4. Just-in-time
Key issues
What are the implications of Just-in-time
1 for logistics?
How can just-in-time principles be
2 applied to other forms of material
control such as reorder point and
material requirements planning?
5. 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
6. Just-in-time
Little JIT
the application of JIT to logistics
Central themes surrounding Just-in-time
Simplicity
Quality
Elimination of waste
7. Just-in-time
Pull scheduling
A system of controlling
buyer
materials whereby the use
signals to the maker or provider Pull: Just-in-time
that more material is needed.
Push scheduling
A system of controlling
Push: traditional way
materials whereby makers and
providers make or send material
in response to a pre-set supplier
schedule, regardless of whether
the next process needs them at
the time.
10. 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
12. Just-in-time
Just-in-time system
Factor 4
Preventive
maintenance
Breakdowns
Machine Safety
Planned maintenance
downtime stocks
Changeover
Flexible
production
13. 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.
14. Just-in-time
The supply chain ‘game plan’
Material
Demand
management Forecasts Orders Requirements
Planning
Master Independent
schedule demand
Logistics
planning
Material Bill of
Dependent plan materials
demand
Logistics Purchase
execution orders Work orders
Source Make Deliver
15. 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
17. Just-in-time
Demand characteristics and planning
approaches
Economic order quantities (EOQ)
Recorder
Stock quantity Usage rate
Reorder point
Buffer stock
Lead time Time
18. 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.
19. 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
20. Just-in-time
EOQ model
Q
Average inventory level =
2Q
×h
hQ
The holding cost per unit = 2 =
D 2D
A
The setup cost per unit =
Q
The production cost per unit =c
21. 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
22. 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
23. 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
28. 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.
29. 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
30. Just-in-time
Takt time: The
maximum time
allowed to produce a
product in order to
meet demand.
Jidoka: Autonomation
( 人工智能的自动控
制)
Heijunka: A system of
production smoothing
designed to achieve a
more even and
consistent flow of
work.( 平准化 )
Kaizen: Improvement
33. 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?
34. 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
35. 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.”
36. 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
37. 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
38. 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
39. 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
40. 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
41. 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
(4’×5’) reusable containers. When filled with components,
these containers weighed 200~300 pounds. By
comparison, Toyota had the supplier use small (2’×3’)
reusable containers weighing 40 pounds when filled.
43. Case study
Barriers to knowledge transfers within suppliers’
plants (Dyer and Hatch, 2006)
Internal process rigidities
– U.S. customer’s 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.
– Toyota’s production network is designed as a dynamic
system, and the flexibility to modify the system is built into
the processes and procedures.
46. 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
47. 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
48. 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 You rely – We supply
– how to deliver
49. 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.
50. 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
51. 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.
52. 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.
53. 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)
54. 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) VMI Essentials
System maintenance
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
55. 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
56. 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
57. 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
58. 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
59. 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
10
5 bef ore VMI
0 af t er 2 yrs
Jan Mar May July Sept Nov
60. 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
62. Quick response
The application of quick response in
apparel industry
Development lead time have been compressed
Production lead time are shorter
Zara case
