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Just-in-Time (JIT) Philosophy

Known as the lean production

philosophy/culture Includes

Increased coordination through the value chain Reduced inventory

Reduced production times

Increased product quality

Increased employee involvement and empowerment

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JIT/Lean Approach to Reducing

Incoming Materials

Elements of reducing incoming materials

1. Developing long-term relationships with a limited

number of vendors2. Selecting vendors on the basis of service and materialquality, as well as price

3. Establishing procedures for employees to order

materials for current needs directly from approvedvendors4. Accepting vendor deliveries directly to the shop floor

or only as needed

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JIT/Lean Approach to Reducing

Work-in-Process Inventory

Key element is reducing cycle timeTotal time required to complete a process

Cycle time consists of:

Movement Time Inspection Time

Processing Time

Waiting TimeSetup Time

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Materials Push and Pull Systems

Materials Push System Materials Pull System

Employees work to

reduce the pile of

inventory building upat their workstations

Employees push

the work to the next

workstation after

completing their

operation

Employees at each

station work to provide

inventory for the nextworkstation as needed

Work stops when

inventory units reach a

specified limit until that

station catches up

Known as a Kanban

system

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JIT/Lean Approach to Reducing

Finished Goods Inventory

Can be reduced by Reducing cycle time

Reduces the need for speculative inventories

Better predicting customer demand for finished

unitsTo improve, adopt a value chain approach to inventory

management by which the manufacturer or supplier is

working as a partner with its customers to meet inventory

needs

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Performance Measures Under

Lean Production and JIT

Goal is to eliminate inventory and reduce cycle

time to processing time

Performance emphasis on Inventory turnover

Cycle time

Cycle efficiency

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Gross Margin Return on

Inventory Investment (GMROI)

Measures the effectiveness of inventory levels

GMROI =Gross margin

Average inventory

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Cycle Time

Measures the total time required to produce

one unit of a product

Cycle Time =

Setup

Time++++

Processing

Time

Movement

Time

Waiting

Time

Inspection

Time

The only component

that adds value

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Simplified Recordkeeping

Lean production and JIT enable significantreductions in the number of accounting

transactions required for purchasing and

production Purchasing

Standing purchase orders allow production personnel to

requisition materials directly from vendors

Limited quantities are delivered Product costing

Ending inventories are close to nonexistent so costs are

insignificant