JIT and Lean Operations
16
C H A P T E R
DISCUSSION QUESTIONS Profile in Chapter 9) to driving down inventory at Arnold Palmer
Hospital (see the video case study in this chapter).
1. JIT is a philosophy of continuous and forced problem solving.
12. Virtually all lean techniques have application in both
It is a continuous program that replaces a series of “fad” programs.
manufacturing and services. The lean techniques of JIT, layout
2. A lean producer is a company that adopts a philosophy of (work cells), inventory reduction, and tight scheduling have few
minimizing waste, striving for perfection through continuous boundaries.
learning, creativity, and teamwork.
3. The Toyota Production System (TPS) has three core ETHICAL DILEMMA
components: continuous improvement, respect for people, and What are the ethical issues? Students may disagree, but there
standard work practices. TPS is the standard for repetitive may not be an ethical issue for Mega-Mart. There may be an issue
manufacturing. of being nice to a good supplier, but that is not necessarily an
4. Level schedules process frequent small batches rather than a ethical issue. Mega-Mart is interested in an efficient (and
few large batches; the small batches are always changing. They consistently administered) supplier network that drives down
match one day’s demand to one day’s work. costs for its customers. That is a strong ethical argument in itself.
5. JIT allows for safety stock and in-transit inventory (but no (See the work of Michael Porter and his five forces model—firms
more than necessary). Where external, unpredictable issues such compete not only via rivalry with direct competitors but also with
as weather arise, more safety stock is necessary. Consignment new entrants, substitute products/services, buyers, and sellers.)
inventory is also useful. Beyond that, JIT is at risk for events such As the seller, what do you do? If the purchased product is
as weather and work stoppages. special and unique enough, Mega-Mart may be more flexible
concerning the RFID implementation schedule. Mega-Mart may
6. Quality relates to JIT: JIT cuts the cost of obtaining good also be willing to help with expertise or recommendation of good
quality; JIT improves quality; and better quality means fewer economical RFID vendors. In a free competitive world, your
buffers and therefore a better, easier-to-use JIT system. association with Mega-Mart is a voluntary association between
7. TPS contributes to competitive advantage through: suppliers, buyer and seller and you can, of course, walk away. Other
layout, inventory, scheduling, preventive maintenance, quality alternatives include:
production, employee empowerment, commitment of management Increasing your sales volume to cover more of your fixed
and employees. cost
8. JIT partnering with suppliers; few suppliers; nearby suppliers; Doing all of the things that a good operations manager does
repeat business with the same suppliers; analysis to enable desirable to become more efficient.
suppliers to become/stay price competitive; competitive bidding
mostly limited to new purchases; buyer resists vertical integration END-OF-CHAPTER PROBLEMS
and subsequent wipeout of supplier business; and suppliers are 16.1 Demand during lead time-2 (1,000 2) 2,000
encouraged to extend JIT buying to their suppliers. Safety stock (1/2 day) 500
9. The word is kanban, and is closely associated with JIT. It Maximum inventory level 2,500
relies on visual or other simple signals to indicate when items Number of kanbans needed:
need to be “pulled.” It is symbolic of the waste reduction, distance 2,500 (Maximum inventory level)
reduction, and small lot size that characterize JIT. 5
500 (Kanban size)
10. Standardized, reusable containers within the plant: in
16.2 Demand during lead time 125
shipping; protect the specific quantities to be moved; reduce weight
Safety stock 62.5
and
Maximum inventory level 187.5
disposal costs; generate less wasted space in trailers; and require
Number of kanbans needed:
less labor to pack, unpack, and prepare items. Inside the plant: to
convey the quality of the kanban and to protect the items. 187.5 (Maximum inventory level)
3.75 4
11. Lean production is applicable everywhere. It ranges from 50 (Kanban size)
lean layouts at McDonald’s kitchens (see the Global Company
210
2 DS 2(20,000)(20) 800,000 800,000
Qp 4359 66
d 80 250(1 0.266) 183.5
H 1 250 1
p 300
Then we determine the number of kanbans: CHAPTER 16 J I T A N D L E A N O P E R A T I O N S 211
Demand during lead time 240 (3 days Daily usage of 80)
Safety stock 150 (1/2 days production 300)
Therefore maximum inventory should be 390 mainshafts.
