Just In time (JIT) and Lean Systems

7.	Just In time (JIT) and Lean Systems Just In time (JIT) is a philosophy originating from the Japanese auto maker Toyota where Taiichi Ohno developed the Toyota Production system (Ohno, 1988). The basic idea behind JIT is to produce only what you need, when you need it. This may seem a simple idea but to deliver it requires a number of elements in place such as the elimination of wasteful activities and continuous improvements.
	7.1.	Eliminate Waste Waste is considered in the widest sense as any activity which does not add value to the operation. Seven types of waste identified by Toyota are as follows :
		-	Over-Production. This is classified as the greatest source of waste and is an outcome of producing more than is needed by the next process.
		-	Waiting Time. This is the time spent by labour or equipment waiting to add value to a product. This may be disguised by undertaking unnecessary operations (e.g. generating work in progress (WIP) on a machine) which are not immediately needed (i.e. the waste is converted from time to WIP).
		-	Transport. Unnecessary transportation of WIP is another source of waste. Layout changes can substantially reduce transportation time.
		-	Process. Some operations do not add value to the product but are simply there because of poor design or machine maintenance. Improved design or preventative maintenance should eliminate these processes.
		-	Inventory. Inventory of all types (e.g. pipeline, cycle) is considered as waste and should be eliminated.
		-	Motion. Simplification of work movement will reduce waste caused by unnecessary motion of labour and equipment.
		-	Defective Goods. The total costs of poor quality can be very high and will include scrap material, wasted labour time and time expediting orders and loss of goodwill through missed delivery dates.
	7.2.	Continuous Improvement Continuous Improvement or Kaizen, the Japanese term, is a philosophy which believes that it is possible to get to the ideals of JIT by a continuous stream of improvements over time.
	7.3.	Just-In-time (JIT) Pull Systems The idea of a pull system comes from the need to reduce inventory within the production system. In a push system a schedule pushes work on to machines which is then passed through to the next work centre. A production system for an automobile will require the co-ordination of thousands of components, many of which will need to be grouped together to form an assembly. In order to ensure that there are no stoppages it is necessary to have inventory in the system because it is difficult to co-ordinate parts to arrive at a particular station simultaneously. The pull system comes from the idea of a supermarket in which items are purchased by a customer only when needed and are replenished as they are removed. Thus inventory co-ordination is controlled by a customer pulling items from the system which are then replaced as needed. To implement a pull system a kanban (Japanese for ‘card’ or ‘sign’) is used to pass information through the production system. Each kanban provides information on the part identification, quantity per container that the part is transported in and the preceding and next work station. Kanbans in themselves do not provide the schedule for production but without them production cannot take place as they authorise the production and movement of material through the pull system. Kanbans need not be a card, but something that can be used as a signal for production such as a marked area of floorspace. There are two types of kanban system, the single-card and two-card. The single-card system uses only one type of kanban card called the conveyance kanban which authorises the movement of parts. The number of containers at a work centre is limited by the number of kanbans. A signal to replace inventory at the work centre can only be sent when the container is emptied. Toyota use a dual card system which in addition to the conveyance kanban, utilises a production kanban to authorise the production of parts. This system permits greater control over production as well as inventory. If the processes are tightly linked (i.e. one always follows the other) then a single kanban can be used. In order for a kanban system to be implemented it is important that the seven operational rules that govern the system are followed. These rules can be summarised as follows :
		-	Move a kanban only when the lot it represents is consumed
		-	No withdrawal of parts without a kanban is allowed
		-	The number of parts issued to the subsequent process must be the exact number specified by the kanban.
		-	A kanban should always be attached to the physical product
		-	The preceding process should always produce its parts in the quantities withdrawn by the subsequent process.
		-	Defective parts should never be conveyed to the subsequent process
		-	A high level of quality must be maintained because of the lack of buffer inventory. A feedback mechanism which reports quality problems quickly to the preceding process must be implemented.
		-	Process the kanbans in every work centre strictly in order in which they arrive at the work centre
		If several kanbans are waiting for production they must be served in the order that they have arrived. If the rule is not followed there will be a gap in the production rate of one or more of the subsequent processes. The system is implemented with a given number of cards in order to obtain a smooth flow. The number of cards is then decreased, decreasing inventory and any problems which surface are tackled. Cards are decreased, one at a time, to continue the continuous improvement process.

