Module 19 -partial

Lean production & JIT Inventory Management

Just-in-Time (JIT)

A comprehensive inventory management philosophy that stresses policies, procedures, and attitudes by managers and other workers that result in the efficient production of high quality goods while maintaining the minimum level of inventories Spawned in part by computerized manufacturing and product handling systems

Just-in-Time (JIT) Philosophy

Known as the lean production philosophy/culture Includes

Increased coordination through the value chain Reduced inventory Reduced production times Increased product quality Increased employee involvement and empowerment

JIT/Lean Approach to Reducing Incoming Materials

Elements of reducing incoming materials
1. Developing long-term relationships with a limited number of vendors 2. Selecting vendors on the basis of service and material quality, as well as price 3. Establishing procedures for employees to order materials for current needs directly from approved vendors 4. Accepting vendor deliveries directly to the shop floor or only as needed

JIT/Lean Approach to Reducing Work-in-Process Inventory

Key element is reducing cycle time

Total time required to complete a process

Cycle time consists of:

Setup Time Waiting Time

Processing Time Movement Time Inspection Time

Materials Push and Pull Systems

Materials Push System Employees work to reduce the pile of inventory building up at their workstations Employees push the work to the next workstation after completing their operation Materials Pull System Employees at each station work to provide inventory for the next workstation as needed Work stops when inventory units reach a specified limit until that station catches up Known as a Kanban system

JIT/Lean Approach to Reducing Finished Goods Inventory

Can be reduced by

Reducing cycle time

Reduces the need for speculative inventories

Better predicting customer demand for finished units

To improve, adopt a value chain approach to inventory management by which the manufacturer or supplier is working as a partner with its customers to meet inventory needs

Performance Measures Under Lean Production and JIT

Goal is to eliminate inventory and reduce cycle time to processing time Performance emphasis on
Inventory turnover Cycle time Cycle efficiency

Gross Margin Return on Inventory Investment (GMROI)

Measures the effectiveness of inventory levels
GMROI = Gross margin

Average inventory

Cycle Time
Measures the total time required to produce one unit of a product
Cycle Time =
Setup Processing Movement Waiting Inspection + Time + Time + Time + Time Time

The only component that adds value

Simplified Recordkeeping

Lean production and JIT enable significant reductions in the number of accounting transactions required for purchasing and production

Purchasing
Standing purchase orders allow production personnel to requisition materials directly from vendors Limited quantities are delivered

Product costing

Ending inventories are close to nonexistent so costs are insignificant