Just-In-Time (JIT) Inventory Management
Introduction
Every industry is subject to various factors which establish major influence in the firm’s function as a whole. Such factors are the ones recognised for the success or even the failure of an establishment. In a profit-oriented business the company obviously has to try and achieve this level of customer satisfaction as a way of staying ahead of the competition and making a profit. In this manner, the management of a certain organization should be guided by strategic management principle to be able to attain its business goal. One of the most important management systems that can be used by many organisations or businesses is the operations management.
Operations management is all about transforming raw inputs in the form of labor, material, and capital into useful goods and services. The value that is added by both operations management and operations strategy is fundamental to most organizations. Operational activities are central to the provision of services and/or goods. Every organization that offers goods or services has an operations activity. As far as the organization structure is concerned, some firms will have a discrete operations function. This might be called a manufacturing department, an operations system, or have no identifiable name at all ().
Major, overall activities often include product creation, development, production and distribution. Related activities include managing purchases, inventory control, quality control, storage, logistics and evaluations. A great deal of focus is on efficiency and effectiveness of processes (). A great deal of management is needed in its production operations process. In its greatness lies complexity. () stated that the emergence of so many new, vital areas of technology and methodology has brought about a need for a more varied skills from the contemporary operations manager ( 1987). Part of managing operations is the existence of the Just-In-Time process. Hence, the purpose of this paper is to provide insightful details about Just-in-time inventory structure.
Just-In-Time Inventory Structure
In the early 1980s a new management concept has been introduced by American Manufacturing industry. This concept is regarded as the zero inventories and now commonly known as Just-In-time inventory. The JIT inventory has grown into a corporate philosophy which seeks to do the operations right the first so as to reduce or eliminate any non-valued added activities (). In the Just-In-time context, the operational activities like moving materials, waiting for parts, set-up of machines and equipments and inspection are considered as non-valued added activities. JIT has three basic stages or process. These stages are regarded as: kanban, production planning and global management philosophies. Most of the companies claim that they are utilising JIT when they are into one of these stages. However, it shows that these three stages are not separate activities but rather a movement from using JIT.
In the stage one of JIT, the process is a shop-floor control instrument which allows the scheduling of inventory movement throughout the shop with the utilisation of Kanban (materials movement tracking device). Kanban can actually take the form of a card, a marked off area, or a box on the floor and are sued as an authorisation or permission to move materials or to create new products. The first stage should be able to establish impressive reduction in work-in-process inventory due to the direct uninterrupted passage of materials within work stations ().
After the first stage is done, the second stage follows and that is the production planning. Production planning gives emphasis on the basic principle of receiving production materials as needed, rather than structuring up inventories of these materials. By implementing the second stage, the managers will be able to reduce inventory to a minimum level and keeping only the exact amount needed in production until the next order has arrived. This method when done effectively eliminates the double handling of products that happened when storage is being relocated to the work are or shipping area. The Just-in-time production section is driven by having constant delivery of parts. The implementation of this stage also eliminates ther material requirements planning (MRP) as a toll for production planning. As noted, the purpose of MRP is to make sure that the lowest possible level of inventory is maintained while making specific materials are available. However, in production planning, detailed bill-of parts for the production which allow the movement of materials from storage to shipping areas are no longer advice. The lead time in the just-in-time is significantly different. The lead time may be decreased from months to hours even in a large production type of environment. With such a short span of time, it will be easy to identify what materials will be needed each day of the production.
Another essential part of the planning environment in just-in-time inventory management is the opportunity to have long-term contractual partnerships with vendors. Such kind of relationships removes the need for purchase requisitions and purchase orders. Partnering agreements allow the mutual exchange of confidential information, proprietary restrictions, non-disclosure, non-compete, certification of processes, routine audits, delivery performance, quality performance, as well as the transfer of control of a process or product.
With this the crucial part of the production process in just-in-time is that quality evaluations are done differently. Accordingly, quality is vital part of the manufacturing process. Each employee is a quality inspector and the inspection is done before the work starts and after it is finished. Such kind of activities is known as in-line quality control or total quality control.
