Chapter 6 Just-in-time and lean thinking

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Chapter 6Just-in-time and lean thinking
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Content
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(No Transcript)
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Just-in-time

• Key issues

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Just-in-time

• Just-in-time A definition
• Uses a systems approach to develop and operate a
  manufacturing system
• Organizes the production process so that parts
  are available when they are needed
• A method for optimizing processes that involves
  continual reduction of waste

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Just-in-time

• Little JIT
• the application of JIT to logistics
• Central themes surrounding Just-in-time
• Simplicity
• Quality
• Elimination of waste

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Just-in-time

• Pull scheduling
• A system of controlling materials whereby the use
  signals to the maker or provider that more
  material is needed.
• Push scheduling
• A system of controlling materials whereby makers
  and providers make or send material in response
  to a pre-set schedule, regardless of whether the
  next process needs them at the time.

buyer
Pull Just-in-time
Push traditional way
supplier
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Just-in-time

• Activity

Push/Pull
Pull
Push
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Just-in-time

• Just-in-time system

JIT Pyramid of key factors
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Just-in-time

• Just-in-time system
• Factor 1
• The top of the pyramid is full capability for JIT
  supply supported by Level 2 and Level 3
  operation.
• Factor 2
• Delay and inventory interact positively with
  each other
• The concept of Kanban
• Factor 3
• Defect ? delay ? inventory

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• Just-in-time system
• Factor 3
• Defect ? delay ? inventory

Inventory hides problems
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Just-in-time

• Just-in-time system
• Factor 4

Preventive maintenance
Flexible production
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Just-in-time

• Just-in-time system
• Factor 5
• Simply and visible process help to reduce
  inventory and could be better maintained.
• Factor 6
• Its more difficult to see the flow of a process
  with increased inventory.

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Just-in-time

• The supply chain game plan

Material Requirements Planning
Independent demand
Dependent demand
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Just-in-time

• The supply chain game plan
• Independent demand
• Demand for a product that is ordered directly by
  customers.
• items are those items that we sell to customers
• Dependent demand
• Demand for parts or subassemblies that make up
  independent demand products.
• items are those items whose demand is determined
  by other items

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Just-in-time

• Case Automobile
• Case Cake

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Just-in-time

• Demand characteristics and planning approaches
• Economic order quantities (EOQ)

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Just-in-time

• Assumptions in Economic Order Quantity Model
• Demand is deterministic. There is no uncertainty
  about the quantity or timing of demand.
• Demand is constant over time. In fact, it can be
  represented as a straight line, so that if annual
  demand is 365 units this translates into a daily
  demand of one unit.
• A production run incurs a constant setup cost.
  Regardless of the size of the lot or the status
  of the factory, the setup cost is the same.
• Products can be analyzed singly. There is only a
  single product.

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• Notation
• D Demand rate (in units per year).
• c Unit production cost, not counting setup or
  inventory costs (in dollars per unit).
• A Constant setup (ordering) cost to produce
  (purchase) a lot (in dollars).
• h Holding cost (in dollars per unit per year)
• Q Lot size (in units) this is the decision
  variable

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Just-in-time

• EOQ model
• Average inventory level
• The holding cost per unit
• The setup cost per unit
• The production cost per unit

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Just-in-time

• EOQ model

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Just-in-time

• Practice
• Pam runs a mail-order business for gym
  equipment.  Annual demand for the TricoFlexers is
  16,000.  The annual holding cost per unit is
  2.50 and the cost to place an order is 50. 
  What is the economic order quantity?

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Just-in-time

• Demand characteristics and planning approaches
• Periodic order quantity (POQ) and target stock
  levels

Economic order quantity
How much to order?
When to order?
Periodic order quantity
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Just-in-time

• Economic order quantity with uncertain demand

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Just-in-time

• Periodic order quantity (POQ) with uncertain
  demand

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Just-in-time

• Target stock level (TSL)
• Periodic order quantity Target stock level
  Stock on hand Stock on order
• TSL cycle stock safety stock

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Just-in-time
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Just-in-time

• JIT and material requirements planning (MRP)
• Material requirements planning (MRP) - A
  methodology for defining the raw material
  requirements for a specific item, component, or
  sub-assembly ordered by a customer, or required
  by a business process.
• MRP systems will usually define what is needed,
  when it is needed, and by having access to
  current inventories and pre-existing commitment
  of that inventory to other orders to other
  customers, will indicate what additional items
  need to be ordered to fulfill this order.

