The Cost And Benefit Analysis

Published Date: 02 Nov 2017

Introduction

First of all, Taiichi Ohno was developed just-in-time (JIT) concept which adopted by most Japanese manufacturing industries in 1980 and the main objective is to increase global market competitiveness in the world.

Besides that, definition of just-in-time had derived into various ways. Just-in-time meant the company produces and sent the finished products on time to sell-off to customers or retailers. In addition, JIT concept can be explained that a system to manufacture the required products with qualities needed by the customers. This concept has philosophy that centers on reduce of waste during production process. According to White, JIT purchasing defined as an inventory that control philosophy whose goal is to remain just enough material in the right place at just the right time to produce right amount of goods. (White, 1980) On the other hand, JIT had created flexible environment that keep the inventory as simple as they can.

Basically, there are two factors that important for just-in-time inventory systems which are effective communication and coordination with the suppliers to deliver production requirement into the manufacturing process. Long-term perspective is the main feature of just-in-time system. Company which use this system need to focus their development of products and what supplier need the most in long-term period. In addition, there are few changes such as product offer, specification of raw materials and productivity. These changes must be established and coordinated between the suppliers and manufacturers.

Next, they have to ensure the stable and constant stream of materials for production support by the needed coordination intensely using automated purchasing system. This system is to ensure get the higher level of satisfaction from their customers. Establishment of agreement and contracts are necessary with a limited numbers of suppliers so that ordering and processing process is based on the agreement. When the suppliers wish to increase the order, they can send electronic message to the manufacturer to reorder the amount and requirement of the products needed.

Last but not least, strong relationship between the producer and suppliers is essential by using JIT concept because suppliers were became extension of the primary company. By open communication and free available of information is useful to support tight supply coordination. The essential feature is efficient in supplying process by using JIT system. Efficiency is important in order to competitive in global market. Therefore, companies should set high standard to conform by raw materials and products since there is minimize error. Besides that, they need to train own staff on how to identify error in early stage of production and take corrective actions immediately. This is the only way to make sure efficient in production line and get higher level of confidence from their customers or users.

Mechanisms of Just-In-Time systems

The first process of implementing JIT is to "getting the ball rolling", which determine the foundation for the whole JIT implementation. It can be broken into few stages; they are basic understanding, preliminary education, cost/benefit analysis, top management commitment, a go/no decision, project team and pilot plant identification. These stages must be going through attentively in order to design the strategies which help the designer to obtain maximum benefits from JIT systems.

Education is the second step, which decides the degree of success in JIT implementation. Comprehensive education program must be given to staffs who playing a role in JIT system to ensure they understand their missions since JIT involved a major shift in philosophy within the whole company.

After that, process improvement need to be go through. The improvement involves the manufacturing processes which must obtain the ability to produce small batches with short lead times, and included set-up time reduction and also move to product family flow lines.

The next process is improving the control, the simplified shop layouts, which simple and visible shop floor control are required by JIT implementation. Pull / kanban systems, which are simple control arrangements that pull work through the factory always favored by this mechanism due to the operation is visible to the shop floor personnel, besides, amount of work-in-progress and manufacturing lead times had been limited automatically.

The 5th step is vendor or customer linking, which helps enlarge the JIT systems. The improving included the gradual move to single-source high volume vendors but the improvement should implement carefully to avoid the company become vulnerable.

Cost and Benefit Analysis

In order to produce and deliver the goods just-in-time, there are some hidden cost and benefit of this system. There are seven items should be included in order to ensure JIT system is success which are pull scheduling, purchasing and supplier relations, plant layout, computer integrated manufacturing (CIM), setup reduction, total quality control (TQC) and flexible workforce. Several hidden costs should be discussed which are labor union leverage, problems with flexible manufacturing system (FMS), problems developing a flexible workforce, difficulties with supplying commodities by using JIT, increased expenses for suppliers, and increased space that needed for JIT machinery or others equipment.

The purpose of JIT is used to minimize finished goods on hand and it gives advantage to labor union. In contrast, the company will face substantial loss of income if large number of workers confirmed to walk out due to low level of finished inventories from the company. At the same time, the reputation will be destroyed and economic of that particular country will be affected due to high unemployment rate. In addition, union activity off-side from company is also a serious problem and it happened in India.

Secondly, system which machines and manufacturing tools that enable to do multiple tasks at once time is known ad flexible manufacturing system (FMS). The system is helpful because it can reduce changeover time. Although it is useful but there still have few disadvantages and one of its do not sustain to handle large amount of processing tasks oftenly such as assemble of engine. The main drawbacks is there has hidden cost by using FMS system. Company need to spend double amount of the original cost from traditional push system if they implement flexible manufacturing system for the production. Besides that, there are incurred in expenses for development of flexible workforce. Employees and staffs need to send for further training and it will be costly.

Thirdly, there are two ways to cause the suppliers incur more expenses are satellite warehouse and increment for frequency of shipments. Furthermore, satellite warehouse is used to store facilities suppliers build close to their customer to provide efficient service. However, company need to bear extra expenses on these building if they are using JIT system. Suppliers need to increase total number of shipment since force by JIT system and it has increases the shipping costs at the same time. JIT companies need to increase the price of manufacture goods in order to recover their expenses. Machines that used in just-in-time system will increase the space used as well as the cost for storage warehouse although objectives of it is reduced the space requirement due to less inventory storage.

In contrast, the benefit that use JIT system is reduced several costs. It will reduce the cost to employ workers. Number of workers had been reduced due to implementation and development of manufacturing technologies in the company. They just need to employ expertise to monitor the condition of machine during production process. Since JIT system is used to produce and deliver the goods with customer’s requirement, they do not need to buy large amount of raw material to store it. At the same time, company had saved more costs such as storage and buying costs. This enables company to earn higher level of profit and high quality of products and services.

Example of Organization (MacDonald)

MacDonald is one of the organization which successfully in using JIT systems. There is two main competitive advantages that MacDonald obtain form its JIT systems.

The 1st competitive advantage is quality improved; the fresher burger usually better tastes, that is, MacDonald doesn’t pre-cook a batch of burgers and reheat them or keep warm since nowadays MacDonald already using modern technology to cook the burger immediately as per order made. Not only food quality had been improve, Customer services also had been improved as well since MacDonald has faster burger producing ability, customers just need to wait for a moment then can get their meal already; if Macdonald doesn’t has this ability, the order or service cost will be increased significantly.

Besides, MacDonald can have lower cost advantage from its JIT systems. The main cost reduction is its holding costs for burger parts because MacDonald’s JIT systems help it to reduce the spoilage cost since its only make the burger when customer ordered: compared to older systems, MacDonald produced at a level that gave high inventories to serve customers faster, but after a short period of time, the burger was scrapped, so its price is actually higher to cover the scrap costs. In other words, MacDonald gains price advantages due to its cost reduction.

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