Just in time business philosophy

[bartock]

tring to write an essay on a good business philosophy,I think JIT is good.

Toyota started the JIT(just in time) thing.Zara(europe) has applied it very effectively,from the out let's shelf to the assembly line.There are great benifits for a manufecturing company to go JIT.

Some of the benifits of JIT would include

1.jobs are created for the local people.

2.since ther is never mass production so wear house is not needed.

3.if the market trends change then it is easier to change product to meet the demand.

4.there is better quality control.

What are the other areas where JIT can be applied?Any ideas?

Will appreciate if any one can direct me to good site on JIT.

[Buffy]

tring to write an essay on a good business philosophy,I think JIT is good.

Great! What do you do if your supplier gets hit with a typhoon? Or just plain turns out to be unreliable? Do you increase your costs to create a backup supplier? How do you harmonize their outputs to be able to make it economically feasible for them to continue to work for you? How do you even get a secondary supplier when that secondary is a fierce competitor of the primary and they are paranoid about you leaking information to their competitor? Do you, by simply broaching the topic of second sourcing, lose the best supplier because they are not willing to play if they cannot be the sole supplier? And then what happens when the typhoon hits?

1.jobs are created for the local people.

Not any more. Its unlikely that suppliers will locate close to you if they have low costs, or if they do relocate, their costs will go up, and they may no longer be the low cost supplier.

2.since ther is never mass production so wear house is not needed.

Not having to maintain inventory is the primary savings of JIT, but it is also its Achille's heel: no inventory means instant supply chain failure if something goes wrong.

3.if the market trends change then it is easier to change product to meet the demand.

The other problem with JIT is that if you are going for this benefit then you're signing a contract for *no changes* over the long term, but if you don't, that means its more risky for your supplier which means that the unit costs they charge will be higher than if you were willing to guarantee not changing the design of the widget for X number of months, thus amortizing their development costs over more units.

4.there is better quality control.

Completely fallacious. QA is always problematic and in fact larger inventory gives you larger sample sizes which leads to better estimation of failure rates of parts...

 

Be careful of panacea's promoted by professors: they rarely are. Good professors will fill you up with the caveats, not the panaceas....

 

Cheers,

Buffy, M.B.A.

[bartock]

Great! What do you do if your supplier gets hit with a typhoon?

japan is in the earthquake zone. so i think typhoon or earthquake is the same thing.

how has toyota delt with this kind of problem?

 

Or just plain turns out to be unreliable? Do you increase your costs to create a backup supplier? How do you harmonize their outputs to be able to make it economically feasible for them to continue to work for you?How do you even get a secondary supplier when that secondary is a fierce competitor of the primary and they are paranoid about you leaking information to their competitor? Do you, by simply broaching the topic of second sourcing, lose the best supplier because they are not willing to play if they cannot be the sole supplier?

i guess here we have to apply the DELL strategy.there are multipul suppliers and the contract with each supplier says that their 80% products will go to DELL.rest of the products they are free to do what ever.

 

.Not having to maintain inventory is the primary savings of JIT, but it is also its Achille's heel: no inventory means instant supply chain failure if something goes wrong.The other problem with JIT is that if you are going for this benefit then you're signing a contract for *no changes* over the long term, but if you don't, that means its more risky for your supplier which means that the unit costs they charge will be higher than if you were willing to guarantee not changing the design of the widget for X number of months, thus amortizing their development costs over more units.Completely fallacious. QA is always problematic and in fact larger inventory gives you larger sample sizes which leads to better estimation of failure rates of parts...

how is ZARA doing it then? other clothing manufecturers are thinking into appling JIT mothod(e.g. Bhs).

 

Be careful of panacea's promoted by professors: they rarely are. Good professors will fill you up with the caveats, not the panaceas....

thanks but i am not in economics or business;so if you could explain what is panaceas and caveats :evil:

[bartock]

what would you say to appling JIT to restaurant business.

