Advantages of JIT System
A firm that maintains high volumes of work-in progress inventory may end up producing a large amount of scrap before identifying any defects. It is also very difficult for the management to identify defects when volumes are very large. Machine conditions, tool settings, quality of raw materials, etc. have to be checked to identify the source of the defect. Therefore, several firms now adopt just-in-time manufacturing.
By using JIT principles, firms can reduce wastage that arises during the production process such as the waste of overproduction, of time spent in waiting, in transportation and movement, in processing, in keeping excess inventory and in defective parts. These advantages are not restricted to large organizations, as small scale manufacturers also benefit by using JIT (refer Exhibit).
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Exhibit
JIT for Small Scale Manufacturers
Many manufacturing concepts that have been applied by large manufacturers can also benefit small scale operations. JIT, for example, can lead to significant savings in inventory costs for even small scale operations. Gamblin Artist's Oil Colors (based in Portland), a small oil paint manufacturer, applied JIT concepts to its manufacturing process.
The company, which was started by a husband-wife team, had a modest beginning. They started operations in their garage, producing only three colors of paint. Now the company is dealing with more than 87 colors and has a client base that is spread across America. The company employs 20 employees and has its own manufacturing facility.
To handle the requirements of increased production, the company hired a manufacturing consultant. He advised the company to change its traditional manufacturing system to a new, leaner, just-in-time model.
Prior to adopting the JIT model, the company manufactured in batches of 1,200 tubes of paint. These batches would end up on the inventory list for a period of three to six months. But after transition to the JIT system, Gamblin started manufacturing smaller batches of 500 tubes, producing a single color at a time. As a result, production figures doubled and finished goods inventory turnover came down from three months to six days. The quality control process also saw significant improvement.
The implementation of JIT manufacturing strategies helped the company reduce inventory level significantly and free up capital amounting to $200,000.
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The following are some of the operational benefits that firms derive from the use of just-in-time systems:
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Increased utilization of machinery and equipment
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Reduced investment in inventory
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Improvement in the quality of product or service
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Reduction in space requirements of the firm
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Reduction in production cycle time
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Zero inventory storage and maintenance costs
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Closer relationship with suppliers
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Reduction in formal paper work
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Higher involvement of employees as they are responsible for the quality of goods that they produce.
Suppliers to firms also benefit from JIT systems. Their benefits include:
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A long-term guaranteed contract for supply of materials
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A steady and continuous demand for their materials
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Less expenditure on promotional activities
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Timely payment for materials supplied
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