After the production planning, the third basic step for JIT is global management concept. The context of this is something which influences every factors of manufacturing environment. Herein, by using standard operations, costing is being eliminated and only actual costs are used. In addition, the inventory tracking are also eliminated and are maintained to a minimum. In terms of management styles, the statistical management, the concepts of management circles, long-run planning and bottom-up management becomes equally important. Moreover, in line with facilities planning methods, just-in-time recommend factory planning, resource sharing and technology specialization ().
JIT Inventory Management
Generally, it is renowned that the implementation or use of Just-In-Time will result in major reduction in inventory. It is noted that inventory levels are the vital measurement of the Just-In-Time process. In terms of inventory management, the notion of JIT is simple. The philosophy involves: strive for a level of having zero inventories, generate or produce products at a rate required by the clients, reduction or elimination of all unnecessary lead times, decrease setup costs to obtain the smallest economical lot size, enhance the effectiveness of material flow from suppliers through the production activities to the point of sale of the output or finished product, so as to minimize inventories, guarantee high quality just-in-time delivery from suppliers, lessen safety stocks, apply a total quality control program that diminish scrap, rework, and resultant delays in terms of production ().
In the just-in-time process, the raw materials and other items purchased must be delivered by the supplier when it is really demanded. A blanket purchase order or other type of a basic arrangement should cover the terms and conditions of the process of procurement. The concept of procurement typically offers integrated functionality in the areas of order creation, reporting and management control, as well as seamless integration with financial systems. The strength of procurement lies in efficiency gains from automation of the stages of the procurement process, including requisition, approval, receiving, and reconciliation. Procurement systems are highly customizable on both the industry and company level.
In this regard, communications among the involved parties should be clear to make sure that the supplies and materials are delivered in time. There are some approaches which help in controlling the flow of raw materials from supplier to the client. One is the automatic inventory replenishment which is done by the vendor. Automatic inventory replenishment is a method by which the supplier identifies the need for required materials or parts based on the frequent deliveries to the plantation. In addition, the parties may also used techniques of written order for vendor delivery and verbal order for vendor delivery.
On the other hand, the inventory records can be posted by the use of backflushing. Such approach is used for automatic calculation of component usage via bill-of-materials explosion of the end item for the completed quantity. This can also be used to a flow process and a batch process manufacturing operation. For the low-unit-cost items, the records of inventory posting requirement can be erased altogether. These items can be expensed by the vendor when delivered and invoiced, with this, visual controls are usually adequate for reordering. These may include vendor delivery based or verbal delivery based or written order and automatic inventory replenishment by the vendor. e inventory policy code identifies the methods that are used for each technique. Moreover, the code must also determine the need for transaction reporting and the level of inventory record keeping. Such aspects may choose one or more of the following options: transaction reporting of serial number items, transaction reporting of receipts, transaction reporting of returns to vendor, receipt and issue calculation based on backflushing, transaction reporting of scrap and rework, transaction reporting of issues, no transaction reporting nor perpetual balance in the inventory record ().
In the Just-in-time manufacturing environment, the inventory is “demand” which is pulled into and within the process on a part-by-part source in small quantities. Herein, the movement of inventories no longer adhere to the conventional process of moving from the storeroom to a work or shipping center, to a storeroom, to another work area and so on.
The inventory of manufacturing flows in JIT can be compared to a pipeline. However, this are often called as “four wall systems.” In the process, once raw materials get into the four walls, the materials are not recorded again until they leave as finished products. Such concepts can be attributed for three reasons. First, the product or good does not spend enough time within the plant to create necessary inventory recordings. Secondly, the higher quality in JIT inventory management systems decrease rework and lessens abnormal flow paths, directions and times, which minimises recordings needs. Last, in a JIT inventory management system the quality product flows are disciplined, well controlled and flow distances are short, which provides a visual aspect to work-in-process inventory control.
Conclusion
It shows that JIT has become a considerable solution for many manufacturing industry in terms of making products without wasting time, resources and efforts. The JIT inventory management assures a company of having a production cycle which are free of waste and provides quality products to be given in the market place.
Credit:ivythesis.typepad.com
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