Basics of Supply Chain Managment (Lesson 10)

UUnit nit 11 BBasics asics ooff SSupply upply CChain hain M anagement Management Lesson 10 Just-in-Time

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Basics of Supply Chain Management

Preface............................................................................................................3 Course Description................................................................................................................. 3

Lesson 10 – Just-in-Time................................................................................4 Introduction and Objectives.................................................................................................. 4 JIT Manufacturing ................................................................................................................. 4 Value and Waste..................................................................................................................... 5 Just-in-Time Enviro nment .................................................................................................... 7 Benefits of a JIT Environment .............................................................................................. 7 Continuous Production.......................................................................................................... 7 Process Layout ........................................................................................................................ 8 Work Cells .............................................................................................................................. 8 Process Flexibility................................................................................................................... 9 Total Quality Management (TQM) .................................................................................... 10 Pull Systems .......................................................................................................................... 11 JIT Relationships with Suppliers ........................................................................................ 12 Total Productive Maintenance (TPM) ............................................................................... 13 JIT, MRP II, and TQM ....................................................................................................... 14 Employee Empowerment ..................................................................................................... 14 Traditional Manufacturing and JIT................................................................................... 14 Summary ............................................................................................................................... 17 Further Reading ................................................................................................................... 17 Review ................................................................................................................................... 18 What’s Next? ........................................................................................................................ 19

Appendix.......................................................................................................20 Answers to Review Questions .............................................................................................. 21

Glossary ........................................................................................................22

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Basics of Supply Chain Management

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Basics of Supply Chain Management Preface Course Description This document contains the final lesson in the Basics of Supply Chain Management unit, which is one of five units designed to prepare students to take the APICS CPIM examination. The Basics of Supply Chain Management unit provides the foundation upon which the other four units build. It is necessary to complete this unit, or gain equivalent knowledge, before progressing to the other units. The five units, which together cover the CPIM syllabus, are: Basics of Supply Chain Management Master Planning of Resources Detailed Scheduling and Planning Execution and Control of Operations Strategic Management of Resources Please refer to the preface of Lesson 1 for further details about the support available to you during this course of study. This publication has been prepared by E-SCP under the guidance of Yvonne Delaney MBA, CFPIM, CPIM. It has not been reviewed nor endorsed by APICS nor the APICS Curricula and Certification Council for use as study material for the APICS CPIM certification examination.

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Basics of Supply Chain Management Lesson 10 – Just-in-Time Introduction and Objectives Just- in-Time is a philosophy, the basic concepts of which are simple individually, but their combined use is contrary to current practice in many industries. It aims to improve flexibility and responsiveness and enable companies to cope with change cost-effectively. This lesson explains the building blocks of the Just-in-Time (JIT) philosophy, including Total Quality Management (TQM), preventative maintenance, process and product design, engineering practices and employee involvement. On completion of this lesson you will be able to: Explain the Just- in-Time (JIT) philosophy List the causes of waste Distinguish between intermittent and continuous flow manufacturing State the advantages of reduced set up times and machine flexibility Explain the effects of TQM on lot size, lead time and work in process Explain the concept of pull systems Describe a JIT supplier relationship Explain the impact of total productive maintenance on operators and technicians Identify benefits of continuous process improvement Identify modifications necessary to integrate JIT with traditional planning and control systems Explain associations between MRP, JIT, and TQM

JIT Manufacturing JIT is a philosophy, often defined as a two-pronged approach to manufacturing which incorporates continuous improvement and the planned eradication of waste. JIT is described as a ‘philosophy’ because it is not a single concept, but a set of values from which to manufacture product. The APICS dictionary defines JIT as a ‘philosophy of manufacturing based on the planned elimination of all waste and the continuous improvement of productivity.’ It covers the successful execution of all manufacturing activities from design to final product, including all stages of conversion from raw material to finished goods. JIT manufacturing aims to have: only the required inventory to hand when needed zero defects minimal setup times, queue lengths and lot sizes minimum cost

