Just In Time

1. Introduction

''Just-in-Time'' (JIT) means different things to different people. Some believe it to be an approach to manufacturing production, control and purchasing; to others it is a methodology to achieve manufacturing excellence (Schonberger, 1986); some businesses even view JIT as a winning strategy in the highly competitive market place of the 1990s (Schniederjans, 1992). As an operational philosophy JIT has been developing extensively in the manufacturing sectors, from its early development in Toyota Motor Co., to today's wide spread employment.

However, the JIT philosophy is being increasingly and seriously questioned by some academics and practitioners. For example, the slow demand and simultaneous surge in inventories during the second quarter of 1994 was interpreted, by the Wall Street Journal as an end to the "wishful nature" of the JIT theory of production management (Norris, 1994).Roy Shapiro, Professor of Operations Management Harvard Business School, states that "companies run into trouble" when they stress "squeezing out the last iota of inventory" above the more important goals of quality and process improvement (Bleakley, 1994). Shapiro also notes that even firms in Japan, where JIT practices were first heavily developed, increased their inventory levels as they learned more about the inefficiencies of small order/lot quantities (Bleakley, 1994).

In the first part of this study, definition of Just-in-Time, how it works and its benefits are examined. The second part of this study is focused on the constraints and discussions regarding the benefits and successes of just-in-time practices.

2.1 What is Just in Time (JIT)?

According to Ventorline.com JIT is a management philosophy that strives to eliminate sources of manufacturing waste and cost by producing the right part in the right place at the right time. (World wide web)

2.2 How JIT works

For JIT to work, two things must happen:

(a) all parts, or orders must arrive when and where they are needed, in the exact quantity

that is needed.

(b) all parts, or orders delivered, must be usable.

Where these conditions are not achieved, JIT may easily become Just-too-Late.

In achieving these requirements, purchasing has the following responsibilities:

The emphasis should be on performance rather than design specification. Less restrictive specifications enable suppliers to be cost effective by being innovative with regards to the quality/function aspects of supplies. In JIT purchasing, value analysis is an integral part of the system and should include supplier liaison:

1. to ensure that they understand completely the necessity of maintaining a consistent lead time

and high level of quality,

2. to investigate possible or potential suppliers within a reasonable proximity to the users locality, to help increase the certainty of delivery lead time and on time delivery,

3. to establish long-term relationships with a view to meeting the supplier's expectations in respect of:

(a) continuity of custom,

(b) a fair price and profit margin,

(c) procedures and price adjustments,

(d) minimising order changes,

(e) firm and reasonably stable specifications,

(f) smoothly timed order release,

(g) involvement in design specification,

(h) prompt payment.

2.3 The benefits of JIT

The potential benefits of JIT to an organization and its purchasing function in particular, have

been summarised by Schonberger and Ansari (1984) as:

(A) Parts costs Lowscrap costs; low inventory carrying cost.

(B) Quality Fast detection and correction of unsatisfactory quality and ultimate improved quality in purchased goods.

(C) Design Fast response to engineering/ operational change requirements.

(D) Administration efficiency Fewer suppliers, minimal expenditure and order release work, simplified communication and receiving activities.

(E) Productivity Reduced re-works, reduced inspections, and reduced parts related delays.

(F) Capital requirements Reduced inventories of purchased parts, raw materials, work-in progress, and finished goods.

Not all of these benefits will be applicable to all industries or areas where JIT purchasing is or can be applied.

3. Four Major Contraints

3.1 Customer-Driven & Economic Conditions

Just-in-time practices face difficulties under certain economic environments. JIT does not fare well under raw material price fluctuations. Norris (1994) points out that just-in-time savings are based on the implicit assumption that additional inventory is always available for quick delivery at the same price as old inventories (or at least at a cost that does not negate the savings attributable to JIT). Norris argues that inventories built during the second quarter of 1994 because businesses that were excessively focused on JIT eventually reacted to the scarcity and the rising prices of raw materials and that such scarcity and price increases ultimately caused stockouts of finished goods. Norris further argues that the stockouts drove finished goods prices higher, prices that contributed to subsequent inflation and reactionary bond market.

The rate of customer demand as well as the nature of customer expectations can also place limitations on the effectiveness of just-in-time practices. JIT implicitly assumes a reasonably level rate of customer demand. Just-in-time systems do not perform well under high fluctuations in demand. Karmarkar (1989) states that "JIT doesn't plan well;" arguing that in a highly variable environment, JIT is even less likely than a traditional planning system (e.g., Material Requirements Planning) to operate in