Kanban and Just-In-Time Inventory

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Just-In-Time (JIT) is an extremely powerful system of manufacturing and inventory management that is geared toward eliminating waste – and therefore costs – while optimising efficiency, quality and profitability.

Some of the most notable companies that have managed to implement JIT to great success include Toyota, Honda, Dell computers, Harley Davidson Motorcycles and McDonalds. What began as an enterprising Japanese industrial engineer’s brainchild while working at Toyota has since evolved into a manufacturing and inventory management methodology that has totally transformed the production landscape.

The revolutionary, yet characteristically Japanese, approach to achieving excellence through simplification – the elimination of unnecessary waste – combined with an unwavering commitment to improving quality and efficiency is what defines JIT. The result is a system of inventory management that greatly reduces inventory, streamlines production and improves quality, as well as customer service, remarkably.

The fundamental objectives of just-in-time inventory manufacturing and inventory management are to ensure that goods are used in the production process only at the time they are needed, at the place they are needed, and in the exact quantity they are needed. This brings about a production process capable of delivering high-quality goods, to customer specification, at greatly reduced costs to the manufacturer. Typically, the most notable components if JIT are identified as follows:

1. The elimination of waste – Just-in-Time Approach

The first key component associated with JIT – as already indicated – is the elimination of waste. The best way to understand what is meant by waste in the context of JIT is to define it as the unnecessary cost of business, or costs that add little or no value to the product. This could be in the form of time wasted through delays, waiting on parts in the production line, inefficient material handling processes, and laborers having to move about the warehouse or factory floor in search of tools and materials that should be immediately and readily available. Any waste in terms of time, materials, or space is markedly reduced or eliminated through implementation of JIT inventory.

2. The pull method of production

The majority of manufacturing processes occur in stages, and so the pull method of production is characterised by the production of goods only when and as they are needed by the next stage in the manufacturing process. This is opposite of traditional push systems, where inventory is stored based off anticipation of demand – which may never come, resulting in wastefully high levels of inventory on hand.

This effectively reduces or eliminates costly ‘work-in-process’ inventory and the associated waste in waiting times, and the non-value-adding costs they incur. The pull method of production effectively takes the traditional sequence of manufacturing and completely reverses it.

With the pull method, production begins at the last stage in the manufacturing process and not the first, as is generally the case. This means that inventory is only sent to a work center by its preceding work center in the chain of manufacturing as it is required for final assembly. This request for parts is made in the form of a ‘Kanban’ – essentially an itemised card that indicates the type and number of parts requested by the previous workstation or assembly station.

In this way the parts needed by a production center are effectively ‘pulled’ from the work center preceding it. This process of ‘pulling’ inventory for manufacturing is repeated all the way from final assembly to the very first (or rather last) stage in the supply chain. The result is an absence of unnecessary inventory build-up, no delays in supply and manufacturing, and the elimination of over or under production. A typical market trigger for the pull method is the depletion of consignment inventory.

3. Team and goal-oriented operations

The focus of JIT is on optimised integration and cooperation between personnel. Whereas traditional manufacturing and inventory processes require a narrow view of operations, with each member focused on and aware of a narrow scope of tasks and responsibilities, JIT requires a much broader overview of operations.

It is a management process that requires every single employee to be made aware of the big picture and to understand that they are all individually and collectively responsible for meeting the specific needs of each and every customer.

4. Simplicity

It can be argued that complexity causes confusion and conversely that simplicity leads to far more efficient solutions. One of JIT’s most defining attributes is its simplicity. In most cases, particularly within manufacturing and inventory management, the simplest solution is also the most cost-effective one. Any task or process that rises in complexity also rises in cost and risk.

5. Kaizen – harnessing the power of constant and never-ending improvement

JIT is rooted in the Japanese understanding that people and organisations are never perfect and therefore can always be improved upon – Kaizen. The most successful businesses are the ones that are constantly assessing, simplifying and refining their utilisation of the people, processes and products within their organisation. With regards to JIT, the highest quality raw materials can be utilised, which in effect results in the highest quality finished goods for the customer.

6. Visibility – making the unseen, seen

Just-in-time requires that all areas of loss and unnecessary waste be made visible. Only when an area of waste or loss is visible can it be removed. This is why one of the most notable features of just-in-time lies in its reduction of inventory. When inventory is reduced otherwise undetected areas of loss manifest. Typically, these include a breakdown in machinery due to poor maintenance, time-consuming machine setups, poorly planned factory or warehouse layout, inferior quality raw materials and issues with suppliers due to long lead times or poor service delivery.

Just-in-time is defined by extremely well organised, clean and efficient workstations with very little inventory as well as machinery that is well-maintained and well operated.

7. Customisation

Just-in-time production is highly versatile and adaptable making it perfectly suited to adjust constantly to any fluctuation in customer demand. The Kanban system ensures that any order – regardless of how customised – will be produced with the same high level of efficiency and quality as a non-customised product.

The decision on whether to implement a just-in-time inventory management system should never be made flippantly because it entails a complete overhaul – both philosophically and logistically – of the entire business operation.

Disadvantages of Just in Time inventory

Although JIT inventory has the potential to save money in storage costs, it also poses many risks to the company which should be carefully weighed up. By operating a JIT system, the company is far more reliant on its suppliers and, in particular, the company depends on timely and consistent supply. This is because there is not a large safety net of stock should the supply chain fail.

Potential consequences of such a situation may be the inability to continue production resulting in loss of production time and money (idle staff still earn wages) and, of course, dissatisfied customers who are waiting on unfulfilled orders. With any inventory operating method there are drawbacks to consider. However, with careful planning, these downsides can often be mitigated.

Tools to have in place for effective JIT inventory system

Transparency and communication with your suppliers

It is imperative to have good communication and transparent processes with your suppliers if JIT is to be effective. This is so that you can visualise their stock and quickly place an order as soon as one of your own customers have placed an order with you. For JIT inventory to be effective, your suppliers need to understand your business, your order patterns and what your expectations of them are. This depends on honest and clear communication.

Trusted and reliable freight company

The very nature of JIT inventory means that products may well be required much sooner than anticipated which could incur expedited shipping costs. As such, it is useful to partner with a reputable freight company beforehand who you can turn to for cost-effective and reliable shipping options.

Thoughtfully assigned backup supply

To avoid placing the company in jeopardy, a useful part of JIT inventory could be determining a healthy stock level to keep on site just-in-case so that, if demand spikes, the business can continue as normally as possible for some time while more stock is obtained.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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