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Basics of Supply Chain Management Value and Waste Waste, in JIT manufacturing, is anything that does not add value to the final product. Value must be defined from the customer’s point of view. If the customer cannot appreciate it, it has no value. Any activity that does not add value from the customer’s point of view is waste. This includes such activities as product quality inspectio n, queue times where work in process (WIP) inventory is left waiting to be processed in the next manufacturing step, setup times and other similar activities. All of the above activities add cost to the product but they do not add value. Therefore, as the price the customer pays covers the cost of manufacture, the customer is ultimately paying the price for all the waste in the manufacturing process. Waste can be incurred in several ways. It may be an inbuilt part of the product design or specification. It may be due to inefficiencies in the manufacturing process or in the activities that support manufacturing such as procurement, inventory management, and distribution. Poor Product Specification and Design When a company aims to satisfy a very wide range of customers it often produces a wide range of products, leading to small production runs and a large number of changeovers. This leads to excessive setup and changeover costs which will ultimately be passed on to the customer. Management should clearly define the market segment to be served and the breadth of product line. If the product line is too broad, production lines will be short and changeover costs will be high. Additionally, the manufacturing process becomes more complex as the product line expands leading to greater expenditure of time on planning and control. Costs can be reduced by designing to common standards, for example recognized sizes and units of measure. Good examples of standardized products include light bulbs, shoes, and tires. Each of these examples are produced by many different manufacturers but conform to generally expected standards of quality and size. Other ways to ensure a wide range of customers are satisfied is to produce products with universal appeal, which suit everybody. There are few products of this nature. One example is an adjustable wrench, which can be made to fit any size or shape of bolt. Another example might be the one size fits all approach in some items of clothing such as gloves or hats where very stretchy material is used so that the product is suitable for large or small head and hands. Standardization of Components By standardizing the component parts of a range of different models, companies can supply their customers with a variety of models and options made from standard components. When standard components are used in several products, demand for the components increases, leading to longer production runs and therefore more economical production. A good example of the use of standardized components is found in Dell where a very wide range of products may be offered to the customer from a relatively small number of components. Many combinations of © Copyright Leading Edge Training Institute Limited

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computer are available by combining various processors, RAM components, CD drives, DVD drives, keyboards, monitors, and software. Ideal Product Specification The ideal product, from a customer perspective, is one that meets or exceeds expectations and requirements. The ideal product from a production perspective, is one that is not wasteful of material or labor, does not require complex or time-consuming setups, costs little to manufacture, and is already in manufacture. From a design point of view, every single feature of the ideal product will add value in the customer’s opinion. It is also important not to over-design by adding unneeded features. Waste from Manufacturing There are numerous opportunities for creating waste in a manufacturing process. These include: The process itself. Waste is generated as scrap, non- value-added costs, wrong tools etc. The best process will consistently make the required quantity of product with minimal scrap and least cost added. Methods . Time is wasted searching for tools, poor production layout, walking between workstations. Activities that do not add value to the product should be eliminated. Movement of product: Material handling, receiving, storing, retrieving and otherwise moving materials does not add value. Storing goods received until they are needed in production requires labor to move the goods and record the information. Plant layout should be designed to minimize the distances over which products must move. Product defects When defects are detected they cause interruptions to the flow of production, leading to lost capacity, and the necessity to produce more in order to allow for defects. Schedules must then be adjusted and the time required to sort out or rework defects is wasted. Waiting time , planned and unplanned, where product is waiting to be processed or an operator is waiting for product, is wasted time. Ideally material passes from work center to work center without queueing. Overproduction, which brings cost of carrying extra inventory is an inappropriate use of resources. This results in the use of raw materials and labor for unneeded product that will cost the company money to store and maintain. Overproduction also causes extra material handling, planning and control and quality inspection. It also leads to increased WIP inventories and confusion where production problems and their causes are hidden by excess inventory. Excess inventory, which costs money to buy, store, and track. Reducing Waste One way to reduce the waste caused in manufacturing is to reduce inventory levels. This leads to reductions in the cost of storing, carrying and managing inventory. It can also lead to: More rapid responses to changes in product engineering Faster reaction to quality issues Reductions in material handling costs © Copyright Leading Edge Training Institute Limited

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Basics of Supply Chain Management Reductions in the cost of inventory control Better visibility of production issues. Reductions in inventory obsolescence

Just-in-Time Environment The JIT environment has many characteristics although not all are to be found in every manufacturing situation. The characteristics that follow may be used as guidelines in developing a JIT system. These cha racteristics may be grouped under the following categories: Continuous production and flow manufacturing Process flexibility Total quality management Uninterrupted flow Supplier partnerships Total employee involvement Benefits of a JIT Environment JIT environments have led to the following reductions: 80 – 90 % reduction in inventory and lead times 75% reduction in setup times and rework 50 % reduction in the space required for manufacturing 1. Which is the best definition of the Just-in-Time philosophy? A. Delivering goods just before they are needed B. Fulfilling customer orders just s they are required. Review Q

C. Manufacturing without inventory D. Eliminating waste

Continuous Production Continuous production is generally used in companies where there is a narrow product range requiring dedicated equipment that is easily automated using a constant path with minimal inventory and short lead times. Many manufacturing organizations use continuous flow manufacturing. Examples include oil refineries, electricity generation plants, or flour mills. Standardization and Continuous Production Standardization of product affects continuous production as it leads to larger volumes, less product variation, and greater potential for production automation.

