Purchasing and Supply Management by W. C. Benton

Purchasing and Supply Management by W. C. Benton

Chapter Six

Just-in-Time (Lean) Purchasing

Copyright ©2007 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin

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Learning Objectives1. To identify the differences between JIT and MRP.

2. To identify the relationship between JIT and purchasing.

3. To understand JIT purchasing.

4. To identify critical JIT-purchasing advantages.

5. To identify the activities needed to implement JIT purchasing.

6. To determine the role of culture in the implementation of JIT purchasing.

7. To critically analyze the impact of JIT purchasing on a buying firm.

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INTRODUCTION TO LEAN PURCHASING There has been a shift in manufacturing business processes

in practically every American industrial setting.

The lean thinking paradigm now includes the purchasing function. ________________________________________________________________________.

The key lean principles focus on people, the elimination of waste,___________________________________________________ All of these key business principles have a direct effect on the purchasing function.

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LEAN PURCHASING

The just-in-time (JIT) system is no longer an esoteric concept in the manufacturing world today. ____________________________________________________________________________________________.

A comprehensive survey of just-in-time practices in the United States found that 45 percent of the firms contacted had implemented JIT programs and another 22 percent were planning to implement JIT the following year.

JIT has evolved as a novel manufacturing concept _____________________________________________________________________________________________________________________________________________

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SIGNIFICANCE OF LEAN PURCHASING

The cost of raw materials has traditionally,______________________________________.

Over the years, material cost as a proportion of total cost of the end product has risen sharply and is as high as 80 percent in some instances.

Consequently, the role of the purchasing function in a manufacturing organization has become increasingly important.

The just-in-time production ______________________________________________.

Specifically, JIT requires that the right materials are provided to work stations at the right time

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JIT PURCHASING The function of purchasing is to provide a firm with

_____________________________________________

_________________________________________________________________________________________________.

A comparison of critical elements associated with JIT purchasing and traditional purchasing approaches follows:

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Reduced Order Quantities.

One of the most crucial elements of the just-in-time system is small lot sizes.

Traditionally, ___________________________________________________________________________________________________________________________.

However, long production runs usually lead to high levels of raw-material and finished-goods inventories.

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Frequent and “on-time” Delivery Schedules.

Supplier performance can be measured more accurately under the JIT purchasing approach compared to the traditional one.

____________________________________________________________________________________________________________________________________________________________________.

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Reduced Lead Times.

To be able to maintain low inventory levels, it is critical that replenishment lead times be as short as possible.

The JIT philosophy inherently attempts to reduce lead times for order completions. Under traditional purchasing practices, the lead time is made up of the following components: paperwork lead time, manufacturing time for supplier, transportation lead time, and time spent on receiving and inspection.

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Traditional Purchasing JIT-Purchasing

Order quantities Based on trade-offs between ordering and carrying costs

Based on small lot sizes for production

Delivery schedules Infrequent, primarily because of high ordering costs involved

Frequent because of small lot sizes and low ordering costs

Delivery windows Relatively wide Very narrow

Delivery lead times Relatively long and relaxed

Stringent and reduced significantly

Parts quality Responsibility of the quality function in the organization

Responsibility of supplier

Supplier base Fairly broad Considerably smaller

Comparison between Traditional and Just-in-Time (Lean) Purchasing Approaches

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Lean manufacturers attempt to reduce incoming material ______________________________________________________________________________________________________________________________________________________________________________________________________________________.

Since the JIT system does not provide for buffer stocks, unreliable supply, in terms of delivery time and quality of incoming material, may lead to frequent problems in production.

The reliability of supply is a critical consideration in the selection of JIT suppliers.

Since JIT purchasing has gained popularity within the United States, the purchasing function has been preoccupied with trimming the overall supplier base in quest of so called superior suppliers.

High quality of incoming materials

Reliable suppliers

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PURCHASING BENEFITS

Implementation of just-in-time (Lean) purchasing assists the purchasing function in its major objectives of improving quality of incoming materials and supplier delivery performance, along with reducing lead times and cost of materials.

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1. Reduced Inventory Levels

Lean purchasing facilitates reduction in inventory levels and the associated inventory holding costs.

Firms like Toyota ___________________________________________________________________________________________________________________________________________________________________.

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2. Improved Lead-Time Reliability Compared to traditional purchasing approaches,

delivery lead times under the JIT system are __________.

_______________________________________________________________________________.

This implies higher levels of customer service and lower safety stock requirements for the company.

______________________________________________________________________________.

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3. Scheduling Flexibility

JIT emphasizes scheduling flexibility by aiming for reduced purchasing lead times and setup times.

Such flexibility prevents

________________________________________________________________________________________________________________________________________________________________________________________________________.

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4. Improved Quality and Customer Satisfaction

JIT purchasing ____________________________________________________________________________

Since high-quality products are critical in achieving a competitive advantage in today’s global business world, manufacturers gain immensely by implementing the JIT production control system.

High-quality ___________________________________________________________________________

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5. Reduced Costs of Parts

As cooperation and relationships between suppliers and manufacturers build up in a JIT system, so do the opportunities to conduct an extensive value analysis and focus on reducing the cost of parts purchased.

