Just in Time Concept
Just in Time is a ‘pull’ system of production, so actual orders provide a signal for when a product should be manufactured. Demand-pull enables a firm to produce only what is required, in the correct quantity and at the correct time. This means that stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum. This requires a carefully planned scheduling and flow of resources through the production process. Modern manufacturing firms use sophisticated production scheduling software to plan production for each period of time, which includes ordering the correct stock. JIT success stories in large manufacturing companies, especially in the automotive and electronic industries, abound with stated benefits including reduced inventory, reduced direct labour and increased productivity, which in tum lead to reduction of total costs. In an era of increased competition, especially global competition, international manufacturing enterprises (SMEs) need to access the same benefits to gain more competitive advantage especially through reduced costs and increased flexibility and quality. Therefore, it is an important practical and research question as to the extent to which the UK manufacturing companies can adopt the JIT system and gain access to its benefits in times of crisis. This essay will first introduce the definition and advantages of JIT. Next, the potential disadvantages faced by manufacturing companies when using JIT systems will be analyzed in detail. Finally, from the perspective of international outsourcing, the impact of Brexit on UK manufacturing companies using JIT will be analyzed.
JIT is a process aimed at increasing value-added and eliminating waste by providing the environment to perfect and simplify the process.JIT in time concept was initiated in Japan making the Toyota as its master piece. JIT is system whether company starts manufacturing/purchasing once the customer orders the good effectively making zero inventories. In other words, in a JIT environment materials are purchased and produced as and when it is needed. The whole idea is based on the phrase provide the goods just in time as promised when the order is placed by the customer. The opposite of the JIT production is known as JIC (Just in case) system where it produces goods for inventory with the intention of having goods just in case a customer places a immediate order.
The whole concept of the JIT is differentiated from traditional productions systems using push vs pull systems of production. The push system of production pushes materials to the next stage of the production irrespective of whether time and resources are needed at the next level of production creating lot of inventories at each level of the production flow. The traditional manufacturing organizations adopt push system where they produce for inventory and work in progress. The pull system of production is where the materials are pulled by next level of the production only when is signaled or required by the next stage of production. This drastically reduces the inventory held as it does not keep any work in progress. JIT concept is built based on the concept of pull production which eliminates the total inventory.
Benefits of JIT Manufacturing System
The main benefits of JIT have been well famous within the literature. A carefully planned implementation of JIT can directly provide increased teamwork and employee involvement, as the organization works together to find areas of waste to target and work out ways to reduce waste in that area (Slack, Chambers, & Johnston, 2007). This results in a simplification of the inventory management system, as well as business processes involved in inventory management. Supplier relationships and data regarding the business are used to identify specific areas where inventory improvements are required.
- Lower stock holding means a reduction in storage space which saves rent and insurance costs
- Areas previously used, to store inventories can be used for other more productive uses.
- As stock is only obtained when it is needed, less working capital is tied up in stock.
- Funds that were tied up in inventories can be used elsewhere.
- Throughput time is reduced, resulting in greater potential output and quicker response to customers.
- There is less likelihood of stock perishing, becoming obsolete or out of date
- Avoids the build-up of unsold finished product that can occur with sudden changes in demand.
- Defect rates are reduced, resulting in less waste and greater customer satisfaction.
- Less time is spent on checking and re-working the product of others as the emphasis is on getting the work right first time.
Disadvantages of JIT
JIT has many strong points, there are weaknesses as well. “In just-in-time, everything is very interdependent. Everyone relies on everybody else” (Greenberg, 2002). Because of this strong interdependence with JIT, a weakness in the supply chain caused by a JIT weakness can be very costly to all linked in the chain. JIT processes can be risky to certain businesses and vulnerable to the supply chain in situations such as labour strikes, interrupted supply lines, market demand fluctuations, stock outs, lack of communication upstream and downstream in the supply chain and unforeseen production interruptions.
Weakness of Just in time is a high danger plan because scheduling work is short period and the inventory degrees are kept to a minimal degree. In total quality of product is key issue with Just in Time conception. There is little room for mistakes as minimal stock is kept for re-working faulty product. Besides, Production is very reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed. There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders – however, JIT is a very responsive method of production.
While JIT works for some businesses, for others it can be detrimental. If an auto manufacturer is using JIT production methods, someone somewhere down the line has to hold some amount of inventory as a contingency. Not every supplier in the manufacturing chain has the luxury of only ordering exactly the materials they need. If inclement weather, strikes or supply shortages were to cause a supplier to not be able to provide an item needed in the manufacturing process, more than likely the supplier would be penalized fairly severely. So, we can see that the burden of inventory control is passed down the line to other suppliers from the JIT manufacturer. (BBC). JIT can lead to some environmental problems and additional costs as well. While less space and materials for storage facilities are needed, in some cases there is a greater cost, both monetarily and environmentally, in moving parts quickly from supplier to manufacturer. (BBC). As mentioned previously, shocks further down the supply chain can roll “uphill” to the manufacturer. If a supplier that provides seating for a vehicle were to have a catastrophe requiring the shut down of the plant, then the JIT manufacturer at the top of the chain would be without seats until the supplier either came back on-line, or another supplier could be found. This would more than likely result in a slowdown or even stoppage of production at the JIT manufacturer. (Wikipedia). In some instances there can be quality control issues. Since the quality of each part isn’t usually inspected at assembly time, defects may not be noticed right away in the streamlined JIT environment. (BBC). While I have been pointing out the negatives, there are positives for the JIT manufacturer. A decrease in storage space and the costs associated with it would be a sizable benefit to a company. Another benefit would be an increase in capital due to the fact that it’s not tied up in physical inventory costs.