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Basics of Supply Chain Management Process Layout Paring Cleaning

Shaping

Cutting

Assembling

Varnishing

Other manufacturing facilities with a wider range of products tend to use process layouts rather than continuous production. In this type of environment, many different product flow paths are possible and a very high level of organization and control of such a plant is needed to avoid confusion and ensure cost-effective utilization of resources. Using a process layout is effective when there are a great many different products, each of which requires its own unique manufacturing flow. Plants using process layouts typically:

Produce a wide range of product Use general-purpose, not specialized, machinery Move products around the production floor in batches Set up queues of work- in-process (WIP) inventory at each work center Tend to have a high level of WIP Have relatively long lead times

Work Cells Work cells are individual process areas comprising several work stations, which are designed to produce a variety of products that have similar shapes, use similar tools, and require similar setups and handling. For example, in a small pharmaceutical facility, a work cell may be set up to produce blister packs of tablets, while another work cell will be set up to deal with powder drugs and yet another to deal with suspensions. Work cells are useful when manufacturers have a reasonably wide variety of products but the manufacture of several products in a group is very similar. For example, a company manufacturing sitting room furniture may provide a particular suite of chairs with several coverings and in several formats but the basic components and the process of production is very similar. Chairs, sofas, and footstools are all produced in the same manner with only slight variation in components. Note that products must be grouped according to the method of manufacture. For example, the marketing function of a company might group its products very differently to production. They might group bread and butter together as customers may often buy one with the other. However, from a production perspective, these two products would never be grouped together. Where possible, U-shaped work cells are used as this provides for the easiest reuse of packaging containers, transfer of information and movement of operators between work stations. The advantages of U-shaped cells over other layouts include Reduced queues Simplified production activity control (PAC) Reduced floor space © Copyright Leading Edge Training Institute Limited

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Basics of Supply Chain Management Reduced material movement Immediate feedback These advantages can result in greater flexibility of production, smaller lot sizes, and improved quality. The use of work cells will only be practical if product design takes into account the need for a variety of products to share some form of standardization. The existence of product families is very important. 2. The seven sources of waste in manufacturing as identified by the Toyota Motor Company included: A. Process Review Q

B. Overproduction C. Wait time D. Movement

Process Flexibility Process flexibility is important to ensure that a wide variety of products can be manufactured to suit customers’ needs with minimal costs and lead times. Generally, the way to do this is to ensure machine flexibility, reduce setup times, and lot sizes. Flexible Machines When machinery is dedicated to a small variety of products, the number of setups and the time to set up are reduced. Generally, it is better to have several small general purpose machines rather than only one large and specialized machine. Volumes on each machine will be similar and similar products may be run on each machine. Two smaller separate layouts will generally be preferable to one large integrated layout as this leads to reduced WIP and setup time along with greater flexibility. Product A

Output Work Station 1

Work Station 2

Work Station 4 Work Station 3

Product B

Output Work Station 2b

Work Station 4b

The layout above shows two production lines sharing the same workstation. Each line is therefore dependent on a single large machine. It would be better to have two totally independent production lines as below.

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Product A

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Basics of Supply Chain Management Output Work Station 2

Work Station 1

Work Station 3

Work Station 4

Product B

Output Work Station 2b

Work Station 3a

Work Station 4b

Benefits of Reducing Setup Time When setup times are reduced, a number of benefits can ensue: Lot sizes may be reduced Queues and manufacturing lead times are reduced WIP levels drop Quality, process, and material flow all improve The manufacturing process is more flexible and responsive Flexible manufacturing systems are able to change quickly from one product setup to another. This increases capacity rates and makes more efficient use of operator time.

Total Quality Management (TQM) TQM, according to the APICS dictionary, is a ‘management approach to long-term success through customer satisfaction.’ It is based on participation of all employees in an organization in a programme of continuous improvement of processes, products, services, and work culture. By improving quality of product and process, lot sizes may be reduced, leading to reduced lead times and WIP inventory levels.

