, and labor. For example, changing dies on large presses to form automobile
parts from sheet metal can take three to four hours. At Honda's Marysville, Ohio, plant--
where four stamping lines stamp all the exterior and major interior body panels for
Accord production--teams worked on ways to reduce the changeover time for the massive
dies. As a result, a complete change of dies for a giant 2400-ton press now takes less than
eight minutes. The goal of single-digit setup means having setup times of less than 10
minutes. Some techniques to reduce setup times include using conveyors for die storage,
moving large dies with cranes, simplifying dies, enacting machine controls, using
microcomputers to automatically feed and position work, and preparing for changeovers
while the current job is being processed.

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Uniform Workstation Loads

The JIT system works best if the daily load on individual workstations is relatively
uniform. Uniform loads can be achieved by assembling the same type and number of
units each day, thus creating a uniform daily demand at all workstations. Capacity
planning, which recognizes capacity constraints at critical workstations, and line
balancing are used to develop the monthly master production schedule. For example, at
Toyota the aggregate production plan may call for 4500 minivans per week for the next
month. That requires two full shifts, five days per week, producing 900 minivans each
day, or 450 per shift. Three models of minivans are produced: Camry (C), Avalon (A),
and Sienna (S). Suppose that Toyota needs 200 Camrys, 150 Avalons, and 100 Siennas
per shift to satisfy market demand. To produce 450 units in one shift of 480 minutes, the
line must roll out a minivan every 480/450 = 1.067 minutes.
Three ways of devising a master production schedule for the minivans are of interest
here. First, with big-lot production, all daily requirements of a model are produced in one
batch before another model is started. The sequence of 200 C's, 150 As, and 100 S's
would be repeated once per shift. Not only would these big lots increase the average
cycle inventory level, but they also would cause lumpy requirements on all the
workstations feeding the assembly line.
The second option uses mixed-model assembly, producing a mix of models in smaller
lots. Note that the production requirements are in the ratio of 4 C's to 3 A's to 2 S's, found
by dividing the model's production requirements by the greatest common divisor, or 50.
Thus the Toyota planner could develop a production cycle consisting of 9 units: 4 C's, 3
As, and 2 S's. The cycle would repeat in 9(1.067)= 9.60 minutes, for a total of 50 times
per shift (480 min/9.60 min = 50).
A sequence of C-S-C-A-C-A-C-S-A, repeated 50 times per shift, would achieve the
same total output as the other options. This third option is feasible only if the setup times
are very short. The sequence generates a steady rate of component requirements for the
various models and allows the use of small lot sizes at the feeder workstations.
Consequently, the capacity requirements at those stations are greatly smoothed. These
requirements can be compared to actual capacities during the planning phase, and
modifications to the production cycle, production requirements, or capacities can be
made as necessary.

Standardized Components and Work Methods

The standardization of components, called part commonality or modularity, increases


repeatability. For example, a firm producing 10 products from 1000 different components
could redesign its products so that they consist of only 100 different components with
larger daily requirements. Because the requirements per component increase, so does
repeatability; that is, each worker performs a standardized task or work method more
often each day. Productivity tends to increase because, with increased repetition, workers
learn to do the task more efficiently Standardization of components and work methods
aids in achieving the high-productivity, low-inventory objectives of JIT systems.

