Just-In-Time

Just-in-time (JIT), many businesses talk about it, many businesses have it or want to have it in order to optimise their efficiency and cash flow…but what is it and how can you implement it within your organisation? The concept of JIT is a process that attempts to improve the ROI (return on investment) of a firm by reducing waste, that waste being inventory and the costs that are linked to it  i.e. storage space, product damage etc.

Just-In-Time Concept

You will find the concept very widely used by car manufacturers and the philosophy of the technique was devised a couple of decades ago by Taiici Ohno within the Toyota plants in Japan.

JIT, when implemented correctly, looks to divulge to the company the areas of improvement where inventory can be saved. It reduces inventory along the whole production process and is often used in conjunction with Kanban’s. The reduction of storage and the reduction of material handling actually means that there is less interruption to the production process and the likelihood of damages to components is greatly reduced plus if the components are susceptible to deterioration, maybe  for instance due to short product life, then again waste can be eliminated.

Basically the Kanban (see my other article) flags when inventory is down to a calculated re-order point. This flags the need for replenishment. In today’s technological society these flags are more than often triggered electronically, thereby signalling the replenishing supplier or store within a plant to replenish the Kanban, thus keeping production flow going.

Study Your Current Business

Before running straight into implementing JIT ensure you have good control of your current business processes. JIT will not fix these faults if they are already causing issues. You will need to correct these “flaws” and bring them under control. Measure them with the use of key performance indicators and when stabilisation has been achieved take a step forward to the world of JIT.

Process

The smooth flow within production plants means that one process flows into another extremely smoothly thus increasing productivity and reducing unit manufacturing cost. Many production plants who have incorporated JIT actually configure their production facilities around the concept this means transport from one production module to another is greatly reduced.

Inventory

In any production process (even with finished goods where stock is used to buffer forecast variability) inventory is considered a “cash” sponge, it sucks up working capital expenditure within the work flow. The faster the JIT system can communicate to its supplying location, the faster the replenishment. One must take care though as a JIT environment can lead to exposure in the production plant. Last  year for instance, in the USA, the delay of a sea container ship to the West Coast actually closed down a car plant as they ran out of components. Try to have a contingency plan and indeed investigate alternative emergency suppliers who can supply quickly whilst maintaining component quality. A component product freeze due to quality issues could also cause serious effects. Make sure your staff are aware of consequences that can affect the JIT concept, ensure they are well trained so that can work in multiple areas of the factory so that, in times of staff shortage, they can assist and keep the “lean” manufacturing flow going.

Ideally if you can negotiate with suppliers a consignment stock on site, basically only paying for what you use, when you use it, then your cash flow will dramatically increase and inventory on your financial’s in respect of work in progress virtually disappears.

Conclusion

Just-in-time can change the way you perform your business. You need to stabilise your current production flow and when this is done move forward with implementing JIT. If you get the process to work well with your suppliers and internal processes are robust to flag replenishment (Kanban) then your cash flow will improve dramatically.

Nigel Penhearow was a Business Operations Director for a major blue chip company based in the UK. He now holds the position as Category Sales Director. He is a member of various Institutional bodies and has given various speeches in the UK and the USA on business analytics, key performance measurement and best business practice. More information can be found on his web site www.operations-director.com