TQM

Smaller lots

Shorter lead times

Less WIP inventory

Reducing Lot Sizes Lot sizes are usually much larger than they need to be due to fixed costs per batch, the requirement for destructive testing samples, and overproduction to ensure adequate yield, taking into account the likelihood of scrap. Therefore lot sizes may be reduced by lowering fixed costs, decreasing destructive testing and improving the yield of production. Fixed costs per batch include the costs of per- lot inspection. However, if quality is improved to the extent that only minimal inspection is necessary, fixed costs per batch will be reduced, therefore the batch size can be reduced. In JIT, the ideal is a batch of a single unit. Many quality tests require destructive testing, which makes the quality sample unusable. The production run must then yield sufficient product to satisfy customer demand, and provide sufficient product for destructive testing. It makes sense to avoid destructive testing if possible.

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Basics of Supply Chain Management Reducing Lead Times JIT is often described as a lead time reduction program rather than an inventory reduction activity. Reduction of time applies to all aspects of manufacture. People are paid for their time and inventory is a store of time. If you make to stock you may not make what the market requires, therefore you have not used your time efficiently. Smaller lot sizes can result in reduced lead times as they lower operation time, queue times, wait time and move times for product. The ideal is a lot size of one. The other option is to create work cells where possible. Leading to reduced queue times. Operation time is the amount of time taken to process a lot in a work center. Obviously, if the lot is small, this time will be reduced. Queue time is the time a lot spends waiting to be processed. If the batch preceding a queued batch is very small, the waiting time for the next batch will be greatly reduced. Wait and move time is the time from the end of processing in one operation to the time the lot is entered into the queue for the next operation. Move time will be reduced only if the load is more manage able, the workplace is less cluttered or workstations are moved close together. Reducing WIP Inventory Reducing the lead time of a product also reduces the amount of WIP. If the lead time is cut in half the amount of inventory on the shop floor will also be halved. The number of bins found in a production system has an effect on the amount of WIP inventory. By reducing the number of bins, the level of WIP inventory is also reduced. Right First Time JIT systems also aim to reduce lead times by aiming for ‘right first time every time’ manufacturing that is linked to market demand. To closely follow and satisfy market demand, set-up time must be reduced so that smaller batches may be made. Every product must conform to the design specification.

Pull Systems A pull system is a production system where completed units are sent to next downstream station only when they are requested by that station. The request is usually a signal of some sort, for example, an empty bin or a coloured card, which is held up in view of the station upstream. Examples of pull systems outside manufacturing are vending machines where pushing a button provides a can of soft drink can. Inside the machine, all other soft drinks move along the chain by one. Another example might be the order form for a new chequebook which is often found in the back of a book of bank cheques. A pull system may be defined in 3 ways: Production: the production of items only as demanded for use or to replace those taken for use Material Control: The issue of inventory as demanded by operations. Material is not issued until requested by the user Distribution: Replenishment of field warehouse inventories where replenishment decisions are made at the field warehouse rather than the central distribution hub or plant. © Copyright Leading Edge Training Institute Limited

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Basics of Supply Chain Management Kanban Pull systems are often referred to as Kanban systems. One example of a pull system is the use of a container for parts. When a work center sends an empty container to the previous stage of production, it is a signal for that the work center wishes to withdraw a fixed quantity of parts from feeding operations or vendors. Instead of a container, a card may be used, or a marked area of the floor which should be replenished when empty. Brand Name Kanban authorizes identical items to be replaced immediately and is useful where items are frequently and routinely used. Generic Kanban authorizes replenishment but does not specify what to replenish. This information is derived from a plan and is useful when use of items is intermittent. Kanban Squares Kanban squares are used to regulate flow of work through work cells or assembly lines. In the production line example below, a red gift box is assembled and decorated with black trim.

A

B

C

Each operator in a line has a square into which he places completed work. When operator A places an assembled box on his square, operator B will take the item when he is ready to work on it. Once the item has been taken, operator A may take an item from the starting square, work on it and place it in the square for operator B. This continues along the production line. If any operator has a problem the whole line will stop so that there is no build up of WIP between operators. 3. In a JIT environment, quality must be: A. Ensured by inspection from qualified personnel B. Inspected at multiple points Review Q

C. Built into the product by operators D. Minimized

JIT Relationships with Suppliers A supplier may be thought of as a work station upstream of the manufacturing plant. As such, the JIT system can be extended to the supplier. This requires that the supplier become a more equal partner with the manufacturer, sharing information and cost reductions. Suppliers need to: Provide material of sufficiently high quality to reduce the need for inspection Be able to produce and make small and frequent deliveries.

