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Chapter 6 Just-in-time and lean thinking

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Title: Chapter 6 Just-in-time and lean thinking


1
Chapter 6Just-in-time and lean thinking
2
Content
3
(No Transcript)
4
Just-in-time
  • Key issues

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 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
8
Just-in-time
  • Activity

Push/Pull
Pull
Push
9
Just-in-time
  • Just-in-time system

JIT Pyramid of key factors
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

11
  • Just-in-time system
  • Factor 3
  • Defect ? delay ? inventory

Inventory hides problems
12
Just-in-time
  • Just-in-time system
  • Factor 4

Preventive maintenance
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
  • Its more difficult to see the flow of a process
    with increased inventory.

14
Just-in-time
  • The supply chain game plan

Material Requirements Planning
Independent demand
Dependent demand
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

16
Just-in-time
  • Case Automobile
  • Case Cake

17
Just-in-time
  • Demand characteristics and planning approaches
  • Economic order quantities (EOQ)

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

21
Just-in-time
  • EOQ model

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?

23
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
24
Just-in-time
  • Economic order quantity with uncertain demand

Week No. Demand Order quantity Inventory end Inventory start Inventory 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
25
Just-in-time
  • Periodic order quantity (POQ) with uncertain
    demand

Week No. Demand Order quantity Inventory end Inventory start Inventory 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
26
Just-in-time
  • Target stock level (TSL)
  • Periodic order quantity Target stock level
    Stock on hand Stock on order
  • TSL cycle stock safety stock

27
Just-in-time
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 (?????????) Heijunka A system of
production smoothing designed to achieve a more
even and consistent flow of work.(???) Kaizen
Improvement
31
Heijunka box
32
Content
33
Lean thinking
  • Key issues

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.

Muda means waste, specifically any human activity
which absorbs resources but creates no value.
36
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

37
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
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 (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.

42
Case study
43
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.

44
Content
45
Vendor-managed inventory
  • Key issue

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
  • how to deliver

You rely We supply
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
seller
  • Acknowledgement
  • Number of items in stock
  • Consumption of previous period
  • Any other specific customer- or item-related
    parameters

VMI data flow
51
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.

52
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.

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)
  • System maintenance

55
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

56
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

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

60
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

61
Content
62
Quick response
  • The application of quick response in apparel
    industry
  • Development lead time have been compressed
  • Production lead time are shorter

Zara case
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