Supply Chain Management

6.	Supply Chain Management Supply Chain Management is the management of the interconnection of organisations that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services (Slack et al., 2010). Activities in the supply chain include sourcing materials and components, manufacturing products, storing products in warehousing facilities and distributing products to customers. The management of the supply chain involves the coordination of the products through this process which will include the sharing of information between interested parties such as suppliers, distributors and customers.
	6.1.	Fluctuations in the Supply Chain The behaviour of supply chains that are subject to demand fluctuations has been described as the bullwhip effect and occurs when there is a lack of synchronisation is supply chain members, when even a slight change in consumer sales will ripple backwards in the form of magnified oscillations in demand upstream. The bullwhip effect occurs because each tier in the supply chain, increases demand by the current amount, but also assumes that demand is now at this new level, so increases demand to cover the next week also. Thus each member in the supply chain updates their demand forecast with every inventory review. There are other factors which increase variability in the supply chain. These include a time lag between ordering materials and getting them delivered, leading to over-ordering in advance to ensure sufficient stock are available to meet customer demand. Also the use of order batching (when orders are not placed until they reach a predetermined batch size) can cause a mismatch between demand and the order quantity. Price fluctuations such as price cuts and quantity discounts also lead to more demand variability in the supply chain as companies buy products before they need them. In order to limit the bullwhip effect certain actions can be taken. The major aspect that can limit supply chain variability is to share information amongst members of the supply chain. In particular it is useful for members to have access to the product demand to the final seller, so that all members in the chain are aware of the true customer demand. Information Technology such as Electronic point-of-sale (EPOS) systems can be used by retailers to collect customer demand information at cash registers which can be transmitted to warehouses and suppliers further down the supply chain. If information is available to all parts of the supply chain it will also help to reduce lead times between ordering and delivery by using a system of coordinated or synchronised material movement. Using smaller batch sizes will also smooth the demand pattern. Often batch sizes are large because of the relative high cost of each order. Technologies such as e-procurement and Electronic Data Interchange (EDI) can reduce the cost of placing an order and so help eliminate the need for large batch orders. Finally the use of a stable pricing policy can also help limit demand fluctuations.
	6.2.	Supply Chain Procurement An important aspect of supply chain activities is the role of procurement in not only acquiring the materials needed by an organisation but also undertaking activities such as selecting suppliers, approving orders and receiving goods from suppliers. The term procurement is often associated with the term purchasing but this is taken to refer to the actual act of buying the raw materials, parts, equipment and all the other goods and services used in operations systems. There has recently been an enhanced focus on the procurement activity due to the increased use of process technology, both in terms of materials and information processing. In terms of materials processing the use of process technology such as flexible manufacturing systems has meant a reduction in labour costs and thus a further increase in the relative cost of materials associated with a manufactured product. This means that the control of material costs becomes a major focus in the control of overall manufacturing costs for a product. Another issue that has increased the importance of procurement is that the efficient use of automated systems requires a high quality and reliable source of materials to be available. This is also the case with the adoption of production planning systems such as JIT which require the delivery of materials of perfect quality, at the right time and the right quantity.
		6.2.1.	Choosing Suppliers Before choosing a supplier, the organisation must decide whether it is feasible and desirable to produce the good or service in-house. Buyers in purchasing departments, with assistance from operations, will regularly perform a make-or-buy analysis to determine the source of supply. Often goods can be sourced internally at a lower cost, with higher quality or faster delivery than from a supplier. On the other hand suppliers who focus on delivering a good or service can specialise their expertise and resources and thus provide better performance. Strategic issues may also need to be considered when contemplating the outsourcing of supplies. For instance internal skills required to offer a distinctive competence may be lost if certain activities are outsourced. It may also mean that distinctive competencies can be offered to competitors by the supplier. If a decision is made to use an external supplier, the next decision relates to the choice of that supplier. Criteria for choosing suppliers for quotation and approval include the following :
			-	Price As stated in the introduction, the cost of goods and services from suppliers is forming an increasingly large percentage of the cost of goods and services which are delivered to customers. Thus minimising the price of purchased goods and services can provide a significant cost advantage to the organisation