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The supplier benefits as there is potential to gain a greater share of the business and form longer term contracts. This leads to more stability which makes it easier to plan for the future and improve competitiveness.

Total Productive Maintenance (TPM) Preventive Maintenance Although preventive maintenance leads initially to higher costs through the need for parts and materials, technician time, and lost production time, the longer term benefits make it worthwhile. Preventive maintenance, as the name suggests, reduces the likelihood of serious and unplanned machine stoppage due to breakdown, by ensuring all possible causes of breakdown are prevented from occurring. When preventive maintenance is not carried out, the potential costs include: Damage to parts Defective products due to inefficient machinery Unscheduled downtime and overtime for repair technicians when a machine breaks down Wasted manhours as operators sit idle waiting on the machine to come back online Lost production time and lost capacity Missed delivery dates for customers. These last two are the most serious. Lost production and capacity time can have a knock on effect, which will make it difficult to meet future delivery dates unless changes are made. Additionally, missing delivery dates to customers could lead to reduced customer satisfaction and possibly lost customers. TPM The APICS dictionary defines TPM as ‘preventive maintenance plus continuing efforts to adapt, modify, and refine equipment to increase flexibility, reduce material handling, and promote continuous flows. It is operator-oriented maintenance with the involvement of all qualified employees in all maintenance activities. In TPM, machine operators undertake maintenance, such as adjustment to a machine, cleaning, or lubricating parts, as part of their normal duties. TPM uses: Operators to perform routine maintenance tasks on equipment they work with and assist technicians in repairing broken equipment Technicians in the startup and shutdown of equipment Personnel with lower skills to perform routine maintenance activities that do not need skilled maintenance technicians. This approach benefits technicians as it frees up time for them to undertake more skilled preventive maintenance on equipment. It also benefits the operator as he no longer has to wait for a technician to fix his machine but can take ownership of the equipment and that part of the process. This should result in more reliable equipment and fewer defective parts, which benefits the entire company. © Copyright Leading Edge Training Institute Limited

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Basics of Supply Chain Management 4. Which is the best description of conformance? A. Work flows through clearly defined work cells B. Products are of the highest possible quality Review Q

C. Products meet design and quality specifications D. Workers perform as a team

JIT, MRP II, and TQM JIT is not a radical departure from traditional business; it is more a change of focus. MRP II is a complementary and necessary partner to a JIT control system. TQM is also essential as all equipment must be ready at a mo ments notice and all products must be of high quality as there are no time or inventory cushions to allow for correcting mistakes. MRP II, JIT and TQM are therefore co-dependent systems in the effort to satisfy customer demands.

Employee Empowerment Empowering employees means giving them responsibilities and power to manage their own jobs and make their own decisions regarding the best way of completing those jobs. One advantage of this approach is that, the person working in a situation day to day generally has more indepth knowledge of the intricacies and characteristics of that job at that point in time than anyone else in the plant. They will be the first to spot a problem and often the first to identify a possible solution. Advantages to this approach include the fact that decisions will be made faster and at the source of the issue, leaving management time free for other responsibilities. Employee involvement requires everyone to participate and cooperate. Employees must be more versatile and take responsibility for performance improvement, preventive maintenance and problem solving at their work stations. Managers need to act more as facilitators.

Traditional Manufacturing and JIT JIT simplifies the manufacturing process and the planning and control of that process. In each area of manufacturing, JIT has contributions to make. JIT shortens lead times at all planning and forecasting levels. It shortens production lead times and improves supplier relations. In master production scheduling, JIT can leve l material and capacity schedules, shorten lead times and encourage schedule stability.

inventory management

Forecasting

capacity management Material requirements planning

Production Planning

Master production scheduling

In material requirements planning, JIT manufacturing is date and quantity driven and does not need netting. Bills of material are simplified and flattened using the JIT approach. JIT levels capacity throughout the capacity management plan and reduces inventories and component tracking., allowing for backflushes to relieve inventory. © Copyright Leading Edge Training Institute Limited

