Just in Time vs' Just in Case

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Just in Time vs. Just in Case

• Managing Supply Chains in Uncertain Environments

2
Just in Time vs. Just in Case

• Importance of Inventory Supply Chain
• What is Just-in-Case?
• JIT Approach
• What is JIT
• Conditions for Successful JIT
• The Risk
• Management Strategies
• Return to JIC
• Create Robust and Flexible Supply Chain
• Conclusion

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Importance of Inventory Supply Chain

• Inventory is one of the most expensive assets of
  many companies representing as much as 50 of
  total invested capital of firms.
• A firm can reduce costs significantly by
  carefully managing the inventory levels and
  reducing them if possible.
• On the other hand, low inventory levels may cause
  out-of-stock situations resulting in dissatisfied
  customers.

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Importance of Inventory Supply Chain

• In order to keep the desired inventory levels,
  organizing and maintaining a highly committed
  supply-chain is a must no matter how many
  suppliers you have.
• GM in the USA has 1700 suppliers who ship to 31
  assembly plants scatered through the continental
  USA. These shipments total about 30 million
  metric tons per day and GM spends about 1 billion
  dollars a year for efficent and on-time transport
  costs on these shipments.

5
Just-in-Case Approach

• It is the traditional Fordist approach to
  planning and management
• Reduce the risks of halt in production by keeping
  safe inventory levels.
• Just-in-Case represents the longterm planning of
  supplies and the active role inventory plays in
  the process.
• A JIC system relies little on the suppliers,
  items are heavily stocked to prevent stock-outs.

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JIT Approach- What is JIT

• JIT Just in Time Manufacturing, originated in
  Japan. Toyota Motor Company introduced JIT as
  technique / philosophy / way of working.
• It is a collection of techniques used to improve
  operations.
• JIT is based on the concept total elimination of
  waste (non-value-adding activities).

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What is JIT (contd)

• The American Production and Inventory Control
  Society (APICS) defines JIT as
• A philosophy of manufacturing based on planned
  elimination of all waste and continuous
  improvement of productivity. 
• The primary elements include having only the
  required inventory when needed to improve
  quality to zero defects to reduce lead time by
  reducing setup times, queue lengths and lot
  sizes.

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What is JIT (contd)

• This philosophy implies that equipment, resources
  and labor are made available only in the amount
  required and at the time required to do the job.
• Main factors in the JIT production philosophy
  are
• Inventory Management
• Supply-Chain Management
• Organizing a robust supply-chain to minimize the
  inventory is a key factor in the success of the
  JIT philosophy.

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What is JIT (contd)

• It is a suitable production system when
• steady production of clearly defined standard
  products
• a high value product
• flexible working practices and a disciplined
  workforce
• short setup times on machines

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Why JIT?

• Benefits of this philosophy includes
• better quality products
• reduced scrap and rework
• reduced cycle times
• smoother production flow
• less inventory, of raw materials,
  work-in-progress and finished goods
• cost savings
• higher productivity
• reduced space requirements

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Why JIT?
12
Why JIT?
13
JIT Approach (contd)

• Conditions Required for JIT
• Assured Demand
• Assured Supply
• Assured Distribution
• Assured Data
• Assured Communications

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JIT Approach (contd)

• JIT relies on Assured Demand
• Advance knowledge of what type and quantity will
  be delivered to whom and when
• JIT systems break down under demand fluctuations
  of more than 10
• JIT relies on Assured Supply
• Certainty of Supply Prices and Quality
• Absolute Priority over all other customers
• Guaranteed, immediate access to raw materials
• Long term financial viability of suppliers
• Aggarwal, SC., MRP, JIT, OPT, FMS?, 1985

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JIT Approach (contd)

• JIT relies on Assured Distribution
• Transport and Delivery Certainty throughout the
  chain
• Requires Real-Time consignment Tracking
• JIT relies on Assured Data
• Up-to-Date Inventory Data
• Constant Asset Tracking
• Stock Visibility

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JIT Approach (contd)

• JIT relies on Assured Communications
• JIT depends on
• Real-time
• Constant
• Secure
• Global

Communications between all agents and nodes
throughout the entire logistic system
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... The Risk

• What follows from practice is that
• The stability required for the successful
  implementation of JIT is unusual
• 26.12.2004 Tsunami Disaster in Asia
• 11.09.2001 World Trade Center Attacks
• 21.09.1999 Earthquake in Taiwan

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... The Risk

• Supply Chain Disruption Risks
• Natural Catastrophes
• Strikes
• Political Instability
• Fire
• Terrorism
• Vulnerability to these risks increased due to
  lean management and JIT inventory

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... The Risk

• Many of the key risks factors have developed
  from a pressure to enhance productivity,
  eliminate waste, and drive for cost improvement
• JIT and Lean Management
• Global Sourcing
• Outsourcing
• Supply Consolidation
• William Michels

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September 11s Effects

• With no inventory within the Supply Chain,
• Aircraft grounded
• Border inspections lengthened
• Surface Transportation nearly stopped
• Ford shut down five assembly plants for a week

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What measures can be taken?

