Just-in-time logistics

Logistics Management “Just

In Time” (JIT)
• “Just In Time” (JIT) is an approach to managing
logistics matters that aims at “reducing waste and
redundant inventory by delivering products,
components or materials just when an organization
needs them”
The Global Supply Chain Forum
• Typically, customer orders trigger the process
• Just In Time (JIT) is a production and inventory
control system in which materials are purchased and
units are produced only as needed to meet actual
customer demand.

2
 Just-in-time
• Just-in-time:

– JIT is a management approach that originated

in japan in 1950.
– The basic elements of JIT were developed
by Toyota in the 1950's, and became known as
the Toyota Production System (TPS).  JIT was
well-established in many Japanese factories by
the early 1970's
– Uses a systems approach to develop and
operate a manufacturing system
– JIT ia a Pull supply process
– Organizes the production process so that parts
are available when they are needed
– A method for optimizing processes that
involves continual reduction of waste
 Just-in-time

• Central themes surrounding

Just-in-time
– Waste reduction
– Simplicity
– Quality or service improvement
 Seven Wastes
• Defects
• Overproducing
• Idle / Unnecessary Inventory
• Waiting
• Unnecessary Process Steps
• Unnecessary Worker Movement
• Unnecessary Materials Movement
 Common Causes of Waste
• Layout (distance) • Inconsistent
• Long setup time performance
measures
• Incapable • Ineffective
processes production
• Poor maintenance planning
• Poor work methods • Lack of workplace
• Lack of training organization
• Poor supply
quality/reliability
 Objective of JIT
• Produce only the products the customer
wants.
• Produce products only at the rate that the
customer wants them.
• Produce with perfect quality
• Produce with minimum lead time.
• Produce products with only those features
the customer wants.
• Produce with no waste of labor, material or
equipment -- every movement must have a
purpose so that there is zero idle inventory.
 Just-in-time
• Pull scheduling
– A system of controlling
materials whereby the use buyer
signals to the maker or
provider that more material Pull: Just-in-time
is needed.
• Push scheduling
– A system of controlling
materials whereby makers Push: traditional way
and providers make or send
material in response to a
pre-set schedule, regardless
of whether the next process supplier
needs them at the time.
 Pull Supply Models
• A supply chain based on the “pull”
model is one where “a firm waits to
produce product until customers
demand it”
• The aim is to focus the production
process on customer needs, reduce
cycle time, minimize inventory and
avoid the risk of excess production of
unwanted product
9
 Push Supply Models
• A supply chain based on the “push”
model is one where “a firm produces
then pushes product through the
channel without orders in hand”
• Production and inventory held are
therefore guided by predictions or
anticipation of customer demand

10
 BENEFITS OF JIT
• Funds that were tied up in inventories can be
used elsewhere.
• Areas previously used, to store inventories
can be used for other more productive uses.
• Throughput time is reduced, resulting in
greater potential output and quicker
response to customers.
• Defect rates are reduced, resulting in less
waste and greater customer satisfaction.
 Benefit: Real Business
Example
• Dell Computers:
Del Computer Corporation has finally tuned its Just-in-
Time system so that an order for a customized
personal computer that comes in over the internet at 9
AM. can be on a delivery truck to the customer by 9
P.M. In addition, Dell's low cost production system
allows it to under price its rivals by 10% to 15%. This
combination has made Dell the envy of the personal
computer industry and has enabled the company to
grow at five times the industry rate
 Disadvantages of JIT
Implementing thorough JIT procedures can involve
a major overhaul of your business systems - it may
be difficult and expensive to introduce.
• JIT manufacturing also opens businesses to a
number of risks, notably those associated with
your supply chain. With no stocks to fall back on, a
minor disruption in supplies to your business from
just one supplier could force production to cease at
very short notice.
 Loss: Real Business
Example
• Toyota the Developer of JIT System
Just-in-time manufacturing system has many
advantages, but they are vulnerable to
unexpected disruptions in supply. A production
line can quickly come to a halt if essential parts
are unavailable. Toyota, the developer of JIT,
found this out the hard way. One Saturday, a fire
at Aisin seiki Company's plant in Aichi Prefecture
stopped the delivery of all break parts to Toyota.
By Tuesday, Toyota had to close down all of its
Japanese assembly line. By the time the supply
of break parts had been restored, Toyota had
lost an estimated $15 billion in sales.
 List of Companies that use
just in time (JIT)
• Harley Davidson
• Toyota Motor Company
• General Motors
• Ford Motor Company
• Manufacturing Magic
• Hawthorne Management Consulting
 Just-in-time
• Activity
Pull Push/Pull
Demand uncertainty

Computer Book/CD

Grocery

Scale economics Push

 Just-in-time
• Just-in-time system
JIT Pyramid of key factors

Level 1 Just-in-time
1

Level 2 Minimum 2 Minimum

delay inventory 6
3 4
Level 3 Minimum 5 Minimum
defects Simplicity downtime
and visibility
 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
 Just-in-time
• Just-in-time system
– Factor 3
• Defect → delay →
inventory

Inventory
hides
problems
Machine downtime Poor quality

Bad design Unreliable Inefficient

supplier layout
 Just-in-time
• Just-in-time system
– Factor 4 Preventive
maintenance