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JIT performs the same functions as traditional manufacturing but aims to do them faster and more simply. It is still important to maintain a sound planning and control system and carefully balance work flow with customer requirements. Both JIT and traditional manufacturing are concerned with the same questions: What will we make

What do we need to make it

What do we have already

What do we need to find

Forecasting in a JIT Environment The major effect of JIT on forecasting is shortened lead times. When lead times are short enough to match with sales rates, the forecasting function of master production scheduling is less important. The MPS is therefore less reliant on the accuracy of the forecast. Production Planning in a JIT Environment Production planning is often required to arrange for long lead-time purchases. As JIT focuses on building close relationships with suppliers, such lead times should be shortened and supplier and buyer work together to plan the flow of material. Master Production Scheduling in a JIT Environment One of the aims of master scheduling is the levelling of capacity. JIT aims to level the schedule based on capacity and material flow. For example, in a traditional environment where a company needs to make 3 different products over three weeks, it may concentrate on fulfilling demand for one product the first week, another product the second week and the remaining product in the third week. The difference in the traditional approach and the JIT approach is illustrated in the following tables showing the amount of each product produced each week. JIT Level Production

Traditional Master Scheduling 1400

1400

1200

1200

1000

1000

Week 1

800

Week 1

800

Week 2 600

Week 3

Week 2 600

400

400

200

200

0

Week 3

0

Product 1

Product 2

Product 3

Totals

Product 1

Product 2

Product 3

Totals

Shorter lead times reduce time fences leading to an MPS that is more responsive to changes in demand. Ideally, a company should reduce lead times to the point where they can respond to actual rather than forecast demand although forecasting will still be necessary to satisfy seasonal demand or increased demand as a result of promotions. A stable schedule is necessary in a JIT environment. By reducing lead times and subsequently time fences, this can be achieved.

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Basics of Supply Chain Management Traditionally, weekly time buckets have been used in the MPS. However, in JIT environments, as a result of reduced lead times and increased schedule stability daily time buckets are a possibility. MRP in a JIT Environment JIT requires several modifications to the traditional MRP approach, which plans material flow by exploding bills of materials and factoring in the effect of lead times and available inventory. As with MPS, the lead times in MRP can be reduced to one week as lead times reduce and flow of material improves. As there is no inventory on hand in a pure JIT environment and the requirement is to make exactly what is needed, netting is not required. If lead times are sufficiently reduced, component production occurs in the same time bucket as the gross requirement and offsetting does not apply. This is a considerable simplification of the MRP process. No offsetting required Planned Order Receipts

Planned Order Releases

25

25

By using work cells and, where possible, eliminating inventory transactions, it may be possible to flatten the bills of material by removing some unnecessary levels. In some cases, the level scheduling and pull systems required to operate a true JIT environment may not be appropriate. This is particularly the case where demand is unstable, custom engineering is required, quality is unpredictable or volumes are low and infrequent. Capacity Management in a JIT Environment Capacity planning is needed to determine labor, equipment and material requirements. Capacity control focuses on adjusting capacity daily meet demand. The JIT principles of creating a level production schedule and reducing waste make this job easier. Inventory Management in a JIT Environment JIT systems lead to a reduction of inventory at all stages in the system. Hoever, by reducing order quantities while demand remains the same, more orders are generated. Therefore, the burden of administration increases as more orders must be tracked from initial purchase order release through to receipt of materials. Backflushing is often used to reduce the number of transactions that have to be recorded. The APICS dictionary refers to backflushing as ‘the deduction from inventory records of the component parts used in an assembly or subassembly by exploding the bill of materials by the production count of the assemblies produced.’ It is also known as post-deduct inventory transaction processing. The inventory of the components of an item is reduced automatically after completion of activity on the parent item.

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Basics of Supply Chain Management Summary The JIT philosophy aims to improve flexibility and responsiveness and enable companies to cope with change cost-effectively. This lesson looked at the building blocks of JIT philosophy, such as TQM, preventative maintenance, process and product design, engineering practices and employee involvement. You should be able to: Explain the JIT philosophy List the causes of waste Distinguish between intermittent and continuous flow manufacturing State the advantages of reduced set up times and machine flexibility Explain the effects of TQM on lot size, lead time and work in process Explain the concept of pull systems Describe a JIT supplier relationship Explain the impact of total productive maintenance on operators and technicians Identify benefits of continuous process improvement Identify modifications necessary to integrate JIT with traditional planning and control systems Explain associations between MRP, JIT, and TQM

Further Reading Introduction to Materials Management, JR Tony Arnold, CFPIM, CIRM and Stephen Chapman CFPIM APICS Dictionary 10th edition, 2002 Study Notes for Basics of Supply Chain Management, Brian Willcox CFPIM, CIRM 2001, Action Materials Management (Proprietary) Limited trading as Action MRPII

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Basics of Supply Chain Management Review The following questions are designed to test your recall of the material covered in lesson 10. The answers are available in the appendix of this workbook.

