Advantages and Disadvantages of Just-in-Time (JIT) Manufacturing and Inventory Control SystemApril 12, 2010
Traditionally manufacturers have forecasted demand for their products into the future and then have attempted to smooth out production to meet that forecasted demand. At the same time, they have also attempted to keep everyone as busy as possible producing output so as to maximize “efficiency” and (hopefully) reduce costs. Unfortunately, this approach has a number of major drawbacks including large inventories, long production times, high defect rates, production obsolescence, inability to meet delivery schedules, and (ironically) high costs. Non of this is obvious -if it were, companies would long ago have abandoned this approach.
JIT is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. In just in time manufacturing system inventories are reduced to the minimum and in some cases they are zero.
JIT works in the three types of inventories:
a) Raw materials: inventories provide insurance in case suppliers are late with deliveries.
b) Work in process: inventories are maintained in case a work station is unable to operate due to a breakdown or other reason.
c) Finished goods: inventories are maintained to accommodate unanticipated fluctuations in demand.
The main BENEFITS of JIT are the following:
- Funds that were tied up in inventories can be used elsewhere.
- Areas previously used to store inventories can be used for other more productive uses.
- Throughput time is reduced, resulting in greater potential output and quicker response to customers.
- Defect rates are reduced, resulting in less waste and greater customer satisfaction.
Most companies find, however, that simply reducing inventories is not enough. To remain competitive in an ever changing and ever competitive business environment, must strive for continuous improvement.
A real business example: Dell Computer Corporation
In this company an order for a customized personal computer that comes in over the internet at 9 am, can be on a delivery truck to the customer by 9 p.m. In addition, Dell’s low cost production system allows it to under price its rivals by 10% to 15%. How does the company’s just in time system deliver lower costs? While machines from Compaq and IBM can languish on dealer shelves for two months Dell does not start ordering components and assembling computers until an order is booked. By ordering right before assembly, Dell figures it s parts, on average, are 60 days newer than those in an IBM or Compaq machine. That can translate into a 6% profit advantage in components alone.
Source: Gray McWilliams, “Whirlwind on the web, “Business Week, April 7, 1997.
PCs Just In Time Management.
DISADVANTAGES of JIT:
Implementing thorough JIT procedures can involve a major overhaul of business systems -it may be difficult and expensive to introduce.
JIT manufacturing also opens businesses to a number of risks, notably those associated with the supply chain. With no stocks to fall back on, a minor disruption in supplies to the business from just one supplier could force production to cease at very short notice.
Just-in-time manufacturing system is vulnerable to unexpected disruptions in supply chain. A production line can quickly come to a halt if essential parts are unavailable. Toyota, the developer of JIT, found this out the hard way. One Saturday, a fire at Aisin Seiki Company’s plant stopped the delivery of all break parts to Toyota. By Tuesday, Toyota had to close down all of its Japanese assembly line. By the time the supply of break parts had been restored, Toyota had lost an estimated $15 billion in sales.
Source: “Toyota to Recalibrate ,’” International Herald Tribune, February 8, 1997.
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