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Operations Management Principles Db 4

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Unit 4 DB


JIT is an organizational philosophy that goes beyond manufacturing and encompasses all aspects of the organization's functioning. Also it introduces a culture of continuous improvement. These characteristics make it a potent management tool. Today some of the crucial problems that are being faced in the Mexico plant are disruptions in the production process due to irregular supplies from vendors and because of the inability to maintain a continuous flow of material through the various production stages; inability to adapt to the flexible nature of demand; and as a result of these, having to keep high levels of raw material, in-process and finished goods inventory. These are the issues that JIT addresses and hence JIT could be the solution for the plant's problems.

The JIT application is spread over four building blocks and the relevance of these to the company's situation is being discussed below. The first block deals with improvements in product design. The division has 4000 parts in its catalogue. These parts have been introduced over the years as and when required and have been designed independently of the company's other products. There is a need to take a fresh look at the designs, incorporating standards parts and modular design. This should involve concurrent engineering in which the operations personnel will form a team not only with the procurement and marketing personnel but with the vendors and customers as well. The second block, process design, is the most critical. The demand of finished products has a significant randomness and this is creating a hurdle in smooth and stable processes. The processes need to be made more flexible and the ideal solution seems to be smaller lot sizes. There is resistance, however, from both procurement and operations because of ordering and set up costs. These costs need to be reduced. The order costs can be reduced by generating orders through a computerized system based on inventory levels. Through e-commerce the orders should be transmitted to vendors, who should be trained to deliver with no or minimal manual follow up. Reducing the set up costs could mean investing in new technology of multi-purpose machines and also reorganizing the process into manufacturing cells. In the personnel and organizational block the most crucial factor is cross training of employees. Today certain machines remain idle because employees have called in sick and, at the same time other machines have surplus employees because of low load. The company also needs to update its method of allocating overheads, with the services of a specialist cost accountant if needed. It may well find that a significant number of the products are unavailable at present prices if overheads are more realistically allocated. The final bock is manufacturing planning and control. Since the company operates in a competitive market, the operations are driven by customer demand and the Mexico plant needs to consider pull systems. These systems seek to ensure that the subsequent operating stage drives the internal process (as against the previous stage in push systems) and is therefore better able to cater to changes in customer demand. (Stevenson, 2007)

The genesis of JIT was for inventory control. Vendors delivered inputs just when they were required. The same philosophy was followed in the intermediate process stages and the customers took delivery as soon as the finished goods were produced. This involves linking the inventory levels of the company with those of its vendors and customers. Hence the management will not only have to "sell" JIT to its own employees but to its vendors and customers as well.


The company has a large number of finished products, whose demand is generated from the customer's orders. This demand is known as independent demand. Each of the finished products is assembled from many components most of which require processing in the plant at various stages in the process. The inputs for these components have different procurement lead times. The demand for these components is known as dependent demand. This demand can be theoretically generated using the independent demand, the bills of material, the lead times involved and existing stock levels. However this calculation for 4000 finished goods cannot be done manually. Today the company operates with historic minimum and maximum inventory levels for most of the input components. This often leads to carrying of excess inventory and also to stock outs.

MRP is a computer-based system that performs these calculations given the independent demand over the given period, the bills of material, the lead times involved and existing stock levels. MRP will provide accurate information on how much quantity of what items need to be ordered when. This information will enable the clubbing of orders of identical components used for different finished products. The ad hoc ordering can then be replaced by a systematic ordering of inputs that should ideally prevent both stock outs and accumulation of slow moving items. A safety stock can be built in for lead time uncertainty. The MRP can also generate a production schedule and the expected flow of inventory levels. The MRP generated production schedule can be matched against available capacities and if existing capacities fall short the independent demand can be adjusted. ERP integrates the operations with the other functions of the company.



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