Question

Pyramid Printing Company’s Controller, Sally Sound, and the Production Manager, Darrell Dailey, continue to discuss potential operational improvements. Darrell recently attended a seminar on Just-in-Time (JIT) inventory management methods. He mentions to Sally that colleagues who also attended the seminar recently implemented JIT and realized tremendous benefits in minimizing inventory investment. “Sally, we may even be able to sublet the warehouse space if we are able to curtail inventory investment,” Darrell offered.

Pyramid Printing now has an MRP planning system. Compare and contrast JIT and MRP.

Name an advantage and a disadvantage of JIT and MRP.

How would a conversion from MRP to JIT be accomplished?

Answer 1

JUST IN TIME (JIT) :

Just in Time is a collection of ideas that streamline a company's production process activities to such an extent that wastage of all kinds viz., time, material and labour is systematically driven out of process. JIT has a decisive, positive immpact on product costs

Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This method requires producers to forecast demand accurately.

This inventory supply system represents a shift away from the older just-in-case strategy, in which producers carried large inventories in case higher demand had to be met.

Advantages :

1. Low Warehouse Cost :

Storing excess inventory can cost a lot of money, and reducing the amount of inventory you keep on hand can reduce your carrying costs as well. Companies that implement the just-in-time inventory model may be able to reduce the number of warehouses they maintain, or even allow them to eliminate those warehouses altogether.

2. Better Supply Chain Management :

The just-in-time inventory model can also help companies be more efficient and competitive in the way they handle their supply chains and use their parts to assemble products for their customers

3. Better Customer Satisfaction :

Implementing the just-in-time inventory management model can allow companies to serve their customers faster and more efficiently

Disadvantages :

1.Risk of running out of stock :

By not carrying much stock, it is imperative you have the correct procedures in place to ensure stock can become readily available, and quickly

2. Lack of control over time frame :

Having to rely on the timeliness of suppliers for each order puts you at risk of delaying your customers’ receipt of goods.

MATERIAL REQUIREMENT PLANNING :

Material Requirement Planning (MRP) is a system that converts a production schedule into a listing of materials and components required to meet that schedule, so that adequate stock levels are maintained and items are available when required

MRP is one of the first software-based integrated information systems designed to improve productivity for businesses. A MRP information system is a sales forecast-based system used to schedule raw material deliveries and quantities, given assumptions of machine and labor units required to fulfill a sales forecast.

Advantages :

1. Standardization :

MRP helps to standardize business processes by offering automated methods for many areas of the business. Standardization leads to easily repeated processes and a platform for improving those processes.

2. Material Tracking and Planning :

Material tracking becomes easy and ensures that economic order quantity is achieved for all lot orders. Material planning smoothens capacity utilization and allocates correct time to products as per demand forecast.

Disadvantages :

1. Highly Dependent :

Material planning is highly dependent on inputs it receives from other systems or department. If input information is not correct than output for material planning will also be incorrect.

2. Database :

Material planning requires maintenance of robust database with all information pertaining inventory records, production schedule, etc. without which output again would be incorrect.

Conversion from MRP to JIT :

With the continued publicity surrounding lean manufacturing and JIT models in the automotive industry, a number of companies from various industries are turning their attention to shorter transportation lead time and batch size requirements

The difficulties of moving from an MRP to a JIT system are based in the changes made to inventory and capacity management. The two models operate in completely different ways, and hence the procedures and policies, for purchasing, replenishment, delivery scheduling, inventory oversight, resource utilization, production planning and outbound delivery are entirely different.

So to change, the supplier must look at their own modified demand requirements. What are the new inventory levels to carry? In most JIT models, this will be reduced. Further, the supplier must look at their own lead times for production based on their supplier's proximity to the plant. When considering inventory changes in a JIT model, each stakeholder must always remember to look at raw material, work-in-process, finished product and in-transit inventory. The balance of each is where costs are reduced and advantages gained.

Another question to add as is, how should the delivery frequency for downstream suppliers change? In JIT, this will commonly increase. Higher frequency in upstream delivery will require the supplier to increase their delivery frequency and lower the batch size demand requirements. Most companies immediately ask how much, and in reality the calculation requires a much closer look at the entire cost structure of the new supply chain model. If the goal is to completely minimize the cost factors, the equation and variables will lead to a fairly complex quantitative approach based on the numerous factors involved

Capacity is yet another consideration. In common MRP models, capacity is looked at in a production and inventory sense. Can the capacity create the required amount of product? With JIT, however, the questions is can capacity be utilized to meet the demand requirements? This way of thinking is again very different.