When is just-in-time pro­duc­tion suitable?

When the market is highly com­pet­i­tive, companies have little leeway to dif­fer­en­ti­ate them­selves from the com­pe­ti­tion in terms of product price or product quality. They can then only improve their prof­itabil­i­ty by in­creas­ing ef­fi­cien­cy in the value chain.

Just-in-time pro­duc­tion or just-in-time delivery was developed in Japan and has proven itself worldwide as a no-frills pro­cure­ment and pro­duc­tion system. It is used primarily in large cor­po­ra­tions with complex products and is par­tic­u­lar­ly suitable for small markets where companies derive little benefit from economies of scale.

Just-in-time pro­duc­tion is also known as JIT pro­duc­tion or on-demand or pro­duc­tion-syn­chro­nous pro­duc­tion. It aims to align the entire material flow with pro­duc­tion in order to stream­line the value chain and increase ef­fi­cien­cy.

By de­liv­er­ing material only when it is actually needed in pro­duc­tion, the company saves ware­hous­ing costs and has less capital tied up in advance. Only small material safety margins are kept in stock in order to be able to cushion minor delivery delays. At the same time, pro­duc­tion can react more flexibly to market changes.

Just-in-time pro­duc­tion is the opposite of just-in-case strate­gies in which companies maintain extensive inventory to quickly satisfy maximum market demand.

Just-in-time is sometimes referred to as the Toyota pro­duc­tion model because it was developed by Taichii Ono, a former chief engineer of Toyota.

After 1945, Toyota founder Kiichiro Toyoda wanted his company to quickly catch up with the American au­to­mo­bile groups. But the Japanese market was not large enough to make car pro­duc­tion more prof­itable through economies of scale. Instead of producing more than the market needed, Toyoda decided to eliminate as much waste as possible from the value added process.

Taiichi Ono then developed the com­pre­hen­sive JIT principle, which was not only used for pro­duc­tion, but also for delivery and dis­tri­b­u­tion. Various other methods are combined in order for the just-in-time approach to work. In order to keep track of the flow of material and in­for­ma­tion, Kanban boards are used at the workshop level, for example. This agile approach is now also used in­de­pen­dent­ly of pro­duc­tion in project man­age­ment in many in­dus­tries.

Although the Japanese company was unable to catch up with its American com­peti­tors in the following years, the resulting economic success attracted in­ter­na­tion­al attention and led to the just-in-time delivery model spreading worldwide and being used to this day.

In practice, JIT pro­duc­tion is mainly used in the au­to­mo­tive and aircraft in­dus­tries, where so many different com­po­nents are regularly used that it is virtually im­pos­si­ble to store them all directly on the assembly line. The supplier companies are often located in the immediate vicinity of the client company, so that long transport routes and as­so­ci­at­ed risks (traffic jams, accidents, etc.) are elim­i­nat­ed. Pro­duc­tion times in the au­to­mo­tive industry have thus been dras­ti­cal­ly reduced. In the case of the Smart Fortwo, for example, final assembly only takes three hours.

Basically, the strategy is ad­van­ta­geous for all companies whose pro­duc­tion includes high-priced and large com­po­nents and which want to optimize their value chain.

Pre­req­ui­sites for suc­cess­ful just-in-time delivery are good transport planning and close co­or­di­na­tion between the supplier and client. The latter must determine the optimum delivery size and calculate the correct cycle lengths so that orders will be placed on time and delivered products installed seam­less­ly rather than being stored near final assembly. Sometimes, short waiting times cannot be avoided. JIT pro­duc­tion elim­i­nates the need for classic ware­hous­ing.

Just-in-time pro­duc­tion was developed for products for which there is a rel­a­tive­ly constant demand. In addition, it is assumed that the resources are readily available. Companies need a good in­fra­struc­ture. In order to mitigate the risks posed by the close de­pen­den­cy on one or more supplier(s), it is rec­om­mend­ed for the suppliers to be located in the immediate vicinity of the pro­duc­tion site.

In practice, the model can only be im­ple­ment­ed with suppliers if they them­selves are flexibly organized and receive (framework) contracts that offer them reliably large order quan­ti­ties, otherwise the economic risk of just-in-time delivery is too high for them. In-process quality assurance is ab­solute­ly essential in JIT pro­duc­tion. This is because faulty parts must first be reordered and pro­duc­tion is then in­ter­rupt­ed until they are replaced.

Just-in-time pro­duc­tion has various ad­van­tages. It can sig­nif­i­cant­ly improve the prof­itabil­i­ty of a company. However, there are also some risks and drawbacks that companies should be aware of when planning to implement the method.

1. Improved prof­itabil­i­ty: In highly com­pet­i­tive markets where prof­itabil­i­ty cannot be improved by lowering prices or quality, op­ti­miz­ing pro­cure­ment and pro­duc­tion can be the best way to increase profits.
2. Ac­cel­er­at­ed man­u­fac­tur­ing process: In the German au­to­mo­tive industry, it was possible to cut final assembly times by more than 50 percent in some cases.
3. Low capital com­mit­ment: Companies need to rent less storage space and have fewer com­po­nents in stock, saving sig­nif­i­cant resources.
4. Reduced labor costs: Pro­cure­ment in JIT pro­duc­tion fa­cil­i­ties is sig­nif­i­cant­ly more cost-effective, as it is less time-consuming.

1. Detailed planning: Just-in-time delivery requires detailed and smooth planning of the pro­duc­tion and pro­cure­ment process.
2. High com­mu­ni­ca­tion workload: Just-in-time can only be suc­cess­ful if suppliers and customers closely co­or­di­nate their com­mu­ni­ca­tion and con­stant­ly share in­for­ma­tion on the current pro­duc­tion status.
3. In­creas­ing de­pen­den­cy on suppliers: As soon as a supplier’s pro­duc­tion comes to a stand­still, this has an immediate effect on the entire process. Some companies spread their re­quire­ments over several suppliers, but the positive effect is limited without ware­hous­ing.
4. Greater impact of transport problems: Any time transport is delayed, the pro­duc­tion has to stop.
5. Storage space is still necessary: Depending on how strictly the JIT model is practiced, it remains necessary at least some storage space on the assembly line must be main­tained. This could not be omitted until just-in-sequence pro­duc­tion was developed.

A further de­vel­op­ment of just-in-time pro­duc­tion is just-in-sequence pro­duc­tion. The material is not only delivered in the right quantity at the right time, but all in­di­vid­ual parts necessary for the final assembly are ordered and delivered in the ap­pro­pri­ate sequence for the re­spec­tive product.

In the au­to­mo­tive industry, for example, vehicles are being con­fig­ured in­di­vid­u­al­ly. Com­po­nents and as­sem­blies differ depending on the purchase order. Just-in-time delivery is no longer suf­fi­cient for such cases. Just-in-sequence pro­duc­tion ensures that the different parts are also provided in the sequence in which they are installed.

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