The manufacturing and inventory management in companies has evolved over the years, but by far Toyota revolutionized the business when involving a just-in-time (JIT) manufacturing system. This methodology is mainly designed to reduce the time of the production line starting from the production itself to the response time from suppliers and customers. This system originated in the 1960s and 1970s in Japan and transferred to the Western industry in the 1980s to other industries besides car manufacturing.
JIT is considered to be one of the best ways to improve profitability since it implicates that inventory is ordered and received only when needed, as opposed to keeping a previously purchased stock of items. An excess of inventory is usually going to be wasteful and this should be avoided when attempting to increase profits. There are several advantages to the JIT strategies like low inventory, free up cash resources, low wastage, high quality production and high customer responsiveness.
There are at least two environments where it has proved to work successfully: manufacturing and retail/support. In manufacturing, the process depends on a series of signboards, or “askanban” as referred to in Japanese, in specific places during the manufacturing process that indicates when to make the next part. In this process the movement of raw materials from one workstation to another workstation are significantly reduced and in this way reduce costs. In a retail/supplier setting the JIT process attempts to have a very close communication with suppliers and retailers in a way that would allow the maximization of this relationship. The correlation between production, sales levels and inventory levels can easily be tracked and maintained through automatic reordering systems. This would keep minimize the number of items that are out of stock in a store. In both cases, the notion of stocking or requesting raw material only when needed saves a great deal of costs to the company and meets customer demands a lot more effectively.
Some examples of JIT
Examples of this method are found in many industries, but mainly in those that make use of a production line or require keeping an inventory of raw materials. Here are some of the most successful cases of JIT use.
One of the most famous examples of Just in Time manufacturing simply because it was one of the first to implement this strategy effectively. At Toyota the raw materials are not brought to the production floor until the order is received from the client and the product is ready to be built. During the process no parts are included in the next node unless they are required to. This keeps the amount of inventory to a minimum which as a result means lower costs. Moreover, this process allows Toyota to adapt rather quickly to their customer’s demands without concerning themselves with excessive inventory and its disposal. Some of the factors that lead to Toyota’s success are that the small quantities of raw material are kept at the different stations assuring that there is always enough to start production of any product, and once it has been made the parts are replaced. Additionally, it is necessary to have a very accurate forecast of the raw materials required for upcoming demand so that they can be stocked.
Dell is another good example of a manufacturing process that has demonstrated the efficiency of this process. Their approach is a little different in that they have their clients achieve their goals and they also provide lead times that are shorter than most situations. They accomplish this by negotiating with suppliers to carry inventory instead of carrying it themselves and this way requesting components with short lead times making it easy for Dell to assemble and ship to customers. Their process is considered a success basically because of their dependable suppliers and the short lead times.
In this case there was a dramatic change after World War II, when after showing a less than efficient process they turned to JIT and by having inventory on hand they lead to shorter lead times and a much more efficient service for customers. After implementing JIT at Harley Davidson the inventory levels declined in 75 percent, but at the same time productivity rose. By doing so, they were able to identify and solve the inefficiencies of the process because it could no longer hide under a large amount of costly inventory.
Fast food restaurants like McDonald’s usually have everything they need to assemble and don’t do so until the order has been taken, except for a few finished products. This makes the process so standardized that every time a customer goes they get the same experience.
This strategy allows distributors and retailers to order only after the customers have placed their orders. Wholesalers keep enough inventory on hand in a warehouse so as to be able to allow distributors and retailers to only keep reasonable storage, but still offer a very efficient service to their clients. The drop-shipper will send the item directly to the customer, even with the resellers image and logo so as to continue to reinforce the customer relationship.