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Close Supplier Ties

Because JIT systems operate with very low levels of inventory, close relationships with
suppliers are necessary. Stock shipments must be frequent, have short lead times, arrive
on schedule, and be of high quality. A contract might require a supplier to deliver goods
to a factory as often as several times per day. Purchasing managers focus on three areas:
reducing the number of suppliers, using local suppliers, and improving supplier relations.
Typically, one of the first actions undertaken when a JIT system is implemented is to
pare the number of suppliers. Xerox, for example, reduced the number of its suppliers
from 5000 to just 300. This approach puts a lot of pressure on these suppliers to deliver
high-quality components on time. To compensate, JIT users extend their contracts with
these suppliers and give them firm advance-order information. In addition, they include
their suppliers in the early phases of product design to avoid problems after production
has begun. They also work with their suppliers' vendors, trying to achieve JIT inventory
flows throughout the entire supply chain.
Manufacturers using JIT systems generally utilize local suppliers. For instance, when
GM located its Saturn complex in Tennessee, many suppliers clustered nearby. Harley-
Davidson reduced the number of its suppliers and gave preference to those close to its
plants--for example, three-fourths of the suppliers for the Milwaukee engine plant are
located within a 175-mile radius. Geographic proximity means that the company can
reduce the need for safety stocks. Companies that have no suppliers close by must rely on
a finely tuned supplier delivery system. For example, New United Motor Manufacturing,
Incorporated (NUMMI), the joint venture between GM and Toyota in California, has
suppliers in Indiana, Ohio, and Michigan. Through a carefully coordinated system
involving trains and piggyback truck trailers, suppliers deliver enough parts for exactly
one day's production each day.
Users of JIT systems also find that a cooperative orientation with suppliers is essential.
The JIT philosophy is to look for ways to improve efficiency and reduce inventories
throughout the supply chain. Close cooperation between companies and their suppliers
can be a win-win situation for everyone. Better communication of component
requirements, for example, enables more efficient inventory planning and delivery
scheduling by suppliers, thereby improving supplier profit margins. Customers can then
negotiate lower component prices. Suppliers also should be included in the design of new
products so that inefficient component designs can be avoided before production begins.
Close supplier relations can't be established and maintained if companies view their
suppliers as adversaries whenever contracts are negotiated. Rather, they should consider
suppliers to be partners in a venture wherein both parties have an interest in maintaining a
long-term, profitable relationship.

Flexible Work Force

Workers in flexible work forces can be trained to perform more than one job. When the
skill levels required to perform most tasks are low--at a McDonald's restaurant, for
instance--a high degree of flexibility in the work force can be achieved with little
training. In situations requiring higher skill levels, such as at the Texas Instruments
antenna department, shifting workers to other jobs may require extensive, costly training.

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Flexibility can be very beneficial: Workers can be shifted among workstations to help
relieve bottlenecks as they arise without resorting to inventory buffers--an important
aspect of the uniform flow of JIT systems. Or they can step in and do the job for those on
vacation or out sick. Although assigning workers to tasks they don't usually perform may
reduce efficiency, some rotation relieves boredom and refreshes workers.

Line Flow Strategy

A line flow strategy can reduce the frequency of setups. If volumes of specific products
are large enough, groups of machines and workers can be organized into a product layout
to eliminate setups entirely. If volume is insufficient to keep a line of similar products
busy, group technology can be used to design small production lines that manufacture, in
volume, families of components with common attributes. Changeovers from a component
in one product family to the next component in the same family are minimal.
Another tactic used to reduce or eliminate setups is the one-worker, multiple machines
(OWMM) approach, which essentially is a one-person line. One worker operates several
machines, with each machine advancing the process a step at a time. Because the same
product is made repeatedly, setups are eliminated. For example, in a McDonald's
restaurant the person preparing fish sandwiches uses the OWMM approach. When the
signal is given to produce more fish sandwiches, the employee puts the fish patties into
the fish fryer and sets the timer. Then while the fish are frying, he puts the buns into the
steamer. When the buns are finished, he puts them on a tray and dresses them with
condiments. When the fish patties are ready, he inserts them into the buns. He then places
the completed sandwiches on the shelf for the final assembler to package for the
customer. The cycle is repeated throughout the day.

