# 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 wast
4. Just-in-time
11
What are the implications of Just-in-time
for logistics?
22
How can just-in-time principles be
applied to other forms of material
control such as reorder point and
material requirements planning?
Key issuesKey issues
5. Just-in-time
Just-in-time: A definitionJust-in-time: A definition
Uses a systems approach to develop andUses a systems approach to develop and
operate a manufacturing systemoperate a manufacturing system
Organizes the production process so thatOrganizes the production process so that
parts are available when they are neededparts are available when they are needed
A method for optimizing processes thatA method for optimizing processes that
involves continual reduction of wasteinvolves continual reduction of waste
6. Just-in-time
Little JITLittle JIT
the application of JIT to logisticsthe application of JIT to logistics
Central themes surrounding Just-in-timeCentral themes surrounding Just-in-time
SimplicitySimplicity
QualityQuality
Elimination of wasteElimination of waste
7. Just-in-time
Pull schedulingPull scheduling
A system of controlling
materials whereby the use
signals to the maker or provider
that more material is needed.
Push schedulingPush 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.
supplier
buyer
Push: traditional way
Pull: Just-in-time
9. Just-in-time
Just-in-time systemJust-in-time system
JIT Pyramid of key factorsJIT Pyramid of key factors
Just-in-time
Minimum
delay
Minimum
inventory
2
1
Minimum
defects
3
Simplicity
and visibility
Minimum
downtime
5
4
6
Level 1
Level 2
Level 3
10. Just-in-time
Just-in-time systemJust-in-time system
Factor 1Factor 1
– The top of the pyramid is full capability for JITThe top of the pyramid is full capability for JIT
supply supported by Level 2 and Level 3 operation.supply supported by Level 2 and Level 3 operation.
Factor 2Factor 2
– ‘‘DelayDelay’’ andand ‘‘inventoryinventory’’ interact positively with eachinteract positively with each
otherother
– The concept of KanbanThe concept of Kanban
Factor 3Factor 3
– DefectDefect →→ delaydelay → inventory→ inventory
13. Just-in-time
Just-in-time systemJust-in-time system
Factor 5Factor 5
– Simply and visible process help to reduceSimply and visible process help to reduce
inventory and could be better maintained.inventory and could be better maintained.
Factor 6Factor 6
– ItIt’’s more difficult to see the flow of a processs more difficult to see the flow of a process
with increased inventory.with increased inventory.
14. Just-in-time
The supply chainThe supply chain ‘‘game plangame plan’’
Forecasts Orders
Master
schedule
Material
plan
Purchase
orders Work orders
Source Make Deliver
Bill of
materials
Demand
management
Logistics
planning
Logistics
execution
MaterialMaterial
RequirementsRequirements
PlanningPlanning
Independent
demand
Dependent
demand
15. Just-in-time
The supply chainThe supply chain ‘‘game plangame plan’’
Independent demandIndependent demand
– Demand for a product that is ordered directly byDemand for a product that is ordered directly by
customers.customers.
– items are those items that we sell to customersitems are those items that we sell to customers
Dependent demandDependent demand
– Demand for parts or subassemblies that make upDemand for parts or subassemblies that make up
independent demand products.independent demand products.
– items are those items whose demand isitems are those items whose demand is
determined by other itemsdetermined by other items
17. Just-in-time
Demand characteristics and planningDemand characteristics and planning
approachesapproaches
Economic order quantities (EOQ)Economic order quantities (EOQ)
Buffer stock
Reorder point
Usage rate
Recorder
quantityStock
Lead time Time
18. Just-in-time
Assumptions in Economic Order Quantity ModelAssumptions 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. NotationNotation
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 modelEOQ model
Average inventory level
The holding cost per unit
The setup cost per unit
The production cost per unit
2
Q
=
D
hQ
D
h
Q
2
2 =
×
=
Q
A
=
c=
22. Just-in-time
PracticePractice
Pam runs a mail-order business for gymPam runs a mail-order business for gym
equipment.equipment. Annual demand for theAnnual demand for the
TricoFlexers is 16,000.TricoFlexers is 16,000. The annual holdingThe annual holding
cost per unit is $2.50 and the cost to place ancost per unit is $2.50 and the cost to place an
order is $50.order is $50. What is the economic orderWhat is the economic order
quantity?quantity?
( )orderperunits800
5.2
50160002*
=
××
=Q
23. Just-in-time
Demand characteristics and planningDemand characteristics and planning
approachesapproaches
Periodic order quantity (POQ) and target stockPeriodic order quantity (POQ) and target stock
levelslevels
Economic order quantityHow much to order?