UK manufacturing companies using JIT under the background of BREXIT
It is obvious that Brexit poses crisis for the UK, but the technical detail is often poorly understood. One of the main problems relates to “just in time” production and it’s a big one. Throughout the UK, industries are deeply interconnected with those in the rest of the European Union through complex cross-border supply chains. Such supply chains comprise intricate processes of value-adding by firms in different countries, with component goods and services crisscrossing borders multiple times before reaching the consumer. The most deeply embedded and integrated of all supply chains are those which are known as just-in-time (JIT) supply chains. These production systems first originated in the Japanese automotive and electronics sectors, and are now widespread across whole areas of UK manufacturing, engineering, retail and consumer goods markets, and especially those sectors highly integrated with the rest of Europe, which means that there are many international outsourcing cooperation between UK and other European countries.
In JIT supply chains, firms hold little or no inventories. Supplies are delivered in very small quantities at very high frequencies from suppliers which are located in nearby regions or countries. As well as reducing costs, a key advantage of such JIT systems is maximising product and service quality. JIT systems allow for errors in production or machining to be identified immediately and for problems to be rectified as they arise, thereby ensuring maximum quality and ultra cost-efficiency. Many thousands of UK firms depend critically on JIT systems to ensure their products and services are competitive on global markets. But for JIT to work, the whole delivery system has to be seamless or frictionless. The frictionless trade enabled by the EU’s customs union and single market allow such pan-European JIT supply systems to operate smoothly, and today these systems are almost ubiquitous in many areas of UK and EU manufacturing, engineering, logistics and retail. They are especially important in those regions of the UK with strong manufacturing bases such as the Midlands and the North of England—more on that later.
One example of JIT in operation is the Liverpool assembly plant of Land Rover UK. In evidence to the Business Select Committee in 2017, Land Rover said that it retained just an hour’s worth of parts at the Liverpool production line, and it required 350 trucks’ worth of components to be delivered every day from other countries of Europe. The firm stated that every 15 minutes of customs delay would cost it up to £850,000 a year, and that it would take 18 months to set up new procedures and warehouses if Britain left the customs union. Even then, with 2m daily component movements, just minor delays at the Channel Tunnel and Dover would force hundreds of its trucks to wait for the equivalent of 90 hours a day.
Outside of the customs union, there is no such thing as a frictionless border. It is very arbitrary to say that the just-in-time manufacturing model wouldn’t work any more when UK manufacturing companies facing such a crisis, but it would certainly be very challenging. As a result, even short hold-ups at customs borders will likely cause big problems for the fine-grained supply chains involved in UK manufacturing, and will likely make Britain a less competitive place to assemble industrial products. Indeed, if the UK leaves both the customs union and the single market it is very difficult to see how such cross-border JIT systems can survive in their current form. Customs processes, however short, are simply incompatible with these systems because of the uncertainty associated with delivery time variations. If seamless cross-border JIT systems cannot be ensured, many European producers will cut many of their supply links with the UK.
The situation gets worse those companies settled in Midlands and the North of England. It’s the economically weaker Leave-voting regions of the Midlands and the North of England that are the most exposed to Brexit trade-related risks. That’s because the current structure of the UK’s supply chains means that their economies are more connected with the rest of the EU. These are also the regions whose advanced manufacturing sectors are the most embedded in “just-in-time” (JIT) systems—probably Nissan in the North East is the most obvious case, but there are many others including Toyota in Derbyshire, Jaguar Land Rover in the West Midlands, Ford in Bridgend and Honda in Swindon. In all likelihood, therefore, any Brexit-related trade shocks will most adversely affect these Leave-voting regions, and especially those areas whose advanced manufacturing activities are operating “just-in-time” (JIT) systems.
The Business Select Committee concluded in its report that the impact of Brexit on the automotive sector” that “non-tariff barriers, in the form of border delays and increased bureaucracy, will… affect UK competitiveness. They recommend that the government should, in its negotiations, place a high premium on securing frictionless trade for the automotive sector.” Moreover, it is hard to see how technology can provide solutions, given that individual truck-containers will not only contain supplies and components from numerous different suppliers, but also the composition of each container will differ from day to day and even hour to hour. As such, when the UK is facing the crisis brought by BREXIT, enforcing compliance with EU requirements will make cross-border JIT systems almost impossible to operate.
Just-in-time manufacturing can be a positive influence on a company. However there are many risks associated with attempting to implement JIT manufacturing techniques. When looked at it appears to be a very simple, quick, and easy thing to do. In reality it is a very complicated technique that takes long term commitment and a initial cost with no guarantee of success. The most important thing for the company is to have good organized resource allocation. If the problems in international outsourcing are implemented successfully it would eliminate waste, make the company more productive and more efficient. It does this through shorter transportation and increased communication. Although there are many companies that are successful, many companies are not.
Because of the crisis caused by BREXIT, if the UK leaves both the customs union and the single market it is very difficult for the current cross-border outsourcing JIT systems operating by the UK manufacturing companies to survive. If seamless cross-border JIT systems cannot be ensured, many European producers will cut many of their supply links with the UK. As such, when the UK manufacturing companies facing crisis like BREXIT, Just in Time is not a good strategy.