Because the kanban size is 66 mainshafts, 5.9 kanbans are
appropriate (390/66). This can be rounded to 6.
16.3 First, we determine the kanban size. To do this, we
determine the production order quantity (see discussion in
Chapter 12), which determines our kanban size.
Demand during lead time 160 (16 days Daily usage of 10)
Safety stock 80 (4 days production 20)
Therefore maximum inventory should be 240 subassemblies
Because the kanban size is 50 subassemblies, 5 kanbans are appropriate (240/50), rounded from 4.8.
2 DS 2(2,500)(30)
Qp
d 10
H 1 120 1
p 20
2 DS
150,000 Q
2,500 50 16.8 d
60 H 1
p
Then we determine the number of kanbans:
16.4 First, we must determine the kanban size. To do this, we where D = annual demand, S = setup or order cost,
determine the production order quantity (see discussion in H = holding cost, d = demand rate, p = production rate.
Chapter 12), which determines our kanban size. Solving for S (setup cost):
16.5 D 2,000; H$12; S $30 d 120
Q 2 H 1 1202 12 1
960
2(2,000)(30) p
(a) EOQ 100 lamps
12 S
2D 2 31,200
2,000(30) 100(12) 14,400 12 (1 0.125)
(b) TC $1,200 $2.42
100 2 62,400
2,000
(c) No. of orders 20 orders/year $2.42/setup 60 minutes/hour
100 Setup time
$20 / hour
16.6 D 2,000; H $20; S $0.50
7.26 minutes/setup (which is .12 hours)
2(2,000)(0.50)
(a) EOQ 10 lamps
20 2 DS
Q
2,000 16.9 d
(b) No. of orders 200 orders/year H 1
10 p
2,000 (0.5) 10(20)
(c) Total annual cost where D = annual demand, S = setup or order cost,
10 2 H = holding cost, d = daily demand rate, p = daily
1000 200 production rate. Solving for S (setup cost):
100 100 $200
10 2
d
Q2 H 1 1502 10 1
150
16.7 With JIT, purchase/delivery of goods immediately precedes p 1000
demand. The decrease in EOQ for lamps, from 100 to 10, S
increases deliveries from 20 to 200. With the new 2D 2 39,000
relationship with Specialty Lighting, Discount-Mart has 22,500 10 (1 0.15)
$2.45
reduced its inventory costs, a usual pattern for companies 78,000
using JIT purchasing. $2.45/setup 60 minutes/hour
Setup time
$40 / hour
3.675 minutes/setup
Q 2 H (1 d / p)
16.10 (a) Using the model S
2D
2002 10 (1 100 / 800)
2 30,500
212 CHAPTER 16 J I T A N D L E A N O P E R A T I O N S
S $5.74 Saturday afternoon: Toyota and Aisin summoned officials
5.74 from some of the major parts suppliers to a second war room, at
(b) Setup time 8.61 min 60 Aisin headquarters. Officials shouted out for copies of the
40
blueprints of different P-valves and Toyota executives divvied up
valve-making assignments.
CASE STUDIES Sunday: Toyota purchasing officials called more parts makers
to a meeting. These officials, like those that had met on Saturday,
1 MUTUAL INSURANCE COMPANY OF IOWA
were like family—people who work closely with Toyota from the
1. We can assume that if carried out properly, all the good things start of a car’s design.
that are supposed to happen with JIT will. For instance, we expect Trust: The support parts makers provided Toyota during
reduced floor space, higher quality (fewer errors), less WIP, its crisis helps indicate why Japan’s auto companies return the
empowered employees with higher morale, faster throughput, etc. loyalty—often to the detriment of U.S. and other foreign parts
2. Suggested layout follows: makers seeking market share here. Toyota and Aisin didn’t bother
to approach any foreign companies during the crisis, a Toyota
spokesman says, because “there were no foreign suppliers in a
position to help us.”
Suppliers never asked Toyota or Aisin what they would be
paid for rushing out the valves, says Somic’s Mr. Ishikawa. “We
trusted them.”
Indeed, as the first valves arrived at Toyota factories, Aisin
told the suppliers it would pay for everything, from drills and
overtime pay to lost revenue and depreciation. And Toyota
promised the suppliers a bonus totaling about $100 million “as a
token of our appreciation,” says Mr. Okuda, its president. He adds
that the auto maker will certainly remember the companies that
pitched in during its crisis.
