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Manufacturing Strategies for Supply Chain Management: JIT and Lean Manufacturing
Just In Time Manufacturing
Just-In-Time (JIT) is a manufacturing philosophy originally developed in Japan that aims to minimize problems by scheduling manufacturing at just the right time. If manufacturing occurs too far in advance, extra costs result due to inventory holding costs that will be incurred. On the other hand, if manufacturing occurs too late, the business will incur the opportunity cost of lost sales. Thus, it’s best to schedule manufacturing within the right timeframe. Companies utilizing a JIT mindset have shorter setup and lead times. The reduced need for inventory space also saves money.
The idea behind JIT is that holding high levels of safety stock inventory is a little like a slapping a fresh coat of paint on a rotting wooden shed – you’re not actually fixing the problem, just covering it up. Safety stock inventory is designed to prevent loss of sales in case of issues like inaccurate demand forecasts, supplier delays, or poor product quality. The JIT philosophy reasons that instead of incurring holding costs and risking product obsolescence by keeping high levels of safety stock, companies should instead focus on fixing the underlying supplier-side problems so they can keep safety stock holdings to a minimum.
JIT is a comprehensive approach involving three separate elements:
In terms of people, JIT requires a changed mindset from “traditional” manufacturing and sourcing practices to newer strategic sourcing and manufacturing ideals. For a business to have success with JIT, all employees need to be on board and work to alter existing mindsets.
Just In Time manufacturing also requires the plant layout to be modified to better suit the new objectives. Layout is based on product (whereas classically, it was based on process) because of the JIT focus on demand-pull manufacturing (wherein items are pulled to workstations only when they are needed). Worker flexibility is an important consideration as well.
JIT isn’t the only strategy that manufacturing managers can use to improve quality and cut costs. Lean Manufacturing is the process of reducing waste – IE, cutting out the “fat” and becoming a lean manufacturing entity. It involves optimizing methods and machinery to reduce waste and improve quality.
Lean thinking is a shift towards the idea of Total Quality Management (TQM). The definition of TQM (taken from Michael Kirchner’s article on the topic) is: “a well-planned, companywide process, integrated into the company's business plan, that achieves the goal of never-ending continuous improvement of all business processes in order to satisfy customer requirements, both internal and external.”
TQM is a shift from previous thinking because it is a proactive approach to quality management rather than a retroactive one.
There are six categories a business should target for reducing waste:
- Defects (quality problems)
- Excess motion
- Excess transport
- Unnecessary processing
Improvements can be made in Inventory/WIP by reducing excess holdings. Improvements can be made in overproduction (too much production) by obtaining more accurate demand forecasts so JIT principles can be utilized. Defects and quality problems can be resolved with strategic sourcing as well as careful quality monitoring. Excess motion, which occurs when people or machinery have to move around the plant too much, can be fixed by examining plant layout. Excess transport (shipping products when it isn’t required) can be reduced by streamlining the overall supply chain. Finally, unnecessary processing can be reduced by updating machinery.
Loss Reduction Tools: Analysis for Improving Performance
There are three useful tools that managers can use to analyze the causes behind manufacturing problems. Solving these causes will lead to increased performance.
The first tool is the 5-why analysis. In five why analysis, managers do what the name implies: they ask “why” five times. For example, if a certain phone coming off the production line is broken, they might ask “why” and discover that it dropped off the assembly line. The next “why” might reveal that it was accidentally pushed off by another phone (the assembly line is very crowded). The next “why” might show that the assembly line is more crowded than usual because of a spike in demand, and subsequent asking of “why” might point to the need for more accurate demand forecasts. (It turns out that the production line is fine, and the bad demand forecast is the reason the phone broke.)
This root cause of the loss is called the phenomenon. Fixing the phenomenon will most likely fix the problems.
The fishbone diagram is another loss reduction tool. It analyzes possible causes of the problem, broken down into man (human error), machine (machine problems), materials (problems with the raw materials), and method (improper procedures).
Finally, managers can use a loss tree to break down a problem into components. Often, there might be more than one cause of a problem – errors can occur at many different stages. Loss trees aim to quantify the percentage of losses that occurred for a certain reason. This allows managers to prioritize problem solving. For example, if 95% of problems are determined to have occurred because of bad materials, and only 5% because of bad manufacturing practices, it might be better to engage in strategic sourcing before trying to improve the manufacturing process.
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