Breakdowns
Machine Safety
Planned maintenance
downtime stocks
Changeover

Flexible
production
 Just-in-time
• Just-in-time system
– Factor 5
• Simply and visible process help to
reduce inventory and could be better
maintained.
– Factor 6
• It’s more difficult to see the flow of a
process with increased inventory.
 Just-in-time
• Case: Automobile

• Case: Cake
 Just-in-time
• Demand characteristics and
planning approaches
– Economic order quantities (EOQ)
Recorder
Stock quantity Usage rate

Reorder point

Buffer stock

Lead time Time

 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.
• 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
 Just-in-time
• EOQ model
– Average inventory level=
Q
2Q
×h
– The holding cost per unit hQ
= 2 =
D 2D
– The setup cost per unit A
=
Q
– The production cost per unit
=c
 Just-in-time
• EOQ model
hQ A
Y (Q) = + + c ( total cos t per unit )
2D Q

dY (Q ) h A
= − 2 =0
dQ 2D Q

2 AD
Q =
*
(economic order quantity)
h
 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?
2 ×16000 × 50
Q =
*
= 800( units per order )
2.5
 Just-in-time
• Demand characteristics and
planning approaches
– Periodic order quantity (POQ) and
target stock levels

How much to order? Economic order quantity

When to order? Periodic order quantity

 Just-in-time
Economic order quantity with
Week No. Demand Order Inventory Inventory Inventory
uncertain
quantity demand
end start holding
1 100 1,000 900 1,000 950
2 100 0 800 900 850
3 200 0 600 800 700
4 400 0 200 600 400
5 800 1,000 400 200 300
6 1,000 1,000 400 400 400
7 800 1,000 600 400 500
8 400 0 200 600 400
9 100 0 100 200 150
10 200 1,000 900 100 500
Sum 4,100 5,000 5,100 5,200 5,150
Average 410 500 510 520 515
 Just-in-time
Periodic order quantity (POQ) with
Week No. Demand Order Inventory Inventory Inventory
uncertain
quantity demand
end start holding
1 100 200 100 200 150
2 100 0 0 100 50
3 200 600 400 600 500
4 400 0 0 400 200
5 800 1,800 1,000 1,800 1,400
6 1,000 0 0 1,000 500
7 800 1,200 400 1,200 800
8 400 0 0 400 200
9 100 300 200 300 250
10 200 0 0 200 100
Sum 4,100 4,100 2,100 6,200 4,150
Average 410 410 210 620 415
 Just-in-time
• Target stock level (TSL)
constant

– Periodic order quantity = Target stock

level – Stock on hand – Stock on order

– TSL = cycle stock + safety stock

 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.
 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
 JIT & Lean thinking
• Key issues
What are the principles of lean 
1 thinking?

How can the principles of lean 
2 thinking be applied to cutting waste 
out of supply chains?
 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
 Lean thinking
• Lean thinking refers to the
elimination of waste in all aspects
of a business and thereby enriching
value from the customer
perspective.
1. Specify value
muda muda

4. Let customer pull 5. Perfection 2. Identify value stream

muda muda
3. Create product flow

Muda means waste, specifically any human activity

which absorbs resources but creates no value.”
 Lean thinking
• Nine wastes
1. Watching a
machine run
2. Waiting for parts
3. Counting parts
4. Overproduction
5. Moving parts over
long distance
6. Storing inventory
7. Looking for tools
8. Machine
breakdowns
9. Rework
 Lean thinking

Inconsistent Inconsistent
Process Results

Traditional = People doing whatever they can to get results

Consistent Desired
Process Results

Lean = People using standard process to get results

 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
 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
 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
 Vendor-managed inventory

• Key issue

How can suppliers help to reduce 
1 waste in the customer’s process?
 Vendor-managed inventory
• Conventional Inventory
Management
– Customer
• monitors inventory levels
• places orders
– Vendor
• manufactures/purchases product
• assembles order
• loads vehicles
• routes vehicles

You call – We haul

• makes deliveries
 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
 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 deliverYou rely – We supply
– how to deliver
 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.
Vendor-managed inventory
•Number of items as ordered
•Number of items in back-order
buyer

•Acknowledgement
seller

•Number of items in stock

•Consumption of previous period
VMI data flow •Any other specific customer- or
item-related parameters
 Vendor-managed inventory
• VMI does not stand for
– The passing of the customer’s consumption history
for a specific item, from the customer over to the
supplier, who on the basis hereof, will follow-up the
customer’s 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.
 Vendor-managed inventory
• Advantages of VMI
– Customer
• The stock as such disappears from the company’s
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 supplier’s periods of
delivery will drop.
 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)
 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
VMI Essentials
Trust
•Accurate information provided on Technology
a timely basis •Automated electronic
•Inventory levels that meet messaging systems to exchange
demands sales and demand data,
•Confidential information kept shipping schedules
confidential
 Case study
• Praxair’s 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
 Case study
• Praxair’s 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
 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
 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
 Case study
• Benefits of VMI at
Praxair
– Before VMI, 96% of
stockouts due to
customers calling when
tank was already empty
or nearly empty
10
– VMI reduced customer
5 stockouts
before VMI

0 after 2 yrs
J an Mar May J uly Sept Nov
 Case study
• What’s 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
THANK YOU