Automated Production

Automation plays a big role in JIT systems and is a key to low-cost production. Sakichi
Toyoda, the founder of Toyota, once said, "Whenever there is money, invest it into
machinery. " Money freed up because of JIT inventory reductions can be invested in
automation to reduce costs. The benefits, of course, are greater profits, greater market
share (because prices can be cut), or both. Automation should be planned carefully,
however. Many managers believe that if some automation is good, more is better. That
isn't always the case. When GM initiated Buick City, for example, it installed 250 robots,
some with vision systems for mounting windshields. Unfortunately, the robots skipped
black cars because they couldn't "see" them. New software eventually solved the
problem; however, GM management found that humans could do some jobs better than
robots and replaced 30 robots with humans. That lesson carried over to GM's Opel plant
in Eisenach, Germany, where radiators and windshields are now installed by hand.

Preventive Maintenance

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Because JIT emphasizes finely tuned mows of materials and little buffer inventory
between workstations, unplanned machine downtime can be disruptive. Preventive
maintenance can reduce the frequency and duration of machine downtime. After
performing routine maintenance activities, the technician can test other parts that might
need to be replaced. Replacement during regularly scheduled maintenance periods is
easier and quicker than dealing with machine failures during production. Maintenance is
done on a schedule that balances the cost of the preventive maintenance program against
the risks and costs of machine failure.
Another tactic is to make workers responsible for routinely maintaining their own
equipment and develop employee pride in keeping their machines in top condition. This
tactic, however, typically is limited to general housekeeping chores, minor lubrication,
and adjustments. Maintenance of high-tech machines needs trained specialists. Doing
even simple maintenance tasks goes a long way toward improving machine performance,
though.

CONTINUOUS IMPROVEMENT WITH JUST-IN-TIME SYSTEMS

By spotlighting areas that need improvement, JIT systems lead to continuous


improvement in quality and productivity. In manufacturing, eliminating the problem of
too much scrap might require improving work methods, employee quality training, and
supplier quality. The desire to eliminate capacity imbalances might focus attention on the
master production schedule and work force flexibility. Reducing unreliable deliveries
calls for cooperating better with suppliers or replacing suppliers. Maintaining low
inventories, periodically stressing the system to identify problems, and focusing on the
elements of the JIT system lie at the heart of continuous improvement. For example, the
Kawasaki plant in Nebraska periodically cuts safety stocks almost to zero. Problems are
exposed, recorded, and later assigned as improvement projects. After the improvements
have been made, inventories are permanently cut to the new level. The Japanese have
used this trial-and-error process to develop more efficient manufacturing operations.
Service operations that are integral to both manufacturing and service organizations,
including scheduling, billing, order taking, accounting, and financial tasks, also can be
improved with JIT systems. As in manufacturing, continuous improvement means that
employees and managers continue to seek ways to improve operations. However, the
mechanics of highlighting the areas needing improvement are different. In service
operations, a common approach used by managers to place stress on the system is to
reduce the number of employees doing a particular operation or series of operations until
the process begins to slow or come to a halt. The problems can be identified, and ways
for overcoming them can be explored.

JUST-IN-TIME IN SERVICES

The just-in-time philosophy also can be applied to the production of services. We have
already discussed some of the elements of the JIT system used in a McDonald's
restaurant. In general, service environments may benefit from JIT systems if their
operations are repetitive, have reasonably high volumes, and deal with tangible items
such as sandwiches, mail, checks, or bills. In other words, the services must involve

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"manufacturing-like'' operations. Other services involving a high degree of
customization, such as haircutting, can also make use of JIT systems but to a lesser
degree--basically utilizing elements of JIT systems in their operations.
The focus of JIT systems is on improving the process; therefore some of the JIT
concepts useful for manufacturers are also useful for service providers. These concepts
include the following.

· Consistently high quality. Benchmarking, service design, and quality function


deployment can be used successfully in service operations. Service employees can be
taught the value of providing defect-free services.

· Uniform facility loads. Reservation systems and differential pricing are two ways in
which service providers can level the loads on their facilities.

· Standardized work methods. In highly repetitive service operations, great efficiencies


can be gained by analyzing work methods and standardizing improvements for all
employees to use. For example, UPS consistently monitors work methods and revises
them as necessary to improve service.