When to order? Periodic order quantity
28. Just-in-time
JIT and material requirements planningJIT and material requirements planning
(MRP)(MRP)
Material requirements planning (MRP) -Material requirements planning (MRP) - AA
methodology for defining the raw materialmethodology for defining the raw material
requirements for a specific item, component, orrequirements for a specific item, component, or
sub-assembly ordered by a customer, or requiredsub-assembly ordered by a customer, or required
by a business process.by a business process.
MRP systems will usually define what is needed,MRP systems will usually define what is needed,
when it is needed, and by having access to currentwhen it is needed, and by having access to current
inventories and pre-existing commitment of thatinventories and pre-existing commitment of that
inventory to other orders to other customers, willinventory to other orders to other customers, will
indicate what additional items need to be orderedindicate what additional items need to be ordered
to fulfill this order.to fulfill this order.
29. Just-in-time
Feature ofFeature of
MRPMRP
MRP is basedMRP is based
on JIT Pullon JIT Pull
scheduling logicscheduling logic
MRP is good atMRP is good at
planning, butplanning, but
weak at controlweak at control
JIT is good atJIT is good at
control, butcontrol, but
weak atweak at
planningplanning
TPS Vs. FPSTPS 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
11
What are the principles of lean
thinking?
22
How can the principles of lean
thinking be applied to cutting waste
out of supply chains?
Key issuesKey issues
34. Lean thinking
Fordism: Henry Ford
1863-1947 The father of
mass production
Taylorism: Frederick Taylor
1856-1915 The father of
scientific management
Toyota: Taiichi Ohno The
father of Toyota
Production System
35. Lean thinking
Lean thinkingLean thinking refers to the elimination ofrefers to the elimination of
waste in all aspects of a business andwaste in all aspects of a business and
thereby enriching value from thethereby enriching value from the
customer perspective.customer perspective.
2. Identify value stream5. Perfection
3. Create product flow
1. Specify value
4. Let customer pull
muda
muda
muda
muda
Muda means waste, specifically any human activity
which absorbs resources but creates no value.”
36. Lean thinking
Nine wastesNine wastes
1.1. Watching aWatching a
machine runmachine run
2.2. Waiting for partsWaiting for parts
3.3. Counting partsCounting parts
4.4. OverproductionOverproduction
5.5. Moving parts overMoving parts over
long distancelong distance
6.6. Storing inventoryStoring inventory
7.7. Looking for toolsLooking for tools
8.8. MachineMachine
breakdownsbreakdowns
9.9. ReworkRework
38. Lean thinking
Role of lean practicesRole of lean practices
Small-batch productionSmall-batch production
– Reduce total cost across a supply chain, such asReduce total cost across a supply chain, such as
removing the waste of overproduction.removing the waste of overproduction.
Rapid changeoverRapid changeover
– Rely on developments in machinery and productRely on developments in machinery and product
designdesign
– Provide the flexibility to make possible small-Provide the flexibility to make possible small-
batch production that responds to customerbatch production that responds to customer
needsneeds
39. Lean thinking
Design strategyDesign strategy
Lean product designLean 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 designLean facility design
40. Lean thinking
Design strategyDesign strategy
Lean product designLean product design
Lean facility designLean 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 withinBarriers to knowledge transfers within
supplierssuppliers’’ plants (Dyer and Hatch, 2006)plants (Dyer and Hatch, 2006)
Network constraintsNetwork 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 suppliersBarriers to knowledge transfers within suppliers’’
plants (Dyer and Hatch, 2006)plants (Dyer and Hatch, 2006)
Internal process rigiditiesInternal process rigidities
– U.S. customerU.S. customer’’s production process involved a high level ofs production process involved a high level of
automation or large capital investment in heavy equipment.automation or large capital investment in heavy equipment.
The large machines and equipment were bolted orThe large machines and equipment were bolted or
cemented into the floor, hence increased the costs of change.cemented into the floor, hence increased the costs of change.
These process rigidities resulted in plant managers waitingThese process rigidities resulted in plant managers waiting
until the vehicle model change before implementing a newuntil the vehicle model change before implementing a new
process.process.
– ToyotaToyota’’s production network is designed as a dynamics production network is designed as a dynamic
system, and the flexibility to modify the system is built intosystem, and the flexibility to modify the system is built into
the processes and procedures.the processes and procedures.
