Why Build Just In Time?

Why build Just-In-Time even in an enterprise where the customer pays for inventory?

1. JIT will be the absolute lowest-cost way to build parts. There will be no inventory carrying costs (storage, movement, counting, maintaining, recording, withdrawing).

2. JIT will insure only the correct-revision parts are available for assembly. Obsolete/ revised parts will not be produced ahead of schedule and stored.

3. JIT will take up less floor space. There won’t be need for large work-in-process accumulation or finished parts storage.

4. JIT will insure the best quality parts. Each part will be built to the correct specification.

5. 100% yield is the standard for a process fabricating parts JIT. There will be no waste, because problems have to be solved in real time.

6. JIT will provide the best performance to schedule on the project or program, since parts will have to be built in the sequence and schedule to which the assembly is being made.

7. In a JIT process, parts flow to the assembly without the wastes of: waiting, motion, transportation, overproduction, inventory, defects, rework, or underutilized people. This typically results in a 50% – 75% lower overall cost of producing and providing parts to assembly (less indirect costs, lower assigned costs).

8. Changes in the schedule are immediately cascaded back up the supply chain, preventing schedule misses and schedule overruns.

9. JIT workplace organization (5S) keeps the facility in pristine condition: no excess materials, no excess supplies, no excess tooling. Needed materials, tooling, and supplies are kept organized so it’s easy to find, retrieve, use, and replace anything used in the process of manufacturing.

10. JIT equipment will be kept in top operating condition and perform with maximum OEE (Overall Equipment Effectiveness). Equipment with problems due to breakdowns, minor jams and stoppages, quality losses, speed reduction, startup and changeover losses, and yield losses is carefully managed and continuously improved. Reason: there’s no inventory buffer to fall back on, so equipment has to perform in peak condition.

11. Batch sizes in a JIT flow approach or achieve a unit of “1”, making the material flows as sleek and low cost as possible. Lead time is short and dependable.

12. Quality of Worklife for those involved with the JIT process(es) is high because of pride in workmanship being developed in people as they do their jobs. Reason: they can immediately see the results of their own work and see that it is important to do everything correctly 100% of the time.

What about the argument that the customer is willing to pay for WIP Inventory and does so per contract, therefore inventory isn’t a problem?

The assumption here is that inventory doesn’t cost the producer anything, and that, in fact, the producer gets paid to produce and keep this inventory on hand.

There are several problems imbedded in this assumption:

1) inventory costs money anyway, so the cost has to be included in the contract,

2) someone pays for this cost (it isn’t free),

3) defects get hidden in the inventory, so rework, scrap, and repair costs are high,

4) the producer has to store and keep this inventory on hand for some time, so the facility costs are higher than they need to be,

5) with some inventory, quality deteriorates as time goes on, and with other inventory, obsolescence occurs as parts are redesigned or replaced, so these costs have to be factored into the contract as well, an

6) more and more indirect costs get assigned to this inventory as time goes on, making it more expensive over time.

In a traditional manufacturing environment, inventory is considered an asset and is used as a buffer against the many problems that occur: schedule changes, yield losses, machine breakdowns, supplier delivery failures, quality issues, etc.

In a lean environment, inventory is considered a waste. The problems that cause inventory (schedule, yield, equipment, supplier, quality problems, etc) are solved so the root causes of inventory are eliminated.

James C. Myers, Lean Sensei

President, JCM Work Designs

September 14, 2005