· Close supplier ties. Volume services such as fast-food restaurants and mass
merchandisers such as Wal-Mart and Kmart require close supplier contacts to ensure
frequent, short lead-time and high-quality shipments of supplies.

· Flexible work force. The more customized the service, the greater is the need for a
multi-skilled work force. For example, stereo component repair shops require broadly
trained personnel who can identify a wide variety of problems and then repair the
defective unit. The employees at a sectional center post office have more narrowly
defined jobs because of the repetitive nature of the tasks they must perform, and thus they
do not have to acquire many alternative skills.

· Automation. Automation can play a big role in providing just-in-time services. For
example, banks offer ATMs that provide various bank services on demand 24 hours a
day.

· Preventive maintenance. Services that are highly dependent on machinery can make
good use of routine preventive maintenance. For example, entertainment services such as
Walt Disney World must have dependable people-moving apparatus to accommodate
large volumes of customers.

· Pull method of material flows. Service operations where tangible items are processed,
such as fast-food restaurants, can utilize the pull method.

· Line flow strategy. Managers of service operations can organize their employees and
equipment to provide uniform flows through the system and eliminate wasted employee
time. Banks use this strategy in their check processing operations, as does UPS in its
parcel-sorting process.

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STRATEGIC IMPLICATIONS OF JUST-IN-TIME SYSTEMS

When corporate strategy centers on dramatic improvements in inventory turnover and


labor productivity, a just-in-time philosophy can be the solution. Just-in-time systems
form an integral part of corporate strategies emphasizing time-based competition because
they focus on cutting cycle times, improving inventory turnover, and increasing labor
productivity. In this section we consider competitive priorities and flow strategy, as well
as the overall benefits of JIT systems.

Competitive Priorities

Low cost and consistent quality are the priorities emphasized most often in JIT systems.
Superior features and volume flexibility are emphasized less often. The ability to provide
product variety depends on the degree of flexibility designed into the production system.
Such is the case with firms using an assemble-to-order strategy. For example, mixed-
model automobile assembly lines allow variety in output in terms of color, options, and
even body style. Production to customized, individual orders, however, usually isn't
attempted with a JIT system. Generally, items produced with a JIT system are standards
rather than specials, produced to support a shipping schedule. The erratic demand and
last-minute rush jobs of customized orders in a make-to-order environment don't link
well with a system designed to produce at a constant daily rate utilizing low inventory
buffers.

Flow Strategy

A JIT system involves a line flow strategy to achieve high-volume, low-cost production.
Workers and machines are organized around product flows and arranged to conform to
the sequence of work operations. With line flows, a unit finished at one station goes
almost immediately to the next station, thereby reducing manufacturing lead-time and
inventory. Process repetition makes opportunities for methods improvement more visible.

Operational Benefits Just-in-time systems have many operational benefits. They


· reduce space requirements;
· reduce inventory investment in purchased parts, raw materials, work in process, and
finished goods;
· reduce manufacturing lead times;
· increase the productivity of direct labor employees, indirect support employees, and
clerical staff;
· increase equipment utilization;
· reduce paperwork and require only simple planning systems;
· set valid priorities for production scheduling;
· encourage participation by the work force; and

· increase product quality.

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One goal is to drive setup times so low that a production size of one end unit or part
becomes economical. Although this goal is rarely achieved, the focus still is on small-lot
production. In addition, constant attention is given to cutting safety stock and WIP
inventory between manufacturing processes. The result is less need for storage space and
inventory investment. Smaller lot sizes and smoothed flows of materials help reduce
manufacturing lead times, increase work-force productivity, and improve equipment
utilization.
A primary operational benefit is the simplicity of the system: Product mix or volume
changes planned by the MPS can be accomplished by adjusting the number of kanbans in
the system. The priority of each production order is reflected in the sequence of the
kanbans on the post. Production orders for parts that are running low are placed before
those for parts that have more supply.
Just-in-time systems also involve a considerable amount of work-force participation on
the shop floor. Small-group interaction sessions encourage worker participation and have
resulted in improvements in many aspects of manufacturing, not the least of which is
product quality. Overall, the advantages of JIT systems have caused many managers to
reevaluate their own systems and consider adapting operations to the JIT philosophy.

