B.Just-in-time (JIT) inventory control is an inventory control system that schedules materials to arrive and leave as they are needed.
Learning objective 6
Explain the concept of just-in-time (JIT) inventory. (Text pages 353-358)
1.JIT, also known as zero inventory systems, stockless systems, or kanban systems, was pioneered in Japan.
a.It is a philosophy for production that ensures the right items arrive and leave as they are needed.
b.Organizations make smaller and more frequent orders of raw materials.
c.The basic goal is to eliminate waste.
2.JIT applies to inventories of incoming raw materials, subassemblies, and final products.
3.JIT is called a demand pull system because items are produced or ordered only when they are needed.
4.It can take years to establish a JIT system.
5.Tom Peters feels that a company can push JIT forward in the distribution channel to include customers. / PowerPoint 12-12
Just-in-Time Inventory Control (Refers to text pages 353-355)
TEXT Figure 12.6
Benefits of Jit System
(Text page 354)
ETHICAL MANAGEMENT(Text page 355)
You have learned from your account manager that his company will raise prices on your purchase item because the competitor is experiencing production problems and would not be able to handle new orders. Your account manager suggests you place a large order to beat the expected 25% increase.
1.Would you place a large order? Why?
Placing an order indicates your acceptance of the rumored decision making of the company you purchase from. It would not be a good decision to show that you agree with this potentially unethical style of working with a supplier.
2.If XYZ’s competitor then announced a new version of its product that was much better than XYZ’s component, what would you do?
Making changes is not always recommended unless you have adequate reason to look at other options. Have you had good service from your current supplier? Is the new version of the product actually a significant improvement? What are the costs and benefits? Not an easy decision.
3.Would you suspect that the area account manager had set you up? Why or why not?
The motivation of the account manager appears to be selfish and motivated by a short term gain he perceives he can make. The account manager has much to risk in communicating this information, especially if the information turns out to be inaccurate.
4.What if the 25% price increase never came? What would you do then?
If the rumored 25% increase does not happen, this might be just another reason to suspect the account manager’s information. This may be a red flag, and it might be a good time to look at other options for suppliers or to look at how you can find a different account manager that could be more honest and trustworthy.
C. Tracking Inventory
1.Without computers, keeping accurate inventory records was difficult.
2.Bar-Code Technology
a.Today, most items are marked with bar codes, patterns of bars and spaces that an electronic scanner recognizes.
b.Errors in inventory tracking are reduced and inventory is automatically adjusted.
3.A physical inventory is still needed.
a.A physical inventory involves counting the number of units of inventory a company holds in stock.
b.Actual inventory often differs from inventory recorded, which can lead to shortages.
D.Independent versus Dependent Demand Items
1.Independent demand items are finished goods ready to be shipped out or sold.
2.Dependent demand items are subassembly or component parts used to make a finished product.
a.Their demand is based on the number of finished products being produced.
b.Forecasting demand becomes critical.
E.ABC Classification Systems
1.The ABC classification system manages inventories based on their total value.
a.Group A account for the greatest dollar value of inventory.
b.Group B account for a moderate amount.
c.Group C accounts for a small amount.
2.Appropriate control is based on the classification.
a.Group A items are monitored very closely; group B less closely.
b.Group C items are checked only occasionally.
3.However, a Group B may be critical to the operation.
4.The ABC system can be computerized and linked to ordering and stock control.
F.Safety Stocks
1.Safety stocks are inventory maintained to accommodate unexpected changes in demand and supply and allow for variations in delivery time.
2.The optimal size is based on the relative costs of an out-of-stock item versus the costs of carrying additional inventory.
G.The Order Quantity
1.Costs are reduced by purchasing materials in large batches.
2.However, ordering costs must be balanced against the inventory carrying cost.
a.Ordering costs are the cost of preparing the order, including shipping and set-up costs.
b.Carrying costs include storage costs, insurance, and opportunity costs.
3.The economic order quantity (EOQ), the optimal number of units to order at one time, is the point at which ordering costs equal carrying costs.
4.It is difficult to accurately determine the carrying and ordering costs.
Progress Check Questions(Text page 358)
- What are the three categories of inventory classification?
- Explain the difference between dependentand independent demand items.
- Explain the ABC classification system for inventory management.
- How do you calculate the economic order quantity (EOQ) when placing purchase orders for materials or products?
Tracking Inventory
(Refers to text pages 355-356)
lecture link 12-4
The New Barcodes
The UPC code found on all consumer products is getting an additional digit. See complete lecture link on page 12.32 of this manual.
lecture link 12-3
When the Supply Chain Breaks
When the major supplier of rough surfboard blocks went out of business, surfboard makers scrambled to find another supplier. See complete lecture link on page 12.30 of this manual.
PowerPoint 12-14
Independent versus Dependent Demand Items
(Refers to text pages 356-357)
TEXT Figure 12.7
Abc Inventory
Classification (Text page 357)
PowerPoint 12-15
Safety Stocks (Refers to text pages 357-358)
THE WORLD OF WORK
Kaizen Power – Handle with Care!(Text page 359)
Tony gathers his staff to conduct an “ideas” session on to how to improve the Taco Barn operation. At the conclusion, nearly two thousand ideas are given. Now Tony has to decide how to begin an implementation process. The employees have developed a wide range of ideas for improving the operations, from serious to outrageous. Tony is a bit overwhelmed as to where to begin.
1.Is a list of “close to two thousand ideas” a successful outcome for Tony? Or has he created a monster here?
Tony has found out the power of Kaizen, a system of taking small steps to improve the workplace. It is based on the belief that the system should be customer driven and involve all employees through systematic and open communication. This outcome shows him just how much his employees can become more involved in delivering their products and services, if asked.
2.What do you think the reaction of the employees would be if none of the ideas were implemented?
Employees will be very disappointed if none of the ideas are implemented. If Tony doesn’t follow through, they will begin to doubt his sincerity. It would have been better not to have asked for ideas than to have asked and not done anything. The shift in management style from boss directives to employee sharing in the decision-making process is a dramatic difference. It is powerful and dangerous if the process is not managed correctly. Tony now has the responsibility to follow through on this new way of managing his restaurant.
3.If Tony encouraged his team to go as far out into left field as they wanted, how many of these new ideas are going to be practical? Why?
As the concept of Kaizen states, it is a system of taking small steps to improve the workplace. With this idea emphasized, Tony can corral all the creative thinking and put it in the right context for taking the next steps with all the suggestions his employees have given him. Kaizen does not focus on obtaining new and faster machines but rather improving the methods and procedures used in the existing operation.
4.Where do you think Tony should start first? Why?
Tony needs to have a follow up meeting, take the ideas that are valid and practical, and allow groups of employees to look at each idea. The ideas can then be ranked in priority. This will give the staff a sense of how the process will evolve and the next steps taken to improve the operation.