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RevisitingtheJITParadigm ByMichaelGormanPresentedby AlpaChheda 1 WhatisJIT JITaimsatreducinginventoryandhelpscompaniestoEliminatewasteofallkindsintheproductionprocessImproveproductqualityIdentifyinefficientprocessesThus savemillionsofdollars 2 OriginofJIT AutomotiveindustrybyTaiichiOhnoandShigeoShingo ToyotaProductionSystem JapaneseeconomyandbusinesseswerethrivingEfficientproductionQualityproductsAchievedthroughaggressiveInventorymanagement 3 ConceptofJIT Eliminationofwasteandnon valueaddedactivitiesFocusesontwosourcesofinefficiencyarisingfromexcessinventoryWastefuluseofcapitalHidesproductionprocessinefficienciesandallowthemtopersist 4 Caution ReductionofInventorywithoutresolvingunderlyingproductionproblemsandsourcesofvariationwouldresultin Product MaterialshortagesProductionlinestoppagesMissedsalesopportunitiesorfailuretomeetcustomerdemand 5 Thisdoesnotmeanthatholdingexcessinventoryisbetter 6 Managersshouldre evaluatethefeasibilityofeliminatingthevariabilitythatgivesrisetotheneedforinventories 7 FactorsaffectingJITconcept CostofholdinginventoryGlobalizationEnvironmentalvariability 8 CostofholdinginventoryExamplefrom80 s CaterpillarholdsOnanaverage1000enginesinitswarehouseCostprice 5 000 eachengineInterestrate 20 Therefore Lostinterestoropportunitycost 5 000 1000 20 1 000 000 9 CostofholdinginventoryExamplefrom2003 CaterpillarholdsOnanaverage1000enginesinitswarehouseCostprice 10 000 eachengineInterestrate 5 Therefore Lostinterestoropportunitycost 10 000 1000 5 500 000 10 Costofholdinginventorycontd Costofholdinginventory fn interestrates insurance taxes shrinkage spoilageandobsolescence warehousingandadministration InterestrateshavereducedOpportunitycostofholdinginventoryhasalsoreduced 11 Globalization Japanesecompaniesbenefitedfrom ClosedeconomyCompactgeographyLowtransportationexpensesUScompaniesdonotenjoythesameluxuryImpactofNAFTAandglobalizationCompanieshavemovedtocountrieswherelaborischeapandexchangeratesarefavorableCostofphysicalproductionhasreducedTransportationcosthasincreased 12 BalancingJIT Transportationcosts 13 Globalizationcontd Shippersandreceiversexpectfaster smallerandreliabletransportationPresentscenarioInventorycostsarelowTransportationdistancesarefar Doesourconceptofreducedinventoriesjustifytheincreasedtransportationcost 14 Environmentalvariability JITemphasizesontheeliminationofvariabilitythatgiverisetotheneedforinventoriesEliminationcanbecostlyorimpossibleTerroristevents changesintradepolicy war earthquakeetc Eg WestcoaststrikeimpactEg TerroristattackFordandGMHarleyDavidsonhadstockpiledcriticalparts 15 Technologyasasolution Knowingwherethecomponentisinthesupplychaindoesnotreplaceitsphysicalpresenceontheassemblyline 16 JITprogramsthathaveexceededoptimumlevelofinventoryreductionmayexhibitsomeofthefollowingsymptoms Havenotresultedinanticipatedfinancialgains orinitialgainshavediminishedorreversedIncreasedmissedsalesduetostock outsIncreasedproductionlinestoppagesduetoshortagesofrawmaterialsorpartsHighertransportationcostsperunitIncreasedrelianceonexpeditedpartsrunsGrowingexpensesforlogisticsmanagementservices personnel ortechnologyMassivesoftwareinstallationsforsupplychainandinventorymanagement withdubiousreturns 17 Recommendations AttimesincreasedinventoryprotectsproducersagainstunpredictabledemandfluctuationsandbreakdowninthesupplychainAllowsforlower costmodesoftransportationModifiedinventorystrategiessuchasForwardstorageProducttransformationcentersImprovefinaldeliverytimesIncreasecustomizationinamake to orderenvironment 18 3LessonsLearnt JITprogramsthathaveexceededoptimumlevelofinventoryreductionmayincurmorelossesthangainsManagersshouldre evaluatethefeasibilityofeliminatingthevariabilitythatgivesrisetotheneedforinventoriesandsometimesvariabilityisinescapableorunpredictableInventoryisalmostalwaysa necessaryevil 19 WhoandwherewasJITstarted JITwasstartedbyTaiichiOhno ShigeoShingoatToyota Japan 20 WhatdoesJITaimat EliminationofwasteImproveproductqualityIdentifyinefficientprocesses 21 NamesomeofthefactorsthataffectJITconcept CostofholdinginventoryGlobalizationEnvironmentalvariability 22 WhataresomeoftheunfavorablefactorsthatUScompaniesfacedascomparedtoJapanesecompanies OpeneconomyFardistancesHightransportationexpenses 23 Namesomeoftheadvantagesofhavingincreasedinventory ProtectionagainstunpredictabledemandfluctuationsProtectionagainstunavoidableenvironmentalvariabilityLower costmodesoftransportationImproveddeliverytimesIncreasedcustomization 24 Whatotherfactorsshouldbec

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