IMPLEMENTATION ISSUES

The benefits of JIT systems seem to be outstanding, yet problems can arise even after a
JIT system has long been operational. Even the Japanese, who pioneered JIT practices in
the automobile industry, aren't immune from problems: Tokyo is experiencing
monumental traffic jams owing in large measure to truck deliveries to JIT
manufacturers--small trucks make up 47 percent of Tokyo's traffic. In this section we
address some of the issues managers should be aware of when implementing a JIT
system.

Organizational Considerations

Implementing a JIT system requires management to consider issues of worker stress,


cooperation and trust among workers and management, and reward systems and labor
classifications.

Human Costs of JIT Systems. Just-in-time systems can be coupled with statistical process
control (SPC) to reduce variations in production. However, this combination requires a
high degree of regimentation and sometimes causes stress in the work force. In a JIT
system, workers must meet specified cycle times, and with SPC they must follow
prescribed problem-solving methods. Such systems might make workers feel pushed and
stressed, causing productivity losses or quality reductions. In addition, workers might feel
that they have lost some autonomy because of the close linkages in materials flows
between stations with little or no safety stocks. Managers can mitigate some of these
effects by allowing slack in the system through the judicious use of safety stock
inventories and by emphasizing materials flows instead of worker pace. Managers also
can promote the use of work teams and allow them to determine their task assignments or
rotations within the team's domain of responsibility.

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Cooperation and Trust. In a JIT system workers and first-line supervisors must take on
responsibilities formerly assigned to middle managers and support staff. Activities such
as scheduling, expediting, and improving productivity become part of the duties of lower
level personnel. Consequently, organizational relationships must be reoriented to build
close cooperation and mutual trust between the work force and management. Such
cooperation and trust may be difficult to achieve, particularly in light of the typical
adversarial positions taken by labor and management in the past. For example, the Mazda
plant in Flat Rock, Michigan, was experiencing quality problems in August 1988. Greater
absenteeism than the Japanese expected and inexperience of the work force were cited as
major contributors. Some people felt that the real problem was a lack of understanding of
the American culture by Japanese managers. As the president of UAW Local 3000 put it,
"To the Japanese, work is the most important part of life, and they expect everybody to
be as dedicated as they are. But to Americans, the job is there to support your life on the
outside."

Reward Systems and Labor Classifications. In some instances the reward system must be
revamped when a JIT system is implemented. At General Motors, for example, a plan to
reduce stock at one plant ran into trouble because the production superintendent refused
to cut back production of unneeded parts; his salary was based on his plant's production
volume.
The realignment of reward systems isn't the only hurdle. Labor contracts traditionally
have reduced management's flexibility in reassigning workers as the need arises. A
typical automobile plant in the United States has several unions and dozens of labor
classifications. To gain more flexibility, management in some cases has obtained union
concessions by granting other types of benefits. In other cases management has relocated
plants to take advantage of nonunion or foreign labor. In contrast, at Toyota management
deals with only one company union, and there are only eight different labor
classifications in a typical plant.

Process Considerations

Firms using J1T systems typically have some dominant materials flows. To take
advantage of JIT practices, firms might have to change their existing layouts. Certain
workstations might have to be moved closer together, and cells of machines devoted to
particular families of components. The single most important factor in successful
implementation is changing product flows and layout to a cellular design. However,
rearranging a plant to conform to JIT practices can be costly. For example, whereas many
plants now receive raw materials and purchased parts by rail, to facilitate smaller, more
frequent JIT shipments, truck deliveries would be preferable. Loading docks might have
to be reconstructed or expanded and certain operations relocated to accommodate the
change in transportation mode and quantities of arriving materials.

