Just-in-time manufacturing and its benefits on the supply chain

You may have read and heard a lot about just-in-time techniques, but here’s something new: Implementing said techniques has benefits for both customers and providers. Let’s take a look at some of them.

Benefits for customers

  • Improvements in the ratio of capital turnover (sales / assets).
  • Increased productivity, reduced costs.
  • Production flexibility, which means faster response to demand.
  • Offering a product with higher added value for the customer and at a lower price.
  • Current and future reduction of the number of products in progress.
  • Reduced inventory levels through more frequent deliveries in small lots. This point is vital because excess stocks:
    • Absorb capital that is not needed and that could be invested in a better way.
    • Generates higher storage costs (taxes and insurance) and management (wastage, breakages).
    • It increases the risk of damage and obsolescence.
    • It can hide opportunities for operational improvements.
    • Increased investments in factory space are needed.
  • Advantages of working with small batches:
    • Reduces manufacturing lead times.
    • Increases inventory turnover.
    • Reduces the need for space.
    • Reduces delivery times.
    • Reduces inventory in transit.
    • Reduces waiting times.
    • It helps maintain a uniform workload.
  • It simplifies programming.
  • It encourages staff participation, causing an overall increase in employee satisfaction.
  • Simpler management: reductions in routinary office work.
  • The accounting system will have the following characteristics:
    • Fewer transactions. In this system there is no accumulation or transfer costs as products move along the production process. Instead the reverse flow accounting is used, which records costs in omnibus accounts as costs “retire” from the finished production throughout the plant. Only the stock of raw material and that of the final product is controlled.
    • Omnibus accounts. JIT tries to remove inventory, including the raw materials, so there is no need for a separate account for materials. The classification of costs of direct labor is rarely used. From an accounting perspective, the cost of labor is combined with other costs to integrate the total cost of product conversion.
    • Non-financial performance measures.
    • Tracking overhead. Just-in-time practices usually assign many indirect tasks to a process of a product. You can assign a person of the maintenance department to the process of a certain product and give him a cross-functional training to perform other operations.
  • Identifying areas that create bottlenecks.
  • Identification of quality problems.
  • Reducing the cost of poor quality.
  • Reduction in the manufacture of defective products.
  • Ability to stop the production line when defects appear.
  • Lower costs through improved preventive maintenance.
  • Lower labor costs due to increased overall efficiency despite increased downtime.
  • Benefits to implement JIT provisioning:
    • Reduced cycle time supplies.
    • Administrative efficiency:
  • Less RFQs.
  • Contracts are negotiated frequently.
  • Minimal amounts of paperwork at the time of delivery.
  • Shorter travel and communication distances and times, and therefore lower costs.
  • Easy count of merchandise due to the use of standardized containers.
    • Leverage investments in providers’ R&D.
    • Get the know-how and take advantage of the experience curve of the suppliers for the development of new products.
    • Get a prompt response to engineering changes.
    • Prompt correction of defects by the supplier, as preparations are frequent and batches are small.
    • Changes in supplier-customer relationship. Introduction of procedures defined by mutual agreement between the supplier and the customer which requires the quality experts of both companies to get in touch. The advantages of this collaboration benefit both parts:
      • The supplier begins to know, with first hand information, the customer’s concerns on the issue of quality, in addition to receiving information on uses of the product beyond its specifications, which can in turn improve the fitness of its use.
      • The customer begins to perceive some problems that the vendor finds to meet the specifications he has set.
    • Direct materials:
      • Quantity discounts, sole supplier, insured deliveries and on time. Quantity discounts occur because the overall volume of purchased items is greater.
      • Reducing safety stock of raw material.
      • Early detection of defects, since deliveries are more frequent.
      • Better quality. It is unnecessary to inspect the quality of the parts given by suppliers, since process control is emphasized. The production, packaging and shipment of the product is defined in advance. Only the quality will be inspected in certain exceptions, for example if there is a problem with a particular part. This method of ensuring quality through inspection and control has some drawbacks:
        • It is wasteful, since sampling and inspecting add costs and risks of breakage of the material since it must be handled and stored.
        • It involves risks. In the sampling inspection there is the risk of accepting lots with some defective products as good ones.
        • It generates inaccuracies that may occur during the inspection.
        • It is impractical.
        • It generates erroneous messages. Communication between customers and suppliers -regarding defects in materials- may take so long to get to the latter that it may no longer be possible to discover the causes of defects.
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Image courtesy of pixabay.com at pexels.com

Benefits for providers

  • They increase the volume of their business gradually. They get access to new markets.
  • Obtaining guarantees to continue as long-term suppliers.
  • An increase in flexibility.
  • Possibility of increasing benefits as projects with impact in reducing quality costs are implemented. Often, the profit is split between the supplier and the customer.
  • Receiving useful feedback for learning.
  • Receiving technical assistance from the client company in the implementation of JIT and other techniques.
  • Create an interdependent relationship with the client through which no one can stop operating without the other.
  • Ability to add more value to their product.
  • Simplifying planning of their own operations as long as the customer sends orders in a timely manner and there are no abrupt changes in the mix.

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