After a close analysis of the Orlando’s Arnold Palmer Hospital (APH) case study, showing advantages of using JIT approach for effective inventory maintaining, the proper solution for question number one would be getting another pack from the inventory. (Although APH uses a JIT system, spare pieces of inventory has to be included in any particular supply – usually it appears to be a one-day buffer.) Also in this particular case, if a problem of error pack appears, the advantage of JIT can be seen in immediate error localization, particularly in the case of APH within a day of delivery. So McKesson can track back through the system and identify the reason for the error – and take corrective action accordingly. Just in time may be approached as a work philosophy, where the emphasis is made on continuous and effective problem-solving process. Just-in-time, or JIT, as it is commonly called, means providing the exact quantity of the needed item at the precise moment it is required. While this interpretation clarifies which production and delivery practices can be considered just-in-time, it remains silent on how they may be achieved. In its ultimate form, JIT occurs after the demand for its output is known. This requires that:
- production lead times are less than the time customers are willing to wait after placing their orders,
- customer orders can be economically produced as separate batches,
- resources such as people, equipment, tooling, and material are available when required, and
- operations are in control and output is defect-free. (Whinston)
Since few, if any, of these four conditions, are met in practice, JIT is frequently associated with continuous improvement. The four conditions then become the goals of JIT improvement action.
2. HOW MIGHT THE PROCEDURE FOR CUSTOM SURGICAL PACKS DESCRIBED HERE BE IMPROVED?
For improving the procedure for the custom surgical pack it is necessary to evaluate the exact amount of inventory needed for one-day operations, using this information APH management could reduce the quantity of pack in the buffer from one day supply to smaller number of pack thus decreasing the expense. JIT aims to eliminate waste completely. (Ohno) Waste is any resource that is consumed without adding value to the product. By definition, only processing (the activities that transform a product’s inputs into its final form) adds value. This definition excludes inspection, in-plant transportation, and storage, each of which adds cost but not value to the product.
Let us consider, for example, in-plant transportation. If we view transportation as waste, we will try to eliminate transportation. We will examine plant layouts, and move toward grouping machines according to the products they produce instead of the functions they perform. If on the other hand, we treat in-plant transportation as a necessary evil inherent in the non-adjacent location of consecutive processes, we will direct our efforts toward automating transportation, rather than eliminating it. (Whinston)
3. PROVIDE EXAMPLES OF JIT FOR YOUR ARGUMENTS AND RELATE THEM TO ARNOLD PALMER HOSPITAL.
- Suppliers get on board with high-quality frequent deliveries.
- The layout is modified to be near (perhaps adjacent) to the work area and with no space for excess storage.
- Inventory is at a minimum to ensure that bad product is not made, shipped, and stored. Minimum inventory allows immediate feedback on quality. The plus at APH is that quality (i.e., sterile packs) is enhanced by maintaining only limited storage.
- Scheduling that meets JIT demands, schedules only what is needed when it is needed. (Imai)
Actually, JIT is far broader than supply delivery issues. It must cover the entire value chain from the origins of the raw material to the end user and it should be implemented at every step in the value chain. For JIT to work, managers must physically stay in touch with the realities of what is known in Japan as Gemba. (Imai)
Gemba is where the real action of a business takes place. It is the factory or shop floor, the laboratory or design table, the place where products get produced. In the service sector, it is where customers meet and come in contact with the service deliverer-the bank teller’s window or the hotel check-in desk, for example. Managers need to leave their desks and offices regularly and go to Gemba.
Because JIT removes waste (such as unused, excessive inventory), every process in the value chain needs to be flexible and able to respond within the time it takes for a customer to place an order. Since only one workpiece moves from process to process with no inventory, zero defect quality must be maintained. Otherwise, each time a defect is produced, the whole line must stop. Machines must be maintained so that they do not break down. The setup time must be shortened to increase flexibility.
4. WHEN A DOCTOR PROPOSES A NEW SURGICAL PROCEDURE, HOW DO YOU RECOMMEND THE SKU FOR A NEW CUSTOM PACK BE ENTERED INTO THE HOSPITAL’S SUPPLY-CHAIN SYSTEM?
The request for changes and all new products goes to the Medical Economics Outcomes Committee. Reducing the proliferation of SKUs is a continuing issue at APH, as it is for operations personnel everywhere. My recommendation would be to carefully investigate the existing situation with sku, and the needed custom pack be included in the system by the means of new product entry. Many hospitals receive supplies at central storage areas, and materials are then divided into smaller amounts to replenish nursing stations. The stockless system turns over storage and dispersal to an outside distributor, while the just-in-time system reduces inventory by increasing deliveries from distributors to central stores. The model uses a wealth of cost data specific to a facility to determine the actual cost of using each system. By doing so, it can help a manager determine if the savings associated with these reductions are big enough to justify a switch to one of these systems.
SECOND HALF JIT
1) How do JIT and Lean processing affect managerial decision-making in that organization?
JIT and Lean processing have significant influence in APH managerial decision-making process. The influence can be achieved by pointing out several factors in JIT approach used, for example, setup time reduction.