5. Which system is used to reduce the number of inventory transactions that occur in a JIT environment? A. Bar coding. B. Transaction minimization C. Backflushing D. Pre-deduction of components 6. Which of the following JIT guidelines can be applied to an intermittent manufacturing environment? 1. Employee involvement 2. TPM 3. Inventory reduction 4. Continuous flow production lines A. 1 and 3 only. B. 2 and 4 only C. 1, 2, and 3 D. All 4 7. The main role of the supervisor in an organization implementing total employee involvement is: A. Coaching. B. Controlling C. Motivating D. Maintaining quality 8. What is the best definition of waste in a JIT environment? A. Any activity that does not add value. B. Any process that adds to the overhead C. Scrap components D. Overtime or extra shifts

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Basics of Supply Chain Management What’s Next? Lesson 10 introduced the JIT philosophy. At this point you have completed all ten lessons in the Basics of Supply Chain Management module. You should review your work using the questions in the next section and then revise your knowledge of the Basics of Supply Chain Management. Before progressing further along the path to CIRM certification, it is necessary to achieve certification in the Basics of Supply Chain Management. Once you have passed the APICS examination on the Basics of Supply Chain Management, you should complete the following three modules: Master Planning of Resources Detailed Scheduling and Planning Execution and Control of Operations

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Basics of Supply Chain Management Appendix

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Basics of Supply Chain Management Answers to Review Questions 1. D Just- in-Time is a philosophy primarily concerned with the elimination of waste and non-valueadding activities. Reducing inventories, and aiming to produce what is required when it is required are two of the approaches to implementing the JIT philosophy. 2. A, B, C, and D The seven sources of waste as identified by Toyota are process, methods, product defects, movement, waiting time, overproduction, and inventory. 3. C JIT environments aim to have zero defects. In a JIT environment, quality is the operator’s responsibility. The operator is the only person who can be sure defects are not built into a product. An operator must have the power to stop the process when a defect is detected. By the time defects are detected in finished product it is too late. 4. C Conformance, in the APICS dictionary is defined as a judgement that a product or service meets the requirements detailed in the relevant specification, contract, or regulation pertaining to that product. This does not mean that the product is of the highest quality possible, merely that is acceptable when judged against requirement s. 5. C Backflushing is a system of recording inventory at the finished goods stage where all the components used in a finished item are automatically deducted from inventory levels when the item is complete. For this system to be effective, lead times for product must be short and flow production should be employed. 6. C Intermittent manufacturing involves processing in batches. There may be great variations in design and order quantities. There is no continuous flow of production. However, JIT principles of employee involvement, total quality control, workplace layout, setup time reduction, preventive maintenance, and inventory reduction can still be applied. 7. C Total employee invovlement enables employees to participate in decisions previously taken by management. The supervisor is responsible for helping employees to succeed by helping them make decisions rather than controlling what they do. 8. C Waste in a JIT environment, according to the APICS dictionary, is any activity that does not add value to the product or service from a customer perspective.

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Basics of Supply Chain Management Glossary Term

Definition

Appraisal

In TQM, the formal evaluation and audit of quality

Appraisal costs

Costs associated with the formal evaluation and audit of quality in a company. This may include the cost of inspection, quality audits, testing procedures, machine calibration and checking time.

Cause and effect diagram

A quality tool used for analyzing process dispersion. It is sometimes called an Ishikawa diagram after its developer. It is also called a fishbone diagram as the completed diagram looks like a fish skeleton. The head of the diagram is labeled with a quality defect and all possible causes of this are enumerated on the ‘ribs’ of the diagram.

Demand

A need for a particular product or component which could come from a customer order, forecast of market requirements, interplant requirement, or a request from a branch warehouse for a service part

Distribution

The activities associated with the movement of material, usually finished goods or service parts from production plant to the customer. Distribution incorporates functions such as transportation, warehousing, inventory control, material handling, order administration, location analysis, packaging, data processing and communications networks.

