Disadvantages of JIT (Just In Time) and Impacts on Costs

[Bev D]

and really JIT is a misnomer - or a misinterpretation of the Toyota Production System. (And Ford's use of it early in the last century)

JIT is one small aspect of TPS - and is actually not so much a tool as a result of TPS. In fact those who implement JIT directly are doomed to fail.

Also important to understand - as Ralph has pointed out - is that Toyota and Honda both 'hold' inventory at suppliers locations depending on the material and the supplier. They also carry some levels of safety stock.

TPS/Lean is a journey, not a destination

 

[vanputten]

JIT must be done with an overall systems view. JIT is inter-related and interconnected to so many process, departments, suppliers, customers, etc. It must be done with the entire system in mind with top management willing to look at the entire business system. If not, you will suboptimize inventories, ordering systems, level scheduling, etc. Suboptimization will result in Just In Case inventories somewhere inthe supply chain.

JIT is a systems concept that affects suppliers, the organization and customers. It is a system wide venture.

Regards,

Dirk

 

[sspoldir]

If you carry 10 million in inventory and reduced it by %10 (or whatever number)... thats 1M cash in the businesses pocket.

I don't know if anyone has really mentioned it but inventory costs money to have. When you have large amounts it takes capital to warehouse, it get's in the way and suffers from damage, obscolescence... etc.

JIT manufacturing has been around for many many years, it allows a company to keep the bare minimum of stock at their own plant to keep how much money they have sitting on the shelves as low as possible which is supposedly makes a company save money.
Dimitri

 

[Dimitri]

If you carry 10 million in inventory and reduced it by %10 (or whatever number)... thats 1M cash in the businesses pocket.

Yes but just because you have it in your pocket doesn't make the company richer, since the company will NEED to buy that 1 million dollars worth of Inventory anyways no ??

Dimitri

 

[sspoldir]

Just In Case, lol. Unfortunately what happens in businesses that are not enlightened is having too much inventory is a slap on the wrist whereas running out of inventory gets your head chopped off, thus the JIC.

...Suboptimization will result in Just In Case inventories somewhere inthe supply chain.
Dirk

 

[sspoldir]

If it was once operating with 10M, then reduced it to 9M and retained the same service level (ie it didn't effect customer lead times, shortages, etc). That freed up money can go to something else (like the owners bonus).

Richer depends on your defintion of inventory, unfortunately your accountant is going to tell you inventory is an asset. Cost accounting is old school, your machine running 24/7 (unless they are all being bought up right away) is not like printing cash if the stuff sits on a shelf for weeks and months.

Yes but just because you have it in your pocket doesn't make the company richer, since the company will NEED to buy that 1 million dollars worth of Inventory anyways no ??

Dimitri

 

[Dimitri]

If it was once operating with 10M, then reduced it to 9M and retained the same service level (ie it didn't effect customer lead times, shortages, etc). That freed up money can go to something else (like the owners bonus).

Yes but if your operating with 10M in inventory and it cycles every 20 days lets say, that means by cutting it down to 9M in inventory, all you've really done is made the bill slightly smaller, but since the inventory cycles from 20 days per "check sent out" till you need to get more stores to repeat the process all over again will now be every 18 days no ?? Which means the same 10M is going out every 20 days regardless of the amount of inventory on hand.

I don't see how the company makes that million dollars just by cutting it NOW in inventory when it will have to be there LATER.

Dimitri

 

[sspoldir]

Let's break it down in a simplified example... You have three stacks of widgets, each stack is one weeks worth of inventory for that product.

You sell off two stacks and only replenish one of them. Now you have two weeks worth of inventory. If you sell one of the two stacks you replenish it, of course that replenishment needs to occur within a week (thats why you work in reducing lead times by working with your suppliers and/or manufacturing processes).

Previously you operated with 3 weeks worth of widget inventory and now your down to 2. Provided it doesn't cut into fill rates or increase lead time to your customer (if it does you need to tackle the reasons why) you now operate with less inventory. Wash, rinse and repeat. There isn't a "now" you have to sell that inventory off, you simply don't replenish the excess.

 

[Dimitri]

I still don't understand how that saves a company money though, since your going through the same amount of inventory anyways.

Only way I can see it saving money is if the buying company goes under and you end up with inventory you cant sell so it minimizes your losses.

Dimitri

 

[Bev D]

read Jeffrey Liker's series on The Toyota Way. TPS/Lean is counterintuitive to traditional manufacturing techniques...plus search this site there are other threads that cover this...
JIT is a RESULT of implementing TPS/Lean not something you do.

carrying costs of inventory are real.
plus the costs if you need to purchase extra space or heat and illuminate extra space you could close off)
opportunity cost of paying for stuff and transporting it before you need it are real - ask your finance guy what 'float' is)
revision changes to existing inventory are real (yes we solve problems then have to rework inventory so it won't fail too...)
hidden defects within that mound of inventory are real and large and when you find them will be when you can least afford it.
moving that inventory around to make room for all of the other inventory you need to store can and will cause handlign damage, you will lose it adn that takes time to find it - which is headcount...

there's more but if you are truly intrigued Liker's books will help. or google "thd seven wastes" and "the eight wastes"