Inventory and Scheduling

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Firms need to have stable master production schedules, short setups, and frequent,
reliable supplies of materials and components to achieve the full potential of the JIT
concept.

MPS Stability. Daily production schedules in high-volume, make-to-stock environments


must be stable for extended periods. At Toyota the master production schedule is stated
in fractions of days over a three-month period and is revised only once a month. The first
month of the schedule is frozen to avoid disruptive changes in the daily production
schedule for each workstation; that is, the workstations execute the same work schedule
each day of the month. At the beginning of each month, kanbans are reissued for the new
daily production rate. Stable schedules are needed so that production lines can be
balanced and new assignments found for employees who otherwise would be
underutilized. Just-in-time systems used in high-volume, make-to-stock environments
can't respond quickly to scheduling changes because little slack inventory or capacity is
available to absorb these changes.

Setups. If the inventory advantages of a JIT system are to be realized, small lot sizes
must be used. However, because small lots require a large number of setups, companies
must significantly reduce setup times. Some companies haven't been able to achieve short
setup times and therefore have to use large-lot production, negating some of the
advantages of JIT practices. Also, JIT systems are vulnerable to lengthy changeovers to
new products because the low levels of finished goods inventory will be insufficient to
cover demand while the system is down. For example, Ford and GM are at a competitive
disadvantage because of the time they need to change from one year's model to the next.
GM required 87 days to change from the 1994 Chevrolet Lumina to the 1995 model, and
Ford required 60 days to change from the 1994 Tempo to the Mystique, its 1995
replacement. In contrast, Toyota changed from the 1991 Camry to the 1992 version in 18
days, and Honda switched from the 1993 Accord to the 1994 model in only 3 days. Every
month that a plant is shut down costs between $65 million and $85 million in pretax
profits.

Purchasing and Logistics. If frequent, small shipments of purchased items cannot be


arranged with suppliers, large inventory savings for these items can't be realized. In the
United States such arrangements may prove difficult because of the geographic
dispersion of suppliers.
The shipments of raw materials and components must be reliable because of the low
inventory levels in JIT systems. A plant can be shut down because of a lack of materials.
For example, in 1992, a strike at the GM plant in Lordstown, Ohio, caused the Saturn
plant in Spring Hill, Tennessee, to shut down, losing the production of 1000 cars per day.
Lordstown supplies parts to Saturn, which doesn't stockpile the parts because of JIT
practices.

MRP VERSUS JIT

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Is a choice between a push system and a pull system necessary? Actually, these methods
aren't mutually exclusive, and the best solution often is a hybrid of the strengths of both
approaches. MRP II systems are good at overall materials planning and data management
and can be used to support the informational needs of various functional areas in the firm.
MRP systems can be used effectively to understand the implications of lot-sizing
decisions and master scheduling changes on overall inventories and capacity. In contrast,
JIT systems are a less expensive, more effective way to control materials flows on the
shop floor. A JIT system can be used to maintain low levels of inventory and to adjust
production rates over time.
The nature of the production process determines the appropriate system. For line flows,
order releases don't change from week to week, so a rate-based system such as JIT works
well. Although MRP is an effective technique for scheduling production on a weekly
basis, scheduling of daily requirements within each specific week is left to production
supervisors. At this level, the shop floor level, a pull system is more useful than MRP In a
repetitive manufacturing environment with reasonably stable but varying schedules, a
hybrid system may be appropriate. MRP could be used for order release, as schedules
change, or for coordinating with suppliers on long-lead-time items. Pull methods could be
used for actual materials mows on the shop floor. Names such as synchro-MRP, rate-
based MRP II, and JITMRP have been used to describe these hybrid systems.
In environments where materials flows are complex and demands are highly variable,
MRP is the system of choice. The materials flows are too complex for a JIT system, and
pull techniques can't cope with the demand and lead time variability. In addition, the shop
floor requires sophisticated tracking and scheduling capability.

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