2. The fire and its aftermath have left Toyota executives
convinced that they have the right balance of efficiency and risk.
“Many people say you might need to scatter production to different
suppliers and plants, but then you have to think of the costs” of
setting up expensive milling machines at each site, Mr. Ikebuchi
says. “We relearned that our system works.”
In fact, the fire may have made the system even more
efficient. Nisshin Kogyo Co., which was making the other 1% of
Toyota’s P-valves, says that during the crisis it raised production
efficiency 30% by speeding up production.
The fire spurred Toyota to begin an effort to trim the number
of its part variations, a project that should eventually cut costs.
And sole-source suppliers are moving quickly to build fail-safe
mechanisms. Somic, which, makes all of Toyota’s steering
3. We are assuming that the personnel can be cross-trained for all linkages, is revamping its system so it can easily shift to another
the jobs in the cell, that training budgets will increase, and that site if disaster strikes.
equipment utilization will improve, yielding less capital expenditure.
3. At about 10:30 A.M. on September 11, 2001, Chrysler
4. The new JIT system will reduce throughput time, yield satisfied personnel had established a war room environment very similar to
customers, and create jobs. (Sounds like Deming.) that at Aisin and Toyota and were modifying delivery of the JIT
shipments to 18 Chrysler plants. They passed around a one-page
2 JIT AFTER THE FIRE summary of critical parts that would stop production at each plant.
This case and the detailed discussion below (much of which is from Around 2 P.M. Tuesday, the company announced it was shutting
The Wall Street Journal articles) can make for a very interesting all of its U.S. plants for one day for two reasons: first, to let
class discussion. More resourceful students may even go to the employees get home amid the tragedy, and second, because of
sources listed and be prepared with these answers. mounting concern about shortages. By Tuesday afternoon, with
federal airspace closed, expedited truck service with two-person
1. Saturday morning: Even as the fire burned, Aisin officials or- drivers was under way. By Wednesday morning the big three auto
ganized a committee to assess the damage, notify customers and firms were asking U.S. Customs officials for help at border
labor unions and, following Japanese custom, visit neighbors to crossings. When the airports reopened on Thursday afternoon,
apologize. A subcommittee ordered 320 cellular phones, 230 extra trucks with critical materials were redirected to the nearest
phone lines, and several dozen sleeping bags for executives who airports.
were expected to live at headquarters in the coming days. Sources: Case and solution are based on material in: The Wall
Street Journal (May 8, 1997): A1–A5: (September 13, 2001): B3:
CHAPTER 16 J I T A N D L E A N O P E R A T I O N S 213
and (September 24, 2001): B1–B5; and Harvard Business Review 2. How might the procedure for custom surgical packs described
(September–October, 1999): 97–106. here be improved?
VIDEO CASE STUDY APH could reduce the number of pack in the buffer from one day
to less than one day fix leading.
JIT AT ARNOLD PALMER HOSPITAL 3. When discussing JIT in services, the text notes that suppliers,
A 9-minute video, filmed specifically for this text, is available layout, inventory, and scheduling are all used. Provide an example
from Prentice Hall and is designed to supplement the written case. of each of these at APH:
An edited 2-minute version of the video appears on the student Suppliers get on board with high quality frequent deliveries.
DVD. Layout is modified to be near (perhaps adjacent) to the
1. What do you recommend be done when an error is found in a work area and with no space for excess storage.
pack as it is opened for an operation? Inventory is at a minimum to ensure that bad product is not
made, shipped, and stored. Minimum inventory allows
The immediate solution is get another pack. (Although APH uses
immediate feedback on quality. The plus at APH is that
a JIT system, there are some spares—actually almost a one-day
quality (i.e., sterile packs) is enhanced by maintaining only
buffer.) However, the advantage of JIT is that the error is known
limited storage.
immediately—at APH within a day of delivery. McKesson can
Scheduling that meets JIT demands, schedules only what is
track back thru the system and identify the cause of the error—
needed when it is needed.
and take corrective action!
4. When a doctor proposes a new surgical procedure, how do
you recommend the SKU for a new custom pack be entered into
the hospital’s supply-chain system?
The request for changes and all new products goes to the Medical
Economics Outcomes Committee. Reducing the proliferation of
SKUs is a continuing issue at APH, as it is for operations personnel
everywhere.