			-	Quality To be considered as a supplier, it is expected that a company will provide an assured level of quality of product or service. This is because poor quality goods and services can have a significant disruptive effect on the performance of the operations function. For example resources may have to be deployed checking for quality before products can be used, poor quality products that get into the production system may be processed at expense before faults are found and poor quality goods and services that reach the customer will lead to returns and loss of goodwill.
			-	Delivery In terms of delivery, suppliers who can deliver on-time, every time, in other words show reliability, are required. The ability to deliver with a short lead time and respond quickly once an order has been placed, can also be an important aspect of performance.
			The process of locating a supplier will depend on the nature of the good or service and its importance to the organisation. If there are few suppliers capable of providing the service then they will most likely be well known to the organisation. If there are a number of potential suppliers and the goods are important to the organisation then a relatively lengthy process of searching for suppliers and the evaluation of quotations may take place. Most organisations have a list of approved suppliers they have used in the past, or are otherwise known to be reliable. However it is important to monitor suppliers in order to ensure that they continue to provide a satisfactory service. A system of supplier rating, or vendor rating is used to undertake this. One form of vendor rating is a checklist which provides feedback to the supplier on their performance and suggestions for improvement. Another approach is to identify the important performance criteria required of the supplier, for example delivery reliability, product quality and price. The supplier can then be rated on each of these performance measures against historical performance and competitor performance. When choosing suppliers a decision is made whether to source each good or service from an individual supplier, termed single sourcing or whether to use a number of suppliers, termed multi-sourcing.
	6.3.	Supply Chain Distribution Supply chain distribution refers to the movement of materials through the supply chain to the customer. Two main areas of physical distribution management are materials handling and warehousing.
		6.3.1.	Materials Handlin There are three types of materials handling systems available can be categorised as manual, mechanised and automated. A manual handling system uses people to move material. This provides a flexible system, but is only feasible when materials are movable using people with little assistance. An example is a supermarket where trolleys are used to assist with movement, but the presence of customers and the nature of the items make the use of mechanisation or automation not feasible. Mechanised warehouses use equipment such as forklift trucks, cranes and conveyor systems to provide a more efficient handling system, which can also handle items too heavy for people. Automated warehouses use technology such as Automated Guided Vehicles (AGVs) and loading/unloading machines to process high volumes of material efficiently
		6.3.2.	Warehousing Warehouses serve an obvious function as a long-term storage area for goods but also provide a useful staging post for activities within the supply chain such as sorting, consolidating and packing goods for distribution. Consolidation occurs by merging products from multiple suppliers over time, for transportation in a single load to the operations site. Finished goods sourced from a number of suppliers may also be grouped together for delivery to a customer in order to reduce the number of communication and transportation links between suppliers and customers. The opposite of consolidation is break-bulk where a supplier sends all the demand for a particular geographical area to a local warehouse. The warehouse then processes the goods and delivers the separate orders to the customers. One of the major issues in warehouse management is the level of decentralisation and thus the number and size of the warehouses required in inventory distribution. Decentralised facilities offer a service closer to the customer and thus should provide a better service level in terms of knowledge of customer needs and speed of service. Centralisation however offers the potential for less handling of goods between service points, less control costs and less overall inventory levels due to lower overall buffer levels required. The overall demand pattern for a centralised facility will be an aggregation of a number of variable demand patterns from customer outlets and so will be a smoother overall demand pattern thus requiring lower buffer stocks. Thus there is a trade-off between the customer service levels or effectiveness offered by a decentralised system and the lower costs or efficiency offered by a centralised system. One way of combining the advantages of a centralised facility with a high level of customer service is to reduce the delivery lead time between the centralised distribution centre and the customer outlet. This can be accomplished by using the facility of Electronic Data Interchange (EDI) or e-procurement systems discussed in the procurement section. The warehouse or distribution system can be itself outsourced and this will often be the only feasible option for small firms. The choice is between a single-user or private warehouse which is owned or leased by the organisation for its own use and a multi-user or public warehouse which is run as an independent business. The choice of single-user or multi-user warehouse may be seen as a break-even analysis with a comparison of the lower fixed costs, but higher operating costs of a multi-user warehouse, against the high fixed costs and lower operating cost of a single-user warehouse. However the cost analysis should be put into a strategic context. For example the warehouse and distribution system may enable a superior service to be offered to customers. It may also be seen as a barrier to entry to competitors due to the time and cost of setting up such a system

