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Inventory Control Methods

JUST IN TIME

JIT is an organized approach to introduce in manufacturing cycle timelines, quality, productivity, flexibility, and work simplification and waste reduction. This is a technique from TQM activity. Basically this is waste control method; it is not the inventory control technique.

JIT is a Japanese management philosophy, which has been applied in practice since the early 1970s in many Japanese manufacturing organizations. It was first developed and perfected within the Toyota manufacturing plants by TaiichiOhno as a means of meeting consumer demands with minimum delays. TaiichiOhno is frequently referred to as the father of JIT.

Toyota was able to meet the increasing challenges for survival through an approach that focused on people, plants and systems. Toyota realized that JIT would only be successful if every individual within the organization was involved and committed to it, if the plant and processes were arranged for maximum output and efficiency, and if quality and production programs were scheduled to meet demands exactly.

JIT manufacturing has the capacity, when properly adapted to the organization, to strengthen the organization’s competitiveness in the marketplace substantially by reducing wastes and improving product quality and efficiency of production. There are strong cultural aspects associated with the emergence of JIT in Japan. The Japanese work ethic involves the following concepts.

• Workers are highly motivated to seek constant improvement upon that which already exists. Although high standards are currently being met, there exist even higher standards to achieve.

• Companies should focus on group effort, which involves the combining of talents and sharing knowledge, problem-solving skills, ideas and the achievement of a common goal.

• Work itself takes precedence over leisure. It is not unusual for a Japanese employee to work 14-hour a day.

• Employees tend to remain with one company throughout the course of their career span. This allows the opportunity for them to hone their skills and abilities at a constant rate while offering numerous benefits to the company.

• These benefits manifest themselves in employee loyalty, low turnover costs and fulfillment of company goals.

From above it is very clear what it needs to implement JIT successfully. In fact it also suggests the critical reasoning behind the fact that why in India JIT is not 100 per cent followed. One more significant thing to be considered here is the correct interpretation of JIT.

JIT is more of a manufacturing and waste elimination philosophy than commodity purchasing technique. It originally referred to the production of goods to meet customer demand exactly, in time, quality and quantity, whether the customer is the final purchaser of the product 01 another process further along the production line.

It has now come to mean producing with minimum waste. Waste is taken in its most general sense and includes time and resources as well as materials.

There are seven types of waste namely:

1. Waste from overproduction
2. Waste of waiting time
3. Transportation waste
4. Processing waste
5. Inventory waste
6. Waste of motion
7. Waste from product defects

Elements of JIT System

Successful JIT system is the logical outgrowth of the combination of the following practices:

1. Continuous improvement
2. Attacking fundamental problems-anything that does not add value to the product · Devising systems to identify problems
3. Striving for simplicity-simpler systems may be easier to understand, easier to
4. manage and less likely to go wrong
5. A product-oriented layout-produces less time spent in moving of materials and parts
6. Quality control at source-each worker is responsible for the quality of their own output
7. Poka-yoke: foolproof tools, methods, jigs etc. to prevent mistakes
8. Total productive maintenance-ensuring machinery and equipment functions perfectly when it is required, and continually improving it
9. Good housekeeping-workplace cleanliness and organization

Benefits of JIT

1. Reduced levels of in-process inventories, purchased goods, and finished goods.
2. Reduced space requirements.
3. Increased product quality and reduced scrap and rework.
4. Reduced manufacturing lead times.
5. Greater flexibility in changing the production mix.
6. Smoother production flow with fewer disruptions.
7. Worker participation in problem solving.
8. Pressure to build good relationships with vendors
9. Increased productivity levels and utilization of equipment.

TECHNIQUES USED IN JIT

1. Kanban – An Integrated JIT System

Kanban stands for Kan-card, Ban-signal. Kanban concept suggest that a supplier or the warehouse should only deliver components to the production line as and when needed, so that there is no storage in the production area. In this system, workstations located along production lines only produce or deliver desired components when they receive a card and empty container.

Advantages of Kanban Process:

1. It is a simple and understandable process.
2. Provides quick and precise information.
3. Provides quick response to changes.
4. Low costs associated with the transfer of information.
5. Avoids over production.
6. Minimize waste.
7. Delegates’ responsibility to line workers.

2. Group Technology (GT)

GT is a modular manufacturing system, which involves organizing machineries so that related products can be manufactured in a continuous flow. Here, products flow smoothly from start to finish, parts do not wait for move. This can be contrasted to a typical production system, where machines are grouped by function and products move from one function to another and back again. This results in long waiting times between procedures.

Benefits of GT

1. Reduction in work in process
2. Reduction in over all stocks of material
3. Reduction in overdue orders
4. Increase in out put per employee
5. Simplification of material flow system.
6. Improvement of production and planning control
7. Improvement in material handling

3. SMED (Single Digit Minute Exchange Die)

SMED is a technique for performing setup operations in number of minutes expressed in a single digit. Mr. Shingo revolutionized the SMED method since 1950 in Japan. E.g. Bottling industries sometimes spend more than 20% of their planned production time on changeovers. These setup and changeover times can be reduced significantly when the changeover SMED system is applied.

4. JIDOKA (Automation)

JIDOKA is the concept of adding an element of human judgment to automated equipment. So that the equipment can identify unacceptable items and the automated process becomes more reliable. JIDOKA means not allowing problems to pass from one workstation to the next. Such that the production of a defective part is detected immediately and machine responds by stopping and requesting help. E.g. In Toyota power loom the shuttlecocks would stick and create defects in the cloth being produced. The Toyota loom incorporated a simple stopper that was activated by a sticking shuttlecock. The operator could stop machine when the shuttle would stick.