Histogram

A graph, used as a quality tool, of adjacent vertical bars representing a frequency distribution in which the groups are marked on the X axis and the number of items in each class is indicated on the y axis. This allows people to see at a glance any recurring patterns.

Inventory

Stocks or items used to support production (raw materials and work-inprocess items), activities that support production (operating supplies, maintenance and repair), and customer service (finished goods and spare parts).

Level of service

A desired measure, usually a percentage, of satisfying demand through inventory or by the current production schedule in time to satisfy the customers’ requested delivery dates and quantities. In a make-to-stock environment, level of service is often the percentage of orders picked complete from stock on receipt of a customer order. In make-to-order and design-to-order environments, level of service is the percentage of time that the customer-requested date was met by shipping complete product quantities.

Normal distribution

A statistical distr4ibution where most of the observations fall quite close to the mean and deviation from mean falls more or less equally either side of the mean. When depicted in a graph, normal distribution has a bell-shaped curve.

Open order

A released manufacturing or purchase order; or an unfilled customer order.

Pareto’s Law

A concept developed by Vilfredo Pareto, the Italian economist. It states that a small percentage of a group accounts for the largest fraction of the impact or

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Basics of Supply Chain Management value of the group. ABC classification is related to this principle. Prevention costs

These are costs incurred due to improvement activities focused on the reduction of failure and appraisal costs. Such costs may include training, quality, and supplier certification.

Process control

The function of maintaining a process within a given range of capability using feedback.

Purchase order

The purchaser’s authorization used to formalize a purchase transaction with a supplier. A purchase order, when given to a supplier, should contain statements of the name, part number, quantity, description, and price of the goods or services ordered; agreed-to terms of payment, discounts, dates of performance and transportation and all other agreements pertinent to the purchase and its execution by the supplier.

Purchasing

This is the term used in industry to refer to the function of and responsibility for procuring materials, supplies, and services.

Quality

Conformance to requirements or fitness for use. There are five principal approaches to quality (1) Transcendent quality is an ideal, a condition of excellence. (2) Product-based quality is based on a product attribute. (3) User-based quality is fitness for use (4) Manufacturing-based quality is conformance to requirements. (5) Value-based quality is a degree of excellence at an acceptable price. Quality has two major components: conformance to specification (absence of defects) and quality of design measured by the degree of customer satisfaction with the product’s features.

Range

The spread in a series of data. For example, the temperature of a vessel may range between 4 degrees and 80 degrees depending on the stage of production. The range of temperature is therefore 76 degrees.

Request for A document sent by large manufacturers to potential suppliers to aid in the Information (RFI) supplier selection process. Key factors affecting selection will be outlined in the document. Suppliers are then invited to make submissions of their own situation in key areas. Returned RFIs are evaluated by the company and used to draw up a shortlist of suitable suppliers. Safety stock

This is a quantity of stock that is planned for inventory to protect against fluctuations in demand or supply. In the context of master production scheduling, the additional inventory and capacity planned as protection against forecast errors and short term changes in the backlog. Overplanning can be used to create safety stock. Safety stock is also known as buffer or reserve stock.

Scatter Chart

A graphical technique to analyze the relationship between two variables. The x axis is assigned to the variable that will be used in making predictions. The y axis is used for the other variable. The graph shows potential relationships between the two variables. The scatter chart is a quality tool. It is also occasionally called a cross plot.

Service level or level of service

A desired measure (usually a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customers’ requested delivery dates and quantities. In a make-to-stock

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environment, level of service is sometimes the percentage of orders picked complete from stock upon receipt of customer order. Service Level A contract drawn up between a company and its supplier, detailing the level Agreement (SLA) of service required, pricing, responsibilities on either side and other terms and conditions of service. Specification

A clear complete and accurate statement of the technical requirements of a material, an item, or a service, and of the procedure to determine if the requirements are met.

Stockout

A lack of required materials components or finished goods.

Total Quality Management (TQM)

A term originally used to describe the Japanese approach to quality improvement. It has since taken on several different meanings. TQM is a management approach to long-term success through achieving customer satisfaction. It is based on the participation of all members of an organization in improving processes, products, services, and the culture they work in. There are several methods for implementing TQM.

Unit cost

Total labor, material, and overhead cost for one unit of production.

Variation

A change in a f unction, or characteristic, or other element caused by structural variation, tampering, common causes or special causes.

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Basics of Supply Chain Management