Statistical Process Control

 

5.	Statistical Process Control Statistical Process Control (SPC) is a widely used sampling technique which checks the quality of an item which is engaged in a process. SPC can also be used to inform management of improved process changes (Krajewski et al., 2010). SPC identifies the nature of variations in a process, which are classified as being caused by ‘chance’ causes or ‘assignable’ causes.
	5.1.	Chance Causes of Variation Processes will have some inherent variability due to factors such as ambient temperature, wear of moving parts or slight variations in the composition of the material that is being processed. The technique of SPC involves calculating the limits of these chance-cause variations for a stable system, so any problems with the process can be identified quickly. The limits of the chance-cause variations are called control limits and are shown on a control chart, which also shows sample data of the measured characteristic over time. There are control limits above and below the target value for the measurement, termed the upper control limit (UCL) and lower control limit (LCL) respectively. The behaviour of the process is observed by studying the control chart and if the sample data plotted on the chart shows a random pattern within the upper and lower control limits then the process is ‘in-control’. However if a sample falls outside the control limits or the plot shows a non-random pattern then the process is ‘out-of-control’.
	5.2.	Assignable Causes of Variation An assignable cause of variation is a variation in the process which is not due to random variation but can be attributed to some change in the process, which needs to be investigated and rectified. However in some instances the process could actually be working properly and the results could have been caused by sampling error. There are two types of error which can occur when sampling from a population. A type I error is indicated from the sample output when none . A type II error is when an error is occurring but has not beenaactually occurs. The probability of a type I error is termed. Type I errors may lead to rectification workbindicated by the sample output. The probability of a type II error is termed  which is unnecessary and even the unnecessary recall of ‘faulty’ products. Type II errors will lead to defective products as an out-of-control process goes unnoticed. Customer compensation and loss of sales may result if defective products reach the marketplace. The sampling methodology should ensure that the probability of type I and type II errors should be kept as low as reasonably possible
	5.3.	Types of Control Charts   Two types of control charts are for variable data and for discrete data.. Control charts for variable data display samples of a measurement that will fall in or out of a range around a specified target value. Examples of variable data could be a customer transaction time in a bank or the width of an assembly component. Two control charts are used in measuring variable data. An X,–– chart shows the distance of sample values from the target value (central tendency). An R chart shows the variability of sample values (dispersion). Attribute control charts measure discrete values such as if a component is defective or not. Thus there are no values, as in a variable control chart, from which a mean and range can be calculated. The data will simply provide a count of how many items conform to a specification and how many do not. Two control charts will be described for attribute data. The p-chart which shows the proportion of defectives in a sample and the c-chart which shows the number of defectives in a sample
		-	ISO 9001	applies when the supplier is responsible for the development, design, production, installation, and servicing of the product.
		-	ISO 9002	applies when the supplier is responsible for production and installation
		-	ISO 9003	applies to final inspection and testing of products.
		-	ISO 9004	provides guidelines for managers of organisations to help them to develop their quality systems. It gives suggestions to help organisations meet the requirements of the previous four standards.
		The standard is general enough to apply to almost any good or service, but it is the specific organisation or facility that is registered or certified to the standard. To achieve certification a facility must document its procedures for every element in the standard. These procedures are then audited by a third party periodically. The system thus ensures that the organisation is following a documented, and thus consistent, procedure which makes errors easier to find and correct. However the system does not improve quality in itself and has been criticised for incurring cost in maintaining documentation while not providing guidance in quality improvement techniques such as statistical process control.