Setup time reduction is a crucial change that facilitates all of the other changes – it is the starting point in production innovation. Our western preoccupation with mathematical and statistical approaches to the trade-off between setup costs and inventory carrying costs has caused us to accept uncritically unnecessarily high setup times and costs, the existence of which have led more often too large lot sizes than to efforts directed at reducing the setup costs themselves. Shigeo Shingo’s single minute exchange of dies (SMED) is a systematic approach to reducing setup times. (Shingo) Shingo’s steps, which frequently lead to 90% or larger reductions, are:
- observe the setup task elements and distinguish between those external elements that can be done while the machine is operating and those internal elements that must be done while the machine is stopped,
- establish procedures that ensure that all external elements are completed prior to the start of a changeover,
- modify procedures, tooling, and equipment to convert internal elements to external ones, and
- simplify or eliminate as many of the elements as possible, with a special focus on the internal elements.
Setup time reduction is especially attractive because it spans many different operating environments, including process-based technologies.
In many North American factories, we still see workers, whose tasks are to supply inputs to and remove outputs from single machines, spending most of their time simply monitoring their operation. The prevalent view seems to be either to equip a machine with the first two capabilities, ensuring high labor costs, or go all the way to automation, thus focusing management’s attention on achieving high machine utilization, and thereby providing maximum absorption of automation’s high investment cost. High utilization, unfortunately, also promotes queues, high work-in-process inventory and long lead times. (McLachlan at al.)
JIT is based on the premise that equipment will not break down. If this is to occur, the North American practice summarized in the statement, “If it’s not broken, don’t fix it” should be dropped in favor of one giving far greater emphasis to preventive maintenance. (Whinston) Nonetheless, some breakdowns are inevitable. When they do occur at APH, the focus is on diagnosing and eliminating the underlying cause of the breakdown to prevent a recurrence.
APH, according to the case study had adopted substantial JIT supply arrangements consisting of single sourcing with frequent deliveries, particularly for the nursing packs it is McKesson General Medical. There was evidence of long-term contracts, certification programs and sharing of schedule information. Several firms with JIT customers had also established JIT supply arrangements. Some suppliers, however, were being asked for price reductions without receiving any help in process improvement, and without being able to obtain cost reductions from their suppliers.
JIT supply arrangements can cover the range from narrow insistence on JIT deliveries to the export of a firm’s best JIT practices through partnerships with its suppliers. When the latter situation occurs successfully, the supplier is able to benefit from the same low-cost, high-quality, flexible production as its customer. (Whinston)
Employee involvement in continuous improvement underlies almost all of the preceding features of JIT. Setup reduction, for example, needs to be performed for every part that is produced on every machine. This activity will require the collective insight and contributions of everyone concerned if it is to be accomplished in a timely manner. The assignment of a few industrial engineers or consultants is sufficient to launch this activity but will be totally inadequate to sustain it.
2) What are the benefits and difficulties does this organization face in implement JIT concepts? If they cannot use JIT, what other practices could be more suitable?
Greater efficiencies and economic advantages are the obvious upsides of the “just-in-time” inventory practices that are all the rage with manufacturers. Countering that upside, though, is a potentially dramatic downside in the greatly expanded range of contingent business interruption exposures the just-in-time practices bring. For the risk manager of an operation relying on a just-in-time approach that means the job of identifying, mitigating and transferring those business interruption risks doesn’t end at the plant gate. It can reach far down the line of suppliers and suppliers’ suppliers, and potentially far up the line of customers and even those customers’ customers, as well.
Events such as the recent disruption of shipping service at United Parcel Services of America Inc. stemming from the International Brotherhood of Teamsters’ strike, or periodic reports of job actions by workers at plants manufacturing automobile components which days later cause the shutdown of automobile manufacturing facilities highlights the need for closely managing just-in-time exposures. (Zolkos)
Another important part of risk management in a just-in-time environment is to identify alternative suppliers for components or materials. Those suppliers can be tough to find because, in today’s manufacturing environment, components are often highly specialized for the needs of the particular customer, and a backup supplier might not be able to start providing them on short notice. Manufacturers working on government contracts, particularly those involving security clearances, might find the task even more complicated.
While noting that his company doesn’t engage in just-in-time practices to the extent that an automaker might, Michael Newman, manager of property loss prevention for Johnson & Johnson Inc. in New Brunswick, N.J., said his company has taken steps to minimize inventories of raw materials as well as finished products. Beyond that, product lines are being concentrated in plants, he said. “So what you’re seeing is less and less spare capacity. Years ago, there was always more spare capacity. If something happened you could always go to another plant.” (Zolkos)
Although the magnitude of the situation varies with different product lines, “if something was to happen at one of our contact lens manufacturing operations, there’s no place left to go,” Mr. Newman said. “That causes worries all along the line as far as business interruption is concerned.” The response is identified exposures, he said, and take steps to reduce them. With numerous facilities in hurricane-prone areas of Florida and Puerto Rico, for example, “if you have a plant harden up, you can at least come back to a plant that’s functional.” In the case of the UPS strike, J&J’s efforts to put contingency plans in place well before the job action have minimized its impact on the pharmaceutical company, Mr. Newman said. (Zolkos)
William Krouslis, assistant VP in the business continuity services division of AIG Consultants, a unit of American International Group Inc., emphasized it’s important that the company calculate its business interruption and extra expense limits properly. The risk manager should work closely with the company’s broker to determine appropriate limits. Normally the business interruption limit should be the loss of net profits plus continuing business expenses, he said. He said just-in-time practices force a risk manager to be aware of potential exposures lurking in the company’s information systems. “From the risk manager’s perspective, a just-in-time inventory system would be an information- and computer-dependent system,” he said. “So they should be looking at the reliability and dependability of their information systems.” (Zolkos)
The risk manager must ensure the company’s disaster recovery and business continuity plans address its information technology with an eye toward making sure a system is in place to back up the system on which the just-in-time processes rely.
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