[Buffy]

japan is in the earthquake zone. so i think typhoon or earthquake is the same thing. how has toyota delt with this kind of problem?

 

i guess here we have to apply the DELL strategy.there are multipul suppliers and the contract with each supplier says that their 80% products will go to DELL.rest of the products they are free to do what ever.

 

how is ZARA doing it then? other clothing manufecturers are thinking into appling JIT mothod(e.g. Bhs).

Is there a theme here? Yes! They're all *huge* companies (or at least big and desirable in Zara's case), so they have the ability to set up highly favorable contracts that force suppliers to do what they want them to do, and they don't have to worry about suppliers having "demands", they either bow to what Toyota wants or they don't get the business. That's most of what I'm talking about in the previous post. Do you want to start a small company and use JIT? You're increasing your risk! You will not be able to get favorable contracts with suppliers: unlike Dell, they won't commit to giving you 80% of their output (are you saying you think that this restriction is an advantage to the *supplier*? It means they *cannot* sell any of that 80% to someone else, even if someone else comes along willing to pay a higher price! Thats a *disadvantage* for the supplier, and they're only willing to take it because its Dell...)

 

 

thanks but i am not in economics or business;so if you could explain what is panaceas and caveats :evil:

Sorry, they're not business or economics related, just really big English words :)

panacea: a cure-all medicine, "just take this and all your problems will be solved" This is basically what it sounds like you think JIT is: everyone should do it because its the best/only way to run a business.

caveats: warnings about what might go wrong with a plan or process or solution. Those are the complaints I listed in the previous posts about JIT: its really not for everyone or every situation. Its good where its useful and its widely practiced, but it has significant risks due to supply disruptions or lack of freedom in choosing suppliers.

what would you say to appling JIT to restaurant business.

With restaurants, JIT is a way of life: food has got to be fresh. The down-side here is dramatic, in that reliable suppliers can extort premium fees from restaurants, and higher freshness/premium quality requirements drive this cost upward. Now the big chain restaurants (think McDonalds) do control more of theirown supply chain to get better control over this, and because they are big they can exert the same sort of control over local suppliers. This is very different from a small restaurant which is squeezed, and is one of the many reasons that 95% of all new restaurants fail within their first 3 years!

 

Cheers,

Buffy

[bartock]

so only big businesses can afford JIT?

the small business man can not afford JIT?

[Buffy]

so only big businesses can afford JIT? the small business man can not afford JIT?

That's a gross generalization, but yes. Again, some businesses like restaurants are JIT by definition. Other small businesses can certainly try JIT, but they may not see any benefits, and indeed it may cost them *more* over time to do JIT...

 

If you study operations research a bit, you'll find that there is for *every* business a set of complex factors that have to be considered when determining the optimal inventory size to maintain, and it should be recognized that JIT is not really a "different way of running a business", its simply a recognition that for some businesses, the supply chain can be structured so that maintaining small inventories provides optimal profitability. YMMV....

 

Cheers,

Buffy

[Mr. Potato Head]

Unless you are talking about some sort of production, autos or food, JIT is just procrastination.

 

JIT requires an evolved system of forecasting and can be accomplished with far away suppliers. Just because your company is JIT doesn't mean your supplier has to be, and more often than not, they DO have a huge inventory and if they don't, you should find another one. As long as you forecast properly, JIT works very well.

 

You are still susceptible to needing storage space also when marketing makes a mistake and builds more than the market will bear. Woops. And since you are forecasting your production, it takes a couple months of overproduction before you get it corrected. Then demand picks up and a few months later you don't have enough. Begin cycle now.

[bartock]

so the supplier can control the price of the product?

the customer is willing to pay only that much(what he can afford).

the manufecturer cant really make that big profets on JIT?

[Buffy]

so the supplier can control the price of the product?