• Return to Just in Case Approach?
• Adjust JIT level of inventory?
• What else?

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Alternative Measures

• Emergency Stock ?
• Return to Just in Case
• Hurricane Mitch in 1998 Unilever lost Puerto
  Rico facility producing half of North American
  Supply of Q-tips Cotton Swabs
• Decision 10 increase in inventory
• It is estimated that US Auto industry saves 1
  billion a year in inventory carrying costs by
  using JIT

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Alternative Measures

• Right Level Of Inventory
• Determined by Data-Driven Models
• The level of inventory depends on
• Supply Lead Time
• Supplier Reliability
• Replenishment Frequency
• Predictability of Demand
• Shortage Tolerance

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Alternative Measures

• What Else?
• Create flexible and robust Supply Chain
• But how?

25
Flexible and Robust Supply Chain

• Insurance
• Increase the Supply Chain Security
• Build Resilience
• Alternate Sourcing Arrangements
• Alternate Transportation

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Strategy Insurance

• All risk Insurance Policies
• Against contingent business interruption
• Insurance for Civil Authority
• Against losses due to closing of critical
  infrastructure

• September 11
• Adjusted upward the potential damages from
  terrorism
• Hence,
• Insurers stripped out acts of terrorism from all
  risk insurance
• Terrorism Insurance offered seperately with high
  premiums

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Strategy Increase Security

• Prevent at the source
• Watch personnel, flow of materials and handling
  processes
• Inspection and Process Control
• Scan for anomalies

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Strategy Build Resilience

• Resilience
• The ability to bounce back from hardship
• Resilient Supply Chain requires
• Resilient Organization
• Resilient Network
• Coutu, 2002

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Strategy Build Resilience

• Resilient Organization
• Sober View on Reality
• Strong set of values
• Ingenuity
• Resilient Network
• Enhance visibility in the SC
• Add Redundancy (duplication of assets)
• Production, Logistics Facilities, Knowledge and
  Processes

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Strategy Alternate Sourcing

• Single Sourcing
• Very vulnerable
• Hurricane Mitch, November 1998
• Banana plantations damaged (10 of worlwide crop)
• Dole lost one quarter of its production and
  suffered 4 decline in revenue
• Chiquita Brands Increased productivity in other
  locations and purchased form associate producers
  resulting in 4 increase in revenue

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Strategy Alternate Sourcing

• Multiple Sourcing
• Shift production to different parts of the world
• Compaq
• Produces in Europe, North America, South America,
  and Asia.
• If a region is affected, production can be
  shifted quickly elsewhere.

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Strategy Alternate Sourcing

• Effective Sourcing
• Knowledge of suppliers capabilities and
  vulnerabilities
• Choose global suppliers with multiple sites
• Collaboration on crisis plans
• Avon Rubber and Plastics rubber radiator
  gaskets
• Fire destroyed machines, no other supplier
  available,
• Auto manufacturer worked with Avon to
  remanufacture the steam machines from scratch.

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Strategy Alternate Transportation

• Backup Plans for Delays and Gridlock
• After September 11, Ford shut down five plants
  due to engine shortage.
• Continental Teves Case
• Crisis Team listed all customers, parts suppliers
  outstanding
• Identified critical paths vulnerable to delay
• For parts made in Europe, contingency
  relationship with Emery (transport firm) was
  used.

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Strategy Alternate Transportation

• Contingency Shipping Arrangements Require
• Logistics Software
• Tracking movement of goods globally
• Providing guidance when disruptions occur
• Backup Routes for other shipment modes
• Knowledge of Border Crossing Procedures

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Conclusion

• Emergency Stock is costly
• Companies strived for decades to get SC run with
  JIT Concepts
• The risk associated with JIT and lean management
  can be reduced by
• Creating organizational awareness of the risk
  factors
• Preparing contigency plans
• Periodically reassesing the whole SC under the
  light of careful consideration of risk
• The ultimate goal is to build flexible and
  responsive supply chain as a defense for the next
  disaster

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References

• Martha J, Subbakrishna S, (2001), Targeting a
  Just-in-Case Supply Chain for the Inevitable Next
  Disaster, The Wall Street Journal
• Alfasi N, Portugali J, (2004), Planning
  Just-in-Time versus planning Just-in-Case, Cities
  vol.21
• Pochard S, (2004), Managing Risks of Supply-Chain
  Disruptions Dual Sourcing as a Real Option, MIT
  Technology and Policy Dept. MS Thesis
• Rice J, (2003), Supply Chain Response to
  Terrorism Creating Resilient and Secure Supply
  Chains, MIT Center for Transportation and
  Logistics, Interim Report of Progress and
  Learnings
• Mcgillivray G, (2000), Commercial Risk Under JIT,
  Canadian Underwirter
• Martha J, Vratimos E, (2002), Creating a
  Just-in-Case Supply Chain for the Inevitable Next
  Disaster, Mercer Management Journal

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Thank you for your attention!