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Just-in-time

• Feature of MRP
• MRP is based on JIT Pull scheduling logic
• MRP is good at planning, but weak at control
• JIT is good at control, but weak at planning
• TPS Vs. FPS

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Just-in-time
Takt time The maximum time allowed to produce
a product in order to meet demand. Jidoka
Autonomation (?????????) Heijunka A system of
production smoothing designed to achieve a more
even and consistent flow of work.(???) Kaizen
Improvement
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Heijunka box
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Content
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Lean thinking

• Key issues

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Lean thinking
Taylorism Frederick Taylor 1856-1915 The father
of scientific management
Fordism Henry Ford 1863-1947 The father of mass
production
Toyota Taiichi Ohno The father of Toyota
Production System
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Lean thinking

• Lean thinking refers to the elimination of waste
  in all aspects of a business and thereby
  enriching value from the customer perspective.

Muda means waste, specifically any human activity
which absorbs resources but creates no value.
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Lean thinking

• Nine wastes
• Watching a machine run
• Waiting for parts
• Counting parts
• Overproduction
• Moving parts over long distance
• Storing inventory
• Looking for tools
• Machine breakdowns
• Rework

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Lean thinking
Inconsistent Process
Inconsistent Results
Traditional People doing whatever they can to
get results
Desired Results
Consistent Process
Lean People using standard process to get
results
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Lean thinking

• Role of lean practices
• Small-batch production
• Reduce total cost across a supply chain, such as
  removing the waste of overproduction.
• Rapid changeover
• Rely on developments in machinery and product
  design
• Provide the flexibility to make possible
  small-batch production that responds to customer
  needs

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Lean thinking

• Design strategy
• Lean product design
• A reduction in the number of parts they contain
  and the materials from which they are made
• Features that aid assembly, such as asymmetrical
  parts that can be assembled in only one way
• Redundant features on common, core parts that
  allow variety to be achieved without complexity
  with the addition of peripheral parts
• Modular designs that allow parts to be upgraded
  over the product life
• Lean facility design

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Lean thinking

• Design strategy
• Lean product design
• Lean facility design
• Modular design of equipment to allow prompt
  repair and maintenance
• Modular design of layout to allow teams to be
  brought together with all the facilities they
  need
• Small machines which can be moved to match the
  demand for them
• Open systems architectures that allow equipment
  to fit together and work when it is moved and
  connected to other items

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Case study

• Barriers to knowledge transfers within suppliers
  plants (Dyer and Hatch, 2006)
• Network constraints
• Customer policies or constraints imposed by
  customers
• Example One supplier was required by GM to use
  large (45) reusable containers. When filled
  with components, these containers weighed 200300
  pounds. By comparison, Toyota had the supplier
  use small (23) reusable containers weighing 40
  pounds when filled.

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Case study
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Case study

• Barriers to knowledge transfers within suppliers
  plants (Dyer and Hatch, 2006)
• Internal process rigidities
• U.S. customers production process involved a
  high level of automation or large capital
  investment in heavy equipment. The large machines
  and equipment were bolted or cemented into the
  floor, hence increased the costs of change. These
  process rigidities resulted in plant managers
  waiting until the vehicle model change before
  implementing a new process.
• Toyotas production network is designed as a
  dynamic system, and the flexibility to modify the
  system is built into the processes and procedures.

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Vendor-managed inventory

• Key issue

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Vendor-managed inventory

• Conventional Inventory Management
• Customer
• monitors inventory levels
• places orders
• Vendor
• manufactures/purchases product
• assembles order
• loads vehicles
• routes vehicles
• makes deliveries

You call We haul
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Vendor-managed inventory

• Problems with Conventional Inventory Management
• Large variation in demands on production and
  transportation facilities
• workload balancing
• utilization of resources
• unnecessary transportation costs
• urgent Vs. non-urgent orders
• setting priorities

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Vendor-managed inventory

• Vendor-managed inventory
• Customer
• trusts the vendor to manage the inventory
• Vendor
• monitors customers inventory
• customers call/fax/e-mail
• remote telemetry units
• set levels to trigger call-in

• controls inventory replenishment decides
• when to deliver
• how much to deliver
• how to deliver

You rely We supply
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Vendor-managed inventory

• VMI
• An approach to inventory and order fulfillment in
  the way that supplier, not the customer, is
  responsible for managing and replenishing
  inventory.

