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When the market is highly competitive, companies have little leeway to differentiate themselves from the competition in terms of product price or product quality. They can then only improve their profitability by increasing efficiency in the value chain.
Just-in-time production or just-in-time delivery was developed in Japan and has proven itself worldwide as a no-frills procurement and production system. It is used primarily in large corporations with complex products and is particularly suitable for small markets where companies derive little benefit from economies of scale.
What is just-in-time production?
Just-in-time production is also known as JIT production or on-demand or production-synchronous production. It aims to align the entire material flow with production in order to streamline the value chain and increase efficiency.
By delivering material only when it is actually needed in production, the company saves warehousing costs and has less capital tied up in advance. Only small material safety margins are kept in stock in order to be able to cushion minor delivery delays. At the same time, production can react more flexibly to market changes.
“Just in time” is an organizational principle in production and materials management, in which raw materials or components are delivered exactly in the required quantity when they are needed in the production process.
Just-in-time production is the opposite of just-in-case strategies in which companies maintain extensive inventory to quickly satisfy maximum market demand.
How it originated
Just-in-time is sometimes referred to as the Toyota production model because it was developed by Taichii Ono, a former chief engineer of Toyota.
After 1945, Toyota founder Kiichiro Toyoda wanted his company to quickly catch up with the American automobile groups. But the Japanese market was not large enough to make car production more profitable through economies of scale. Instead of producing more than the market needed, Toyoda decided to eliminate as much waste as possible from the value added process.
Taiichi Ono then developed the comprehensive JIT principle, which was not only used for production, but also for delivery and distribution. Various other methods are combined in order for the just-in-time approach to work. In order to keep track of the flow of material and information, Kanban boards are used at the workshop level, for example. This agile approach is now also used independently of production in project management in many industries.
Although the Japanese company was unable to catch up with its American competitors in the following years, the resulting economic success attracted international attention and led to the just-in-time delivery model spreading worldwide and being used to this day.
What are the applications of just-in-time delivery?
In practice, JIT production is mainly used in the automotive and aircraft industries, where so many different components are regularly used that it is virtually impossible to store them all directly on the assembly line. The supplier companies are often located in the immediate vicinity of the client company, so that long transport routes and associated risks (traffic jams, accidents, etc.) are eliminated. Production times in the automotive industry have thus been drastically reduced. In the case of the Smart Fortwo, for example, final assembly only takes three hours.
Basically, the strategy is advantageous for all companies whose production includes high-priced and large components and which want to optimize their value chain.
Prerequisites for just-in-time delivery
Prerequisites for successful just-in-time delivery are good transport planning and close coordination between the supplier and client. The latter must determine the optimum delivery size and calculate the correct cycle lengths so that orders will be placed on time and delivered products installed seamlessly rather than being stored near final assembly. Sometimes, short waiting times cannot be avoided. JIT production eliminates the need for classic warehousing.
Just-in-time production was developed for products for which there is a relatively constant demand. In addition, it is assumed that the resources are readily available. Companies need a good infrastructure. In order to mitigate the risks posed by the close dependency on one or more supplier(s), it is recommended for the suppliers to be located in the immediate vicinity of the production site.
In practice, the model can only be implemented with suppliers if they themselves are flexibly organized and receive (framework) contracts that offer them reliably large order quantities, otherwise the economic risk of just-in-time delivery is too high for them. In-process quality assurance is absolutely essential in JIT production. This is because faulty parts must first be reordered and production is then interrupted until they are replaced.
What are the advantages and disadvantages of the method?
Just-in-time production has various advantages. It can significantly improve the profitability of a company. However, there are also some risks and drawbacks that companies should be aware of when planning to implement the method.
- Improved profitability: In highly competitive markets where profitability cannot be improved by lowering prices or quality, optimizing procurement and production can be the best way to increase profits.
- Accelerated manufacturing process: In the German automotive industry, it was possible to cut final assembly times by more than 50 percent in some cases.
- Low capital commitment: Companies need to rent less storage space and have fewer components in stock, saving significant resources.
- Reduced labor costs: Procurement in JIT production facilities is significantly more cost-effective, as it is less time-consuming.
- Detailed planning: Just-in-time delivery requires detailed and smooth planning of the production and procurement process.
- High communication workload: Just-in-time can only be successful if suppliers and customers closely coordinate their communication and constantly share information on the current production status.
- Increasing dependency on suppliers: As soon as a supplier’s production comes to a standstill, this has an immediate effect on the entire process. Some companies spread their requirements over several suppliers, but the positive effect is limited without warehousing.
- Greater impact of transport problems: Any time transport is delayed, the production has to stop.
- Storage space is still necessary: Depending on how strictly the JIT model is practiced, it remains necessary at least some storage space on the assembly line must be maintained. This could not be omitted until just-in-sequence production was developed.
Further development: Just-in-sequence production
A further development of just-in-time production is just-in-sequence production. The material is not only delivered in the right quantity at the right time, but all individual parts necessary for the final assembly are ordered and delivered in the appropriate sequence for the respective product.
In the automotive industry, for example, vehicles are being configured individually. Components and assemblies differ depending on the purchase order. Just-in-time delivery is no longer sufficient for such cases. Just-in-sequence production ensures that the different parts are also provided in the sequence in which they are installed.
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