Under circumstances where the supplier has control over aspects of the market, such as, they are the only/biggest supplier in a geographical region.

the customer is willing to pay only that much(what he can afford).

If the customer can't afford what the suppliers can get away with charging, they'll go out of business!

the manufecturer cant really make that big profets on JIT?

Not if they are small, but they can make *huge* profits if they are big, and control the supply. My favorite is DeBeers, who control 80% of the diamond production in the world. Diamonds are actually very common and would not be anywhere as expensive as they are if DeBeers had not managed to obtain ownership or control over both the mining and distribution channels down to the wholesaler level of all the diamonds in the world. They of course end up having a *HUGE* inventory, that they control so that they can artificially maintain scarcity, but their profit margins are so huge as a result of this control over the inventory that its worth it to maintain it.

 

On the sellers side of course you can find examples of the same level of control over *suppliers*, the current whipping boy in this respect is of course Wal*Mart who is famous for screwing every last penny and distribution consession out of their suppliers. Who can afford *not* to play with Wal*Mart, if there's someone down the street who will.

 

Cheers,

Buffy

[Biochemist]

...Not having to maintain inventory is the primary savings of JIT, but it is also its Achille's heel: no inventory means instant supply chain failure if something goes wrong....

Inventory reduction is one benefit, but the broader benefit is that JIT focuses the factory on efficiency and throughput, not just volume. Many manufacturing facilities have used excess inventory to hide imbalances and inefficiencies manufacturing process. Examples include storing inventory to allow for a down machine.

Down machines can be avoided by scheduling planned downtime for routine maintenance. Aggregate downtime falls if routine downtime is scheduled.

 

There are lots of other examples. Excess inventory is the bandaid over a bad manufacturing process. JIT uncovers it, and the manufactuiring costs fall.

 

That is why Toyota makes more money per unit on cars than anyone else, even discounting for the differential in healthcare costs.

[Buffy]

Inventory reduction is one benefit, but the broader benefit is that JIT focuses the factory on efficiency and throughput, not just volume. Many manufacturing facilities have used excess inventory to hide imbalances and inefficiencies manufacturing process.

Yep, absolutely! Its an interesting tradeoff though, and short-term quarterly profits are often better achieved by reductions in maintenance insisted upon by management, and production handles the problem by building in-process inventory...It takes a long-term view to justify the short term "loss".

JIT uncovers it, and the manufactuiring costs fall.

Woe has often befallen the senior management that follows this order of events though: unless you want a major down quarter, you'd better figure out the problems on the manufacturing line *before* you cut back on the inventory! I've seen companies do it your way because a junior Android or McKinseyite came in all jazzed about JIT blabbering about "forcing the lazy idiots on the shop floor to shape up" and they've gotten fried...

 

Cheers,

Buffy

[Biochemist]

...I've seen companies do it your way because a junior Android or McKinseyite came in all jazzed about JIT blabbering about "forcing the lazy idiots on the shop floor to shape up" and they've gotten fried...

A JIT conversion failure is ceraianly not the responsibility of the staff on the shop floor. It is mostly a manufacturing engineering problem.

[bartock]

if most businesses applied JIT philosophy, what would the economy look like?

how would the society be like ,based on that economy?

[Buffy]

if most businesses applied JIT philosophy, what would the economy look like? how would the society be like ,based on that economy?

It would be far more efficent until the hurricane hit, then it would take much longer to recover....Have you noticed what just happened to your gas prices?

 

Really, your question is pretty darn vague. What aspects of "the economy" and "society" are you talking about? Moreover, what do you mean by "if most businesses applied JIT philosophy"? As discussed earlier, many businesses don't have a choice. Others do *not* fully implement JIT because the cost of down time due to supply-chain failures is large (even after optimization that Bio mentions). There is no world in which "everything is JIT" in fact it easy to argue that JIT is in the eye of the beholder: processes can be more or less JIT, but its a subjective measurement.

 

Cheers,

Buffy