A comprehensive JIT progress report indicates

__________________________________________________________________________________________________________________________.

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6. Constructive Synergies with Suppliers A lean purchasing program involves

___________________________________________________________________________________.

Because of smaller lot sizes and frequent delivery schedules, suppliers are in a position to receive quick feedback regarding any potential manufacturing or design problems.

Also, manufacturing is in a position to implement engineering changes quicker because of the reduced inventory levels.

The JIT progress report _______________________________________________________________________________________.

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COST DECREASESIt is well documented that JIT reduces physicalinventory level Reductions in physical inventory willalso have a favorable impact on:

1. Reduced insurance premiums associated with the storage of inventory.

2. Reduced _________________________3. Reduced labor cost in store rooms and material handing

costs.4. Reduced _________________________.5. Reduced waste from the manufacturing process.6. Reduced _____________________.7. Reduced ____________________

Each of the cost savings will result in a leaner more profitable operation.

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IMPLEMENTATION OF JIT PURCHASING

As attractive as the JIT purchasing philosophy ______________________________________________________________________________.

The switch to a JIT system presents

_________________________________________________________________________________________________________________________________________________________________.

Some of the common problems associated with implementing the JIT system are as follows

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1. Lack of Cooperation from Suppliers In a detailed survey of U.S. firms involved with just-in-time

manufacturing, 47 percent of the respondents indicated that they had serious problems with some of their suppliers. The suppliers see little incentive in adopting the JIT approach when the primary benefits of the program go to the buyer

1. ________________________________

2. ____________________________

3. Adequate time for thorough planning

4. Accurate demand functions

5. ____________________________

6. ____________________________

7. Smoothly timed order releases

8. ____________________________

9. Fair dealings with regard to price

10. ____________________________

11. ____________________________

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2. Lack of Top Management Support.

Implementation of the JIT _______________________________________.

__________________________________________

______________________________________. However, another survey of U.S. manufacturing firms

indicated that 48 percent of the firms did not receive total support from top management in their efforts to implement the just-in-time manufacturing system.

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3. Lack of employee readiness and support

Many firms report lack of support from their employees as being one of the major problems encountered in the implementation of JIT (Lean) purchasing.

Very often,

___________________________________________________________________________________________________________________________.

Also, the JIT system requires most employees ----------------------------------------------------------------------------------------------------.

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4. Lack of support from design engineering personnel

Design engineering is responsible for making technical specifications for the materials a company buys.

Quite often, the purchasing function ________________________________________________________________________________________________.

Thirty-nine percent of the firms surveyed using JIT practices in the United States indicated that they had serious problems regarding lack of support from engineering

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5. Low product quality

If suppliers fail to provide materials of adequate quality on a regular basis, production slow-downs and stoppages will occur regularly.

__________________________________________

________________________________________________________________________________________________________________________

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6. Lack of support from carrier companies

The next slide show the huge sums of money that the purchasing function of some major firms spends every year in order to move materials in and out of the factory.

Few buyers, _________________________________________________________________________________________________________________________________________________.

Buyers have traditionally accepted terms offered to them by the carriers with regard to their inbound freight.

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7. Lack of communication

Effective development and implementation _________________________________________________________________________________________________.

Lack of proper communication among these areas poses a major obstacle to the implementation of JIT.

While there is no easy solution to this problem,

____________________________________________________________________________________________________________________.

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ROLE OF CULTURE _______________________________________________

____________________________________________________________________________.

Honda’s culture and its focus on group-oriented activities are particularly suitable to the implementation of the just-in-time production control system in that environment.

The need to have harmony in organizations provides for better manufacturer–supplier relationships at Toyota and Honda.

Severance of a business relationship between __________________________________________________________________________________________________________________________.

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CRITICAL ANALYSIS OF THE JIT CONCEPT

Many companies __________________________________________________________________________________________________________________.

Over the years, these companies have come to realize the tremendous effort and commitment required to make a JIT system run smoothly.

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CRITICAL ANALYSIS OF THE JIT CONCEPT

The radical proponents of JIT manufacturing in the United States during the 1980s and 1990s, the so-called JIT revolutionaries, are to some extent responsible for this initial misunderstanding.

The practitioners painted an extremely romantic picture of JIT______________________________________________________________________________________________________________________________________________.

It takes time to change attitudes of the workforce and nurture long-term relationships with suppliers.

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The transition to JIT has not necessarily been a smooth one for many companies in the United States. _____________________________________________________________________________________________________________________.

There are two serious drawbacks with the MRP production control system. First,

______________________________________________________________________________________________________________________________________________________________________.

CRITICAL ANALYSIS OF THE JIT CONCEPT

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CRITICAL ANALYSIS OF THE JIT CONCEPT Another critical issue for JIT manufacturers is the variability in

product demand.

JIT systems seems to work best when its smooth production and low inventory requirements are aimed at meeting a relatively stable product demand.

However, demand patterns are not stable for all products. In order to induce a relatively stable demand, companies using JIT manufacturing often consolidate their product lines.

________________________________________________________________________________________________

___________________________________________________.