Question

Case study-DHLC

Diet for Healthy Life Company (DHLC) produces four types of frozen TV dinners that it sells to supermarkets and independent grocery stores. The company operates from two locations: a manufacturing plant and a refrigerated warehouse located a few blocks away. (Administrative offices are located in the manufacturing plant.)

The type of dinners to be produced each week is scheduled a week in advance, based on customer order. The number of dinners produced, however, is always the same. The company runs its production facilities at full capacity – 20,000 units per day – to minimize fixed manufacturing costs per unit.

Every Friday, local suppliers deliver to DHLC factory the fresh vegetable, chicken, fish, and other ingredients required for the following week's production.

(Materials are abundant in the region.) These ingredients then are cut into meal-sized portion, "fresh frozen" using special equipment, and transported by truck to the refrigerated warehouse. The company maintains an inventory of frozen ingredients equal to approximately two weeks' production.

Every day, ingredients of 20,000 dinners are bought by the truck from warehouse to the factory. All dinners produced in a given production run must be of the same type. However, production workers can make the machinery "setup" changes necessary to produce a different type of frozen dinner in about 10 minutes.

Monday through Thursday, DHLC produces one type of dinner each day. On Friday, it manufactures whatever types of dinners are needed to balance its inventories. Completed frozen dinners are transported back to the refrigerated warehouse on a daily basis.

Frozen dinners are shipped daily from the warehouse to customers. All shipments are sent by independent carriers, DHLC usually maintains about a 10-day inventory of frozen dinners in the warehouse. Recently, however, daily sales have been averaging about 2,000 units less than the level of production, and the finished goods inventory has swelled to a 25-day supply.

Noura, the controller of DHLC, recently read about JIT inventory system used by Toyota in its Japanese production facilities. She is wondering whether a JIT system might benefit DHLC.      

Instructions

1- In general terms, describe a JIT manufacturing system. Identify the basic goals of a JIT manufacturing system and any basic conditions that must exist for the system to operate effectively.

2-Describe if the JIT philosophy can be adopted/applied in all departments of the organization rather than only in inventory management. What role could people play in the organization to make this JIT system work?

3- Pinpoint any non-value-added activities in DHLC operations that might be reduced or eliminated in a JIT system. Also, identify specific types of costs that might be reduced or eliminated.

4- Assume that DHLC does adopt a JIT manufacturing system, how would the relationship with its suppliers change? Describe the impact of this relationship on price, quality, and delivery and on lead time.

5-Explain whether or not you think that a JIT system would work for DHLC. Provide specific reasons supporting your conclusion.

Answer 1

1) Just In Time is a production strategy started by Toyota, that strives to improve business return on investment by reducing in-process inventory and associated carrying costs. JIT basically calls for production of necessary products at necessary time in necessary quantity. JIT exposes the hidden cost of keeping the inventory along with helping the organization to devise new methods to manage the consequences of change. The basic goals of JIT are listed below:-

a) Reduction in inventory carrying costs

b) Reduction in space

c) Lead time reduction

d) Improved Quality and Productivity

2) As stated above JIT can be followed in production but it is very less known that this philosophy can be followed in almost all parts of the organization. We can find the use of JIT in the different parts of organization in below areas:-

a) Human Resources:- Multiskilled Workforce is a big element of JIT which helps in achieving maximum output with keeping the minimum of replacement workers during the necessary times. A multi-skilled worker can easily take the role of another skilled worker during absentism. So the cost of replacement workers can be saved with JIT. HR plays a key role in training and multiskilling of all staff.

b) Quality Assurance:- Quality is an intrinsic part of a product. It is also an import element of JIT, so these properties must be controlled throughout the production process. If a product fails to meet the quality requirement, then it will not be accepted by the customer and is almost considered as waste. In the organization following JIT, one of the big objective is to minimize the waste so as to produce necessary quantity with necessary quality. So, we can say Quality is a big part of JIT and so are the people related to the department.

c) Production:- Once raw materials arrive in warehouse, they enter the production process, and this process
also plays an essential role in just-in-time deliveries of finished products and the elimination of waste. Maintaining the continuous flow of materials through the production system is not an easy task, since machines and equipment used to transform the materials frequently break down or must be adjusted when companies make changes in their product. So production workers/supervisors play an important role in achieving JIT.

d) Supply Chain:- No company can work or survive without their supply chain system. If the suppliers don't supply the raw material at the correct time then whatsoever policy the company is following, they will never be able to provide goods to the customer on time. Along with the quantity, quality of raw material is also important with respect to production process. So a robust SCM is required to achieve JIT.

3) DHLC is having very high inventory carrying costs as it keeps requirement of 2 weeks at their warehouse. Safety stock of one week production should be kept at their location. This will reduce the inventory carrying costs along with the cost of transportation for supplier who is providing material every friday. So supplier should provide with raw material on every alternate week (Friday). As the inventory they have can surpass more than 25 days sale, they should also keep friday as holiday to reduce their company overhead cost for one day for 2 months as the inventory for 2 months is already available at their warehouse. Also they supply finished goods to factory everyday, so they can do that on alternate days as inventory is already available which can reduce transportation price.

4) Assuming that DHLC does adopt a JIT manufacturing system, the relationship with its suppliers would change for the greater good. With respect to Price, Quality and Delivery below are the points:-

a) Quality:- If the DHLC reduce the inventory, then they can keep one week's production inventory at their end which will always be better as the vegetables / chicken / fish will be fresh to improve the quality of final dinners.

b) Delivery and Price:- Cost of delivery will reduce both for raw material as well as finished goods as raw material can be delivered once in 15 days and final goods can be sent to factory on alternate days reducing the delivery cost. If only required raw material is supplied, price fluctuations can also be taken care of.

c) Lead Time:- Lead time will reduce for suppliers to priovide the raw material and the lead time to produce whatever is required with respect to customer priority will also reduce.

5) I completely agree that JIT system will be much suitable to DHLC as the company works on producing all kinds of dinners all week. With introduction of JIT, only those dinners will be produced which are required at the current moment. During peak season also, they can easily changeover to other dinner as per requirement.Transportation cost from factory for warehouse can be reduced if material is transported on alternate days or as per requirement. Along with raw material inventory, they are also carrying 10 day FG(dinner) invenory which will reduce significantly using JIT and hence reducing the ICC. Quality of the products will also be better if fresh quality products are used which can be done by using JIT philosophy.