Just-In-Time Inventory

From the definition of JIT inventory system, one is able to appreciate that it is a customer-oriented procurement and delivery process that requires materials and parts produced and delivered just when they are needed either by the production process or by the customer. An order-driven process, JIT focuses on quality, short production cycle time, continuous process improvement, a smooth flow of production and flexibility in production operations ((Horngren, Sundem, Stratton 2000).

A number of manufacturing entities, in their pursuit for optimum production and total quality management, have embraced adaptive systems inherent in a JIT environment to manifest a form of continuous process improvement on the shop floor. A just-in-time philosophy in the production process, however, does not only concern itself with the on-time delivery of materials and supplies or with a highly-trained workforce. It is also concerned with determining ways to address the inventory ordering and storage systems.

Using a product layout with a continuous reliable processing flow – one with no delays once production starts, setup costs under the JIT system are substantially reduced (Atkinson, Banker, Kaplan & Young, 2001). However, companies which have adopted JIT have become vulnerable to the inherent weaknesses of the system. One of the more potent issues for those adopting JIT systems is whether everyone in the supply chain can sustain the demand pull.

Because “everyone relies on everybody else” (Greenberg, 2002 quoted by Broyles et al 2005)), there is a resultant high degree of interdependence in the value chain (Broyles, Beims, Franko & Bergman, 2005). Therefore, this implies the need for assurance for the continuous flow of supplies, focus on the quality factor, and continuous improvement in the processes or even a reduced lead time between stages in the chain.

The shortcomings and risks of JIT are therefore common to those adopting the system than on anyone else not adopting some form of just in time management. Toyota, for example, adopted a state-of-the-art set of JIT measures which included the use of the kanban-card and andon cord-paced pull systems that required frequent and small batch production and delivery system. This led to improved processes and reduced inventories. This was a component of the JIT tools of the noted Toyota Production System (TPS) (Spear 2002).

However, the use of the kanban cards which were supposed to ‘flag’ when a problem in the process occurs was criticized for being a ‘poor TPS’ feature or something based on ‘poor basic thinking’ and with a lack of self-diagnostic character. This too contributed to the realization that the tools that had been the focus of such attention were not necessary elements of ‘good TPS’. Nevertheless, Toyota Motors Corporation remains a showcase of the JIT philosophy.

Because of the highly sophisticated automation that entailed the adoption of a JIT system and considering the inherent risks associated with its use, Toyota had to design an intricate response system – a distinctive process approach to (a) specify the design of every pathway, connection, and activity, (b) use built-in tests to act as “countermeasure” and to diagnose with each use every pathway, connection, and activity, and (c) improve pathways, connections, and activities close in time, place, and person to the occurrence of each problem (Spear 2008).

Anticipating the resultant issue of interdependence in the value chain which could subject its operations at risk, Toyota preempted the ordering, manufacturing and distribution problems and instead turned the issue into an opportunity that allowed it not only to reduce order and delivery time by 80 percent or from 70 to just 14 days, but likewise enabled it to revamp the response system that allowed distributors and customers to make changes before production time (Fahey 2004 quoted by Broeles et al 2005).

In the case of Dell Computers, the issues of bringing the ordering and storage cost to a minimum required resolving its own warehousing facilities issues in favor of suppliers which now keep parts on site for Dell. The setup turned Dell to an industry leader in the JIT systems, trimming its inventory holding period to just four days (Broyles, Beims, Franko & Bergman 2008). For Dell Computer, the adoption of JIT can both be disastrous or beneficial in terms of holding cost; but Dell knew its business.

Considering the nature of fast obsolescence of computer items, the use of the JIT and the technology surrounding it, Dell avoided a double-edged risk of inventory obsolescence and a high holding cost (Broyles, et al. 2008). The low ordering-high holding costs approach adopted by Dell computers is known to be the ideal drive under JIT (Atkinson 2005). Wal-Mart, which is likewise incurring high holding costs, enabled its system and processes to address ordering costs down to the minimum to attain the ideal JIT setup. On the other hand, the JIT assumption of interdependence, to some extent, has resulted to the dangers of supply disruption.

To avoid this, there is a need to strengthen the partnership between companies in the supply chain as in the case of Bose Corporation which adopted JIT II to establish a closer customer-supplier relationship (Atkinson 2005). Since this required a great deal of information sharing among partners, it is not uncommon to find entities in the chain acquiring stake in critical supply providers. In many cases, this leads to a single supplier arrangement– a common characteristic of JIT systems (Atkinson 2005). Similarly, McDonald’s have benefitted from its use of the JIT system.

Because it has to provide fast service, it faced the risk of a high ordering and holding cost. It soon found out that managing a low ordering cost despite a high holding cost can be a viable option under JIT. Thus, despite a high holding cost, a controlled ordering cost, improved quality in its burgers including the quality of its customer service, McDonald’s, with the proper use of JIT systems, is able to live up to its name of being a fast food. The use of JIT as a productivity tool of management entails identical improvements in the communication and production processes of the entities within the value chain.

More than just using the JIT as a way to address inventory management problems in the supply chain, JIT technology allows the entire production and distribution process an area of continuous improvements towards attaining quality standards. However, despite the risks faced by companies adopting the JIT technology, there seems to be a lot more incentives for many to adopt the system than otherwise; that under JIT, the whole means and processes become as very interesting for management as the end itself.

This scenario only illustrates that many of these global JIT enterprises have nowhere to go except to move forward and exploit the use of high-technology to enhance processes. Only then can they face competition squarely despite the costs.

List of References

Atkinson, Anthony, Banker, Rajiv D. , Kaplan Robert S. , & Young, S. Mark (2001). “Management Accounting”, 3rd Edition, Prentice Hall, New Jersey Broyles, David; Beims, Jennifer; Franko, James; & Bergman, Michelle (2005).“Just in Time Inventory Management & Lean Manufacturing”, Horngren, Charles T. , Sundem, Gary L. , Stratton, William O. , (2000). Introduction to Management Accounting”, Pearson Education Asia Pte. Ltd. Singapore. http://faculty. coloradomtn. edu/jtroeger/business/assignments/week_07/readings/just-in-time%20inventory%20management%20strategy. pdf acquired April 28, 2008 Spear, Steven J. , (2008). “Just-in-time practice at Toyota”, Rules in Use for building self-diagnostic, adaptive work systems, Working paper: 02-043