46. Vendor-managed inventory
Conventional Inventory ManagementConventional Inventory Management
CustomerCustomer
– monitors inventory levels
– places orders
VendorVendor
– manufactures/purchases product
– assembles order
– loads vehicles
– routes vehicles
– makes deliveries
You call – We haul
47. Vendor-managed inventory
Problems with ConventionalProblems with Conventional
Inventory ManagementInventory Management
Large variation in demands onLarge variation in demands on
production and transportationproduction and transportation
facilitiesfacilities
workload balancingworkload balancing
utilization of resourcesutilization of resources
unnecessary transportation costsunnecessary transportation costs
urgent Vs. non-urgent ordersurgent Vs. non-urgent orders
setting prioritiessetting priorities
48. Vendor-managed inventory
Vendor-managed inventoryVendor-managed inventory
CustomerCustomer
– trusts the vendor to manage thetrusts the vendor to manage the
inventoryinventory
VendorVendor
– monitors customersmonitors customers’’ inventoryinventory
– customers call/fax/e-mail
– remote telemetry units
– set levels to trigger call-in
You rely – We supply
– controls inventory replenishment & decidescontrols inventory replenishment & decides
– when to deliver
– how much to deliver
– how to deliver
49. Vendor-managed inventory
VMIVMI
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
buyer
seller
VMI data flow
•Number of items in stock
•Consumption of previous period
•Any other specific customer- or
item-related parameters
•Number of items as ordered
•Number of items in back-order
•Acknowledgement
51. Vendor-managed inventory
VMI does not stand forVMI 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 forVMI 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 VMIAdvantages of VMI
CustomerCustomer
– 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 VMIAdvantages of VMI
VendorVendor
–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 systemPotential problems in setting up a VMI system
Unwillingness to share dataUnwillingness to share data
Seasonal productsSeasonal products
Investment and restructuring costsInvestment and restructuring costs
Customer vulnerabilityCustomer vulnerability
Lack of standard procedures (between differentLack of standard procedures (between different
customers)customers)
System maintenanceSystem maintenance
VMI EssentialsVMI Essentials
TrustTrust
•Accurate information provided on
a timely basis
•Inventory levels that meet
demands
•Confidential information kept
confidential
TechnologyTechnology
•Automated electronic
messaging systems to exchange
sales and demand data,
shipping schedules
55. Case study
PraxairPraxair’’s Businesss Business
Plants worldwidePlants worldwide
– 44 countries
– USA 70 plants
– South America 20 plants
Product classesProduct classes
– packaged products
– bulk products
– lease manufacturing equipment
DistributionDistribution
– 1/3 of total cost attributed to distribution
56. Case study
PraxairPraxair’’s Business------Bulk productss Business------Bulk products
DistributionDistribution
– 750 tanker trucks
– 100 rail cars
– 1,100 drivers
– drive 80 million miles per year
CustomersCustomers
– 45,000 deliveries per month to 10,000 customers
VariationVariation
– 4 deliveries per customer per day to 1 delivery per customer per 2
months
Routing varies from day to dayRouting varies from day to day
57. Case study
VMI Implementation at PraxairVMI Implementation at Praxair
Convince management and employees ofConvince management and employees of
new methods of doing businessnew methods of doing business
Convince customers to trust vendor to doConvince customers to trust vendor to do
inventory managementinventory management
Pressure on vendor to perform - TrustPressure on vendor to perform - Trust
easily shakeneasily shaken
Praxair currently manages 80% of bulkPraxair currently manages 80% of bulk
customerscustomers’’ inventoriesinventories
58. Case study
VMI Implementation at PraxairVMI Implementation at Praxair
Praxair receives inventory level data viaPraxair 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 onForecast customer demands based on
– historical data
– customer production schedules
– customer exceptional use events
Logistics planners use decision support tools to planLogistics 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 PraxairBenefits of VMI at Praxair
Before VMI, 96% of stockoutsBefore VMI, 96% of stockouts
due to customers calling whendue to customers calling when
tank was already empty or nearlytank was already empty or nearly
emptyempty
VMI reduced customer stockoutsVMI reduced customer stockouts
0
5
10
Jan Mar May July Sept Nov
after 2 yrs
before VMI
60. Case study
WhatWhat’’s needed to make VMI works needed to make VMI work
Information management is crucial to the success ofInformation management is crucial to the success of
VMIVMI
– inventory level data
– historical usage data
– planned usage schedules
– planned and unplanned exceptional usage
Forecast future demandForecast future demand
Decision making: need to decide on a regular (daily)Decision making: need to decide on a regular (daily)
basisbasis
– 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 caseZara case