Introduction
In my opinion, the primary goal for the company is customer's satisfaction and if
company can not reach perfection in this area then all the processes are worthless.
All parts of the value chain and everything in the enterprise must be healthy for
realization of competitive business processes. If the company wants strong and longlasting
value chain all the links within the chain must be prepared to overpass all
existing problems.
One of the most important links inside that value chain is definitely logistics. Logistics
is concerned with the physical distribution and storage of products and services.
During the 20th century several approaches of implementation of logistics were
developed. Surely, one the most famous and most important logistics concept is the
Just-In-Time concept. The following text will help readers to understand basics of JIT,
at least I hope so.
2. Value chain and Logistics network (Supply chain)
The value chain was described and popularized by Michael Porter (1985) in his
bestseller, Competitive Advantage: Creating and Sustaining Superior
Performance.
The value chain describes the full range of activities that are required to bring a
product from its conception to its end use. These generic value-adding activities are
divided in two major groups. The "primary activities" include: inbound logistics,
operations (production), outbound logistics, sales and marketing, and service
(maintenance). The "support activities" include: administrative infrastructure
management, human resources management, R&D, and procurement. The goal of
these activities is to offer the customer a level of value that exceeds the cost of the
activities, thereby resulting in the profit margin. The costs and value drivers are
identified for each value activity. The value chain framework quickly made its way to
the forefront of management thought as a powerful analysis tool for strategic
planning.
The concept has been extended beyond individual organizations. It can apply to
whole supply chains (logistics networks). The delivery of a mix of products and
services to the end customer will mobilize different economic actors, each managing
its own value chain. The industry-wide synchronized interactions of those local value
chains create an extended value chain, sometimes global in extent.
Logistics network, supply chain or supply network is a coordinated system of
organizations, people, activities, information and resources involved in moving a
product or service in physical or virtual manner from supplier to customer. The
entities of a supply chain (Figure 1) typically consist of manufacturers, service
providers, distributors, sales channels (e.g. retail, ecommerce) and consumers (end
customers).
Supply chain activities transform raw materials and components into a finished
product that is delivered to the end customer. There is a variety of models of supply
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chain, addressing the upstream and downstream sides. The primary objective of
supply chain management is to fulfil customer demands through the most efficient
use of resources, including distribution capacity, inventory and labour.
Logistics network has a far wider meaning than just goods delivery and channel
distribution system. It is the total flow of materials, information and cash, from the
suppliers' suppliers, right through an enterprise to the customers' customers. The
flows of materials and cash are opposite, but information needs be visible throughout
to give control over what is happening in the chain.
Figure 1: The entities of a supply chain
Logistics forms a specific part of the supply chain. Logistics can be considered as a
tool for getting resources, like products, services, and people, where they are needed
and when they are desired. It is difficult to accomplish any marketing or
manufacturing without logistical support, almost impossible. It involves the integration
of information, transportation, inventory, warehousing, material handling, and
packaging. The operating responsibility of logistics is the geographical repositioning
of raw materials, work in process, and finished inventories where required at the
lowest cost possible. Simply definition of logistics can be: "The time-related
positioning of resources". 1
3. About Just-In-Time (JIT) concept
What is the Just-In-Time concept? Since the emergence of this term it was difficult
for sciences and business people to define it. Even today many companies think that
1
Wikipedia
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they are using JIT concept, but actually, they are not realizing that JIT must be
integrated in company philosophy and no just dead letters.
Just in Time (JIT) production is a manufacturing philosophy which eliminates waste
associated with time, labour, and storage space. Basics of the concept are that the
company produces only what is needed, when it is needed and in the quantity that is
needed. The company produces only what the customer requests, to actual orders,
not to forecast. JIT can also be defined as producing the necessary units, with the
required quality, in the necessary quantities, at the last safe moment. It means that
company can manage with their own resources and allocate them very easily. Figure
2 shows a drawing of the JIT concept.
Figure 2: JIT concept
4. History and Philosophy
Problems before JIT system were that companies can not properly calculate their
material flows. Also, there were problems with warehouses because there were
situations that in one moment warehouses are full with stocks, and in other they are
almost empty. Because of these problems it was really difficult for engineers and
managers to deal with logistics.
JIT, however, is not new. The technique was first used by the Ford Motor Company
during 1920s, but the technique was subsequently adopted and publicised by Toyota
Motor Corporation of Japan as part of its Toyota production System (TPS). In 1954
Japanese giant Toyota implemented this concept in order to reduce wasteful
overstocking in car production.
Just-in-time (JIT) inventory systems are not just a simple method that a company has
to buy in to; it has a whole philosophy that the company must follow. The ideas in this
philosophy come from many different disciplines including; statistics, industrial
engineering, production management and behavioural science. In the JIT inventory
philosophy there are views with respect to how inventory is looked upon, what it says
about the management within the company, and the main principle behind JIT.
Firstly, inventory is seen as incurring costs instead of adding value, contrary to
traditional thinking. Under the philosophy, businesses are encouraged to eliminate
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inventory that doesn’t add value to the product. Secondly, it sees inventory as a sign
of poor management as it is simply there to hide problems within the production
system. These problems include backlogs at work centres, lack of flexibility for
employees and equipment, and inadequate capacity among other things.
In short, the just-in-time inventory system is all about having “the right material, at the
right time, at the right place, and in the exact amount.”
5. Benefits and problems
Benefits that JIT concept can provide to the company are huge and very diverse. The
main benefits of JIT are listed below:
1. Reduced set up times in warehouse - the company in this case can focuses
on other processes that might need improvement;
2. Improved flows of goods in/through/out warehouse - employees will be able
to process goods faster;
3. Employees who possess multi-skills are utilized more efficiently - the
company can use workers in situations when they are needed, when there
is a shortage of workers and a high demand for a particular product;
4. Better consistency of scheduling and consistency of employee work hours -
if there is no demand for a product at the time, workers don’t have to be
working. This can save the company money by not having to pay workers
for a job not completed or could have them focus on other jobs around the
warehouse that would not necessarily be done on a normal day;
5. Increased emphasis on supplier relationships - having a trusting supplier
relationship is important for the company because it is possible to rely on
goods being there when they are needed;
6. Supplies continue around the clock keeping workers productive and
businesses focused on turnover - employees will work hard to meet the
company goals.
Also, the benefits of JIT include: better quality products, higher productivity and lower
production costs. For better understanding of JIT benefits, figure 3 shows comparing
between flexible systems (based on Just-In-Time systems) and buffered/rigid
systems.
It is certainly that JIT concept can improve business performance and efficiency.
Employee morale is likely increased and that is one most important benefit that
comes from using the foregoing concept. Of course, we must not forget that now the
company is allowed to remain competitive.
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Figure 3: Flexible systems vs. Rigid systems
There are several problems which are connected within JIT concept. Maybe the
major problem with JIT operation is that it leaves the supplier and downstream
consumers open to supply shocks. With shipments coming in sometimes several
times per day, the company is especially susceptible to an interruption in the flow.
For that reason, some companies are careful to use two or more suppliers for most of
theirs assemblies. The hidden costs are present and they include labour union
leverage, problems with flexible manufacturing systems (FMS), problems developing
for the flexible workforce, difficulties with supplying commodities using JIT, increased
expenses for suppliers.
6. Implementation of JIT concept
We can observe implementation of the JIT concept as a process which must be
taken seriously. How a company will implement the JIT concept depends on many
factors. For example, if a company has more than 100.000 workers and production in
different places, then