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Vendor-managed inventory

• Number of items as ordered
• Number of items in back-order

buyer
seller

• Acknowledgement

• Number of items in stock
• Consumption of previous period
• Any other specific customer- or item-related
  parameters

VMI data flow
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Vendor-managed inventory

• VMI does not stand for
• The passing of the customers consumption
  history for a specific item, from the customer
  over to the supplier, who on the basis hereof,
  will follow-up the customers stock level and at
  the moment of the stock having reached a specific
  threshold, generates a purchasing order so as to
  replenish the stock.
• VMI in fact stands for
• Granting inspection of the sales profile of a
  specific item to the supplier, who on the basis
  hereof, will optimize the replenishment policy
  and ensure the pre-defined service level towards
  the end users of his customer.

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Vendor-managed inventory

• Advantages of VMI
• Customer
• The stock as such disappears from the companys
  balance sheet and this way clears the way for a
  higher amount of working capital.
• Customer only have to supervise the stocks,
  instead of drawing up a detailed analysis for the
  placing of orders.
• Reduce the time interval between receiving goods
  and making them available for consumption or
  sales.
• Stocks with customer will be reduced, because the
  uncertainty due to variability in the suppliers
  periods of delivery will drop.

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Vendor-managed inventory

• Advantages of VMI
• Vendor
• more freedom in when how to manufacture product
  and make deliveries
• better coordination of inventory levels at
  different customers
• better coordination of deliveries to decrease
  transportation cost (reduce the rush-order and
  related high cost)

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Vendor-managed inventory

• Potential problems in setting up a VMI system
• Unwillingness to share data
• Seasonal products
• Investment and restructuring costs
• Customer vulnerability
• Lack of standard procedures (between different
  customers)
• System maintenance

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Case study

• Praxairs Business
• Plants worldwide
• 44 countries
• USA 70 plants
• South America 20 plants
• Product classes
• packaged products
• bulk products
• lease manufacturing equipment

• Distribution
• 1/3 of total cost attributed to distribution

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Case study

• Praxairs Business------Bulk products
• Distribution
• 750 tanker trucks
• 100 rail cars
• 1,100 drivers
• drive 80 million miles per year
• Customers
• 45,000 deliveries per month to 10,000 customers
• Variation
• 4 deliveries per customer per day to 1 delivery
  per customer per 2 months
• Routing varies from day to day

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Case study

• VMI Implementation at Praxair
• Convince management and employees of new methods
  of doing business
• Convince customers to trust vendor to do
  inventory management
• Pressure on vendor to perform - Trust easily
  shaken
• Praxair currently manages 80 of bulk customers
  inventories

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Case study

• VMI Implementation at Praxair
• Praxair receives inventory level data via
• telephone calls 1,000 per day
• fax 500 per day
• remote telemetry units 5,000 per day
• Forecast customer demands based on
• historical data
• customer production schedules
• customer exceptional use events
• Logistics planners use decision support tools to
  plan
• whom to deliver to
• when to deliver
• how to combine deliveries into routes
• how to combine routes into driver schedules

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Case study

• Benefits of VMI at Praxair
• Before VMI, 96 of stockouts due to customers
  calling when tank was already empty or nearly
  empty
• VMI reduced customer stockouts

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Case study

• Whats needed to make VMI work
• Information management is crucial to the success
  of VMI
• inventory level data
• historical usage data
• planned usage schedules
• planned and unplanned exceptional usage
• Forecast future demand
• Decision making need to decide on a regular
  (daily) basis
• whom to deliver to
• when to deliver
• How much to deliver
• how to combine deliveries into routes
• how to combine routes into driver schedules

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Quick response

• The application of quick response in apparel
  industry
• Development lead time have been compressed
• Production lead time are shorter

Zara case