Just-in-time Manufacturing – A Manufacturer’s Guide to Effective Inventory Management
What is Just-in-time Manufacturing?
Just-in-time (JIT) manufacturing is described as a production model in which products and services are produced to meet specific demand and not necessarily created in surplus, in deficit, or in advance of actual need. The purpose of JIT manufacturing is to avoid the waste associated with overproduction, holding stocks and excess inventory, to help manufacturers control the process variability and help increase productivity while lowering costs.
JIT manufacturing aims at reducing the total cost of the supply chain and optimizing logistics. From reducing inventory wastage to reducing inventory and supply chain costs, JIT manufacturing can help with better inventory management by up to 75%. Quality management is another area where JIT manufacturing adds significant value along with productivity improvements of over 25%.
Difference between Lean Manufacturing and JIT Manufacturing
Lean Manufacturing and JIT Manufacturing are often mistaken for the same thing. However, these are two different concepts. While JIT Manufacturing primarily focuses on increasing efficiencies, Lean Manufacturing aims at using this efficiency to add value to the customer. So, JIT Manufacturing can be implemented on its own, or as a part of the Lean Manufacturing process.
In the Lean Manufacturing process, a manufacturer usually considers what aspects of the product or service add specific customer value. This in fact is the basic principle of Lean Manufacturing where every step in the production process must add something of value. The overall manufacturing process is then tweaked to eliminate nonvalue adding activities.
However, the JIT Manufacturing process adds value by increasing efficiency. One of the most important benefits of JIT Manufacturing is the elimination of unnecessary raw material, inventory storage, and product storage costs. Though initially raw materials and inventory of finished goods were considered assets, now this belief has changed as inventory is considered to be waste or dead investment, incurring additional costs.
How does JIT Manufacturing differ from Traditional Manufacturing?
There is a very specific difference between JIT Manufacturing and traditional manufacturing. In traditional manufacturing, manufacturers try to predict what the customer might need and then create a demand and supply chain forecasting to produce those products or services. Manufacturers also produce them in much larger quantities or batches with the belief that this will make the entire production process efficient by avoiding longer set up times. This usually results in extended production lead times, involving large volumes of Work In Process (WIP) stocks and also huge quantities of finished goods stocks. These goods or services in fact, may not even have been ordered by customers and hence this type of manufacturing is usually called “Just in Case” manufacturing.
The biggest drawback here is that if the customer orders something that is not available in the current stocks, they will either have to wait indefinitely for the product to be manufactured or production might be hurried through the system and this could create disruptions to the production schedule.
Just in Time Manufacturing however uses simple visual tools known as “Kanbans” to pull production through the processes, based on the customer’s actual requirements. This helps reduce the total amount of stock held and will also cut down production lead times significantly, sometimes from weeks to just a few hours. Therefore, JIT Manufacturing is a highly preferred model especially when the market dynamics are volatile and demand fluctuates uncertainly.
Why do Manufacturers need JIT Manufacturing?
1. Accurate forecasting
With JIT Manufacturing, manufacturers can easily increase operational efficiencies and decrease waste by receiving goods only as they are needed in the data-driven manufacturing process. This helps them forecast their inventory accurately at any point in time.
2. Reduced overproduction or understocking
JIT Manufacturing avoids the waste that happens with overproduction, hoarding material, and excess inventory. So manufacturers only make what is needed, when it is needed and only the quantities it is required in.
3. Better supply chain control
By using the JIT model, manufacturers get better control over their entire manufacturing process and supply chain planning, thereby, making it easier to respond quickly when the needs of customers change.
4. Waste elimination
Since JIT Manufacturing focuses on producing items based on the demand, this ensures all that is produced will be sold. It, therefore, eliminates all possibilities of wastage or obsolete stocks.
5. Reduced overhead costs
JIT Manufacturing lets manufacturers reduce their overhead expenses while always ensuring that parts are available for producing products. This allows them to respond better to customers while at the same time reducing business expenses.
6. Faster response time
With JIT Manufacturing, manufacturers are in a better situation to respond to demand changes quickly and this results in less time being spent on checking and re-working.
7. Freed up working capital
With better control over stock supplies and obtaining it only on a need basis, manufacturers can free up their working capital which can also help free up funds that were tied up in inventories, which can be used elsewhere.
The JIT Manufacturing Checklist
A successful JIT Manufacturing model requires strict discipline, a defined structure, and explicit processes across operations on the factory floor. Here is a checklist for manufacturers to ensure a successful JIT implementation:
- Adherence to defined processes across all manufacturing functions and processes
- Elimination of defects and risks
- Small and manageable production lot sizes
- Uniform plant load – leveling as a control mechanism
- A balanced flow of materials and products which are actively managed with limited batch sizes
- Worker skill diversification across multi-functional workers
- Physical control with real-time visibility- this includes using visual tools to improve communication
- Readily available designs and descriptions for complex process
- Continuous streamlining of the movement of materials
- Cellular manufacturing
Potential Risks of JIT Manufacturing
1. Lack of inventory buffer
The main disadvantage of JIT Manufacturing is self-explanatory – since its “Just In Time”, the success of this model largely depends on the exact coordination between businesses and their suppliers to ensure prompt delivery. And when there is no inventory buffer to fall back upon, manufacturers might face the risk of not having any important material or part which delays the production cycle.
2. Proximity to suppliers
In order to find success with JIT Manufacturing, manufacturers need to find suppliers that are close by or those who can supply materials quickly without specific prior notice. At times, manufacturers face limited order policies which can pose a significant risk to smaller manufacturers who might frequently order smaller quantities of materials.
3. Limited control over the time frame
This model relies heavily on the timeliness of suppliers for each order which can end up delaying the customers’ receipt of goods. Not meeting customer expectations in any situation is not a good idea as it impacts business performance.
4. Intensive planning required
With JIT Manufacturing, it is important that manufacturers have a complete understanding of market sales trends and watch variances closely. This involves significant inventory planning to ensure suppliers are able to meet different volume requirements at different times.
5. Dependency on highly automated production
For the parts and raw material to get processed on time every time, the production needs to be as automated as possible for supply chain efficiency. Therefore, in this scenario, any part of the production cycle that depends on manual processes would not work and might prove to be a bottleneck in delivery.
Artificial Intelligence and its Impact on JIT Manufacturing
Using data-driven insights and analytics, manufacturers are reshaping their traditional product strategies right from raw material consumption to the final production. For those operating with JIT Manufacturing, the need to store inventory in permanent storage is negated. With real-time click to order and fulfillment, Artificial Intelligence (AI) driven technology finds more value here.
JIT Manufacturing models today fully integrate supply chain management, logistics, and CRM promotional interfaces to ensure all aspects of fulfillment are aligned. For this to be successful, the factory needs to produce goods steadily and with the highest quality but most importantly, inventory has to be a top priority.
AI-enabled supply chains along with machine learning and robotics are creating the next generation of production processes that provide smarter and more optimal ways of streamlining production activities. AI in supply chain is also revolutionizing the way inventories are managed and how smart factories solve production problems on the shop floor. This is the core principle of JIT Manufacturing itself- effectively managing inventory.
ThroughPut’s ELI is an AI-Powered Bottleneck Operation Elimination Engine that analyzes your existing industrial data in real-time. With ELI you have an industry-scale, automated, enterprise-ready Artificial Intelligence (AI) software that gives you complete control of your inventory. ELI helps you implement JIT Manufacturing principles with ease while not compromising on product quality improvement in manufacturing and smart supply chain standards.
If you wish to get started with our Supply chain management software ELI for your inventory management needs, you should contact us for a demo today.