Objective of JIDOKA

1. Ensuring 100% quality.
2. Preventing equipment breakdowns.
3. Using manpower efficiently.

5. Total Productive Maintenance  (TPM)

In any factory it is necessary to run all the equipments on continuous basis to get maximum out put. It is found that generally that does not happen. There is loss if any tool or machine is not in use. Due to any reason like material not available or the machine is not working. In order to avoid such losses TPM is implemented. For this purpose following steps should be taken.

All the reason for the loss of equipment should be avoided.

Preventive Maintenance program is to be made.

Operator should be given training to maintain his equipment when required.

Autonomous maintenance by the operator is to be done.

6. Pokayoke (Mistake Proofing)

Pokayoke invented by Shigeo Shingo in the 1960s. The term “Pokayoke” comes from the Japanese words “poka”(mistake) and “yoke” (prevent). Pokayoke suggest that people are human and cannot be expected to do everything like a machine, exactly the same each time. The basic principles of Pokayoke advocate developing tools, techniques and processes such that it is impossible or very difficult for people to make mistakes. E.g. a plate that must be screwed down in one orientation only could have the screw holes in non-symmetrical positions so that it can only be screwed in the right orientation.

Vendor Managed Inventory

Management of inventory is passed on vendor. Purchase order is redundant. Strong mutual stake in each other’s business is a basic requirement. It is beneficial to both customer and supplier.

VMI can be defined as: It is a streamlined approach to inventory and order fulfillment. With it, the supplier and not the retailer, is responsible for managing and replenishing inventory. This is done by using EDI, by electronic transfer of data over a network. It can also be seen as a mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer/customer. Vendor Managed Inventory (VMI) is basically evolved to facilitate the operations at retail stores. It involves a continuous replenishment program that uses the exchange of information between the retailer and the supplier to allow the supplier to manage and replenish merchandise stock at the store or warehouse level.

In this program, the retailer supplies the vendor with the information necessary to maintain just enough merchandise stock to meet customer demand. This enable the supplier to better project and anticipate the amount of product it needs to produce or supply. The manufacturer has access to the suppliers’ inventory data and is responsible for generating purchase orders. VMI was first applied to the grocery industry, between companies like Procter & Gamble (supplier) and Wal-Mart (distributor). But if applied properly, VMI can provide the benefits of smoother demand, increased sales, lower inventories and still reduced costs of lost sales to the other industries.

Benefits of VMI

1. Dual Benefits

1. Data entry errors are reduced due to computer-to-computer communications.
2. Speed of the processing is also improved.
3. Both parties are interested in giving better service to the end customer. Having the correct item in stock when the end customer needs it, benefits all parties involved.
4. A true partnership is formed between the manufacturer and the distributor. They work closer together and strengthen their ties.

2. Supplier Benefits Reduced inventory: This is the most obvious benefit of VMI. Using the VMI process, the supplier is able to control the lead time component of order point better than a customer with thousands of suppliers they have to deal with. Additionally, the supplier takes on a greater responsibility to have the product available when needed, thereby lowering the need for safety stock. Also, the supplier reviews the information on a more frequent basis, lowering the safety stock component. These factors contribute to significantly lower inventories.

1. Reduced stock outs: The supplier keeps track of inventory movement and takes over responsibility of product availability resulting in a reduction of stock outs, thereby increasing end-customer satisfaction.
2. Reduced forecasting and purchasing activities; as the supplier does the forecasting and creating orders based on the demand information sent by the retailer, the retailer can reduce the costs on forecasting and purchasing activities.
3. Increase in sales: Due to less stock out situations, customers will find the right product at right time. Customer will come to the store again and again, thereby reflecting an increase in sales.
4. Planning and ordering cost will decrease due to the responsibility being shifted to the manufacturer.
5. The overall service level is improved by having the right product at the right time.
6. The manufacturer is more focused than ever in providing great service.

On a whole, vendor managed inventory reduces transaction costs such as:

Purchasing

1. Speeds transactions
2. Streamlines communication between customer and supplier
3. Eliminates paper-to-computer data entry
4. Improves data accuracy
5. Frees up staff to work on more productive activities

Inventory Management

1. Delivery as needed cuts storage
2. Helps you reduce inventory levels
3. Reduces inventory obsolescence
4. Improves inventory turns
5. Improves fill rates
6. Decreases lost sales

Receiving

1. Advance Ship Notice speeds up receiving
2. Bar Coding cuts warehousing costs Error Reduction
3. Data entry mistakes are avoided

Manufacturers Benefits

1. Improved visibility results in better forecasting: Without the VMI process, suppliers do not exactly know how their customers are going to place orders. To satisfy the demand, suppliers usually have to maintain large amounts of safety stocks. With the VMI process, the retailer sends the POS data directly to the vendor, which improves the visibility and results in better forecasting.
2. Reduces PO errors and potential returns: As the supplier forecasts and creates the orders, mistakes, which could otherwise lead to a return, will come down.

1. Improvement in SLA: Vendor can see the potential need for the item before it is actually ordered and right product is supplied to retailer at right time improving service level agreements between retailer and supplier.
2. Encourages supply chain cooperation: Partnerships and collaborations are formed that smooth the supply chain pipeline. Visibility to the distributor’s point of sale data makes forecasting easier.
3. Promotions can be more easily incorporated into the inventory plan.
4. A reduction in distributor ordering errors (which in the past would probably lead to a return).
5. Visibility to stock levels helps to identify priorities. Before VMI, a manufacturer has no visibility to the quantity and the products that are ordered. With VMI, the manufacturer can see the potential need for an item before the item is ordered.