All manufacturing organizations hope to contain the costs of production and get their products shipped as quickly as possible.
Just-in-time (JIT) manufacturing addresses these concerns. It’s a system that targets reducing the times a product spends going through production and, at the same time, cutting back the response time from suppliers. Controlling the variables is the key to holding down production costs while increasing productivity.
Similar to lean manufacturing, JIT is designed to meet demand rather than create a surplus in anticipation of a future need. Its primary purpose is to eliminate the waste that comes from overproduction, waiting, and surplus inventory. Here are these wastes in a bit more detail:
Overproduction is manufacturing products in advance of or more than demand. It’s considered to be the most severe of the wastes by proponents of just-in-time manufacturing because it squanders time, space, and money, all the while masking the other problems within a company’s processes.
Waiting to begin one process until another one finishes is ineffective and a colossal waste of time. The flow of all operations should be efficient and continuous. Some estimates claim that more than 90 percent of a product’s time in manufacturing is spent waiting!
Excessive inventory typically means that a company has ordered more than the market demands or the demand falls dramatically after the inventory is ordered. Either way, it hurts business because it takes up space and must be managed. Companies often rid themselves of excess inventory by selling it at a reduced cost or tossing it out, either of which can lower profits significantly.
Just-in-time signifies a major change in direction
In the past, manufacturers carried larger inventories of stock and raw materials just in case there was an increased demand for their product. Not surprisingly, that philosophy is often called just-in-case (JIC) manufacturing. Companies referred to this extra inventory as “safety stock,” and it forced them to manage this excess inventory and absorb a dent in their profits.
Ordering inventory as needed means a business operates with low inventory levels at all times and does not hold safety stock. The just-in-time manufacturing strategy lowers or eliminates their costs to carry excess inventory, and it decreases waste. But JIT does require manufacturers to do accurate forecasting for the demand of their products.
The how, when, and why of just-in-time
Just-in-time manufacturing began in earnest after World War II. Cash-strapped Japanese manufacturers began adopting the system because they could not finance the large inventory production methods that developed countries were using. They also lacked natural resources and available employees to take on large-batch inventory production.
As a result, these manufacturers built smaller plants and quickly turned small amounts of raw materials into small batches of products or components. These smaller quantities allowed the manufacturers to generate maintainable levels of working capital while minimizing their financial risk.
While the original just-in-time concept is credited to Toyota (it was even called the Toyota Production System in the Western media), some argue that Japan’s shipyards successfully developed and implemented the approach first. No matter which of these was the originator, the idea was born from Japan’s post-war lack of cash, lack of space for large factories and inventory, and their lack of abundant natural resources.
News of the just-in-time manufacturing technique reached the United States around 1977, and by 1980 most of the developed countries had implemented some version of it.
JIT in practice
Just-in-time manufacturing seeks to reduce non-essential costs and improve an organization’s return on investment (ROI). But JIT is not a magical solution. It requires structure, specific processes, and, most of all, discipline. And, it is not limited to controlling inventory levels. Here are some of the other components of a complete JIT system:
- Improving quality by eliminating defective work
- Staying organized with excellent methods of housekeeping
- Smaller lot sizes
- Reduced set-up time and flexible approaches to changeovers
- Uniform workload throughout the plant
- Cross-trained workers that have multiple skill sets
- Streamlined movement of materials
- Designing parts and components to making processing simpler
- Visual tools to improve overall communication
- Cellular manufacturing
- Pull systems that allow workers to pull in tasks as they are ready
- Kanban system that matches inventory to demand and reaches higher levels of quality and output
What can businesses expect after adopting just-in-time?
When companies put the proper time and effort into implementing a just-in-time manufacturing system, companies can expect to see a sweeping impact on their productivity, risk management, and operating costs. Here are some of the benefits that manufacturers worldwide are experiencing:
- Drastically reduced inventory levels
- Lower labor costs
- Less space needed to operate
- Reduction in work in process (WIP)
- Improvements in quality (fewer defects)
- Reduction in throughput times
- Fewer standard hours
- Increased number of shipments
Are there risks involved with just-in-time manufacturing?
For the most part, businesses that employ just-in-time manufacturing practices will see reduced cycle times, faster times to market, and reduced operating costs. But there are risks, especially for smaller companies. One supplier that experiences a breakdown and can’t deliver the materials that a company needs can disrupt or shut down the entire production process.
Also, a customer’s orders for products could exceed the company’s forecasted expectations, which could delay the shipment of finished goods to several customers.
To have the best chance of success with just-in-time, it’s critical that companies find suppliers that are either located close by or can supply materials quickly and with little advanced notice. It’s also important that these suppliers waive any minimum order requirements that could hurt smaller businesses, which typically purchase smaller quantities of materials.
Does just-in-time manufacturing work with an ERP system?
The short answer is “yes” since most manufacturers have overcome any inherent conflicts between enterprise resource planning (ERP) and just-in-time manufacturing systems and have meshed the two systems successfully. As mentioned, JIT does require manufacturers to be very accurate in their forecasts for the demand for their products. A quality ERP system is designed to do just that. Talk to an experienced ERP distributor to find out how your business can enjoy the benefits of both.