Total Quality Management

4.	Total Quality Management Total Quality Management (TQM) requires that the principles of quality management are applied in all aspects and at every level in an organisation (Hill, 2005). TQM has evolved over a number of years from ideas presented by a number of quality Gurus. Deming (1985) proposed an implementation plan consisting of 14 steps which emphasises continuous improvement of the production process to achieve conformance to specification and reduce variability. This is achieved by eliminating common causes of quality problems such as poor design and insufficient training and special causes such as a specific machine or operator. He also places great emphasis on statistical quality control techniques and promotes extensive employee involvement in the quality improvement program. Juran (2001) put forward a 10 step plan in which he emphasises the elements of quality planning - designing the product quality level and ensuring the process can meet this, quality control - using statistical process control methods to ensure quality levels are kept during the production process and quality improvement - tackling quality problems through improvement projects. Crosby (1996) suggested a 14-step programme for the implementation of TQM. He is known for changing perceptions of the cost of quality when he pointed out that the costs of poor quality far outweigh the cost of preventing poor quality, a view not traditionally accepted at the time. Attempting to summarise the main principles of TQM covered in these plans are the following three statements. Firstly the customer defines quality and thus their needs must be met. The organisation should consider quality both from the producer and customer point of view. Thus product design must take into consideration the production process in order that the design specification can be met. Thus it means viewing things from a customer perspective and requires that the implications for customers are considered at all stages in corporate decision making. Secondly quality is the responsibility of all employees in all parts of the organisation. In order to ensure the complete involvement of the whole organisation in quality issues TQM uses the concept of the internal customer and internal supplier. This recognises that everyone in the organisation consumes goods and services provided by other organisational members or internal suppliers. In turn every service provided by an organisational member will have a internal customer. The implication is that poor quality provided within an organisation will, if allowed to go unchecked along the chain of customer/supplier relationships, eventually lead to the external customer. Therefore it is essential that each internal customer’s needs are satisfied. This requires a definition for each internal customer about what constitutes an acceptable quality of service. It is a principle of TQM that the responsibility for quality should rest with the people undertaking the tasks which can either directly or indirectly affect the quality of customer service. This requires not only a commitment to avoid mistakes but actually a capability to improve the ways in which they undertake their jobs. This requires management to adopt an approach of empowerment with people provided with training and the decision making authority necessary in order that they can take responsibility for the work they are involved in and learn from their experiences. Finally a continuous process of improvement culture must be developed to instil a culture which recognises the importance of quality to performance.
	4.1.	The Cost of Quality All areas in the production system will incur costs as part of their TQM program. For example the marketing department will incur the cost of consumer research in trying to establish customer needs. Quality costs are categorised as either the cost of achieving good quality - the cost of quality assurance or the cost of poor-quality products - the cost of not conforming to specifications.
		4.1.1.	The Cost of Achieving Good Quality The costs of maintaining an effective quality management program can be categorised into prevention costs and appraisal costs. Prevention reflects the quality philosophy of “doing it right the first time” and includes those costs incurred in trying to prevent problems occurring in the first place. Examples of prevention costs include :
			-	The cost of designing products with quality control characteristics
			-	The cost of designing processes which conform to quality specifications
			-	The cost of the implementation of staff training programmes
			Appraisal costs are the costs associated with controlling quality through the use of measuring and testing products and processes to ensure that quality specifications are conformed to. Examples of appraisal costs include :
			-	The cost of testing and inspecting products
			-	The costs of maintaining testing equipment
			-	The time spent in gathering data for testing
			-	The time spent adjusting equipment to maintain quality
		4.1.2.	The Cost of Poor Quality This can be seen as the difference between what it actually costs to provide a good or service and what it would cost if there was no poor quality or failures. This can account for 70% to 90% of total quality costs and can be categorised into internal failure costs and external failure costs. Internal failure costs occur before the good is delivered to the customer. Examples of internal failure costs include :
			-	The scrap cost of poor quality parts that must be discarded
			-	The rework cost of fixing defective products
			-	The downtime cost of machine time lost due to fixing equipment or replacing defective product
			External failure costs occur after the customer has received the product and primarily relate to customer service. Examples of external failure costs include:
			-	The cost of responding to customer complaints
			-	The cost of handling and replacing poor-quality products
			-	The litigation cost resulting from product liability
			-	The lost sales incurred because of customer goodwill affecting future business

4.2.	Quality Systems   ISO 9000 provides a standard quality standard between suppliers and a customer that helps to reduce the complexity of managing a number of different quality standards when a customer has many suppliers. ISO 9000 is a series of standards for quality management and assurance and has five major subsections as follows :
	-	ISO 9000	provides guidelines for the use of the following four standards in the series
	-	ISO 9001	applies when the supplier is responsible for the development, design, production, installation, and servicing of the product.
	-	ISO 9002	applies when the supplier is responsible for production and installation
	-	ISO 9003	applies to final inspection and testing of products.
	-	ISO 9004	provides guidelines for managers of organisations to help them to develop their quality systems. It gives suggestions to help organisations meet the requirements of the previous four standards.
	The standard is general enough to apply to almost any good or service, but it is the specific organisation or facility that is registered or certified to the standard. To achieve certification a facility must document its procedures for every element in the standard. These procedures are then audited by a third party periodically. The system thus ensures that the organisation is following a documented, and thus consistent, procedure which makes errors easier to find and correct. However the system does not improve quality in itself and has been criticised for incurring cost in maintaining documentation while not providing guidance in quality improvement techniques such as statistical process control.