Just In Time is a lean production technique, It involves ordering a product right as it is about to run out, but before the business has to stop manufacture, this allows a business to work effectively when creating a product that requires a lot of parts and accessories.
|Raw Materials||Work in Progress||Finished Goods|
| Bought from suppliers
Supplier may not be able to meet demand Supplier could not raise prices Used in assembly or as ingredients
Parts for assembly|| Not Sellable
Costs business money to make into product May be a slow process
Wine May cost staff hours if long time delays i.e. building houses|| Needs moving for social events
This table shows the disadvantages of holding stock at different levels of the stock control process.
Why hold stock?
- Fundamentally holding stock allows production to take place
- To satisfy customer demand
- As a precaution against delays from suppliers
- It allows efficient production
- It allows for seasonal changes
- It provides buffer between production process
Main influences on Stock
- The need to satisfy demand such as demand influxes or lower commodity prices.
The a need to manage working capital, stock control for example could mean a product is depleted without being replaced.
Risk of losing value, such as the stock market price. Food and vegetables such as flowers may also decrease in value over time.
Low stock levels
- Lower stock holding posts.
- Lower risk of obsolescence.
- Less capital tied up in stock. So the business is more liquid.
- Consistent with operating on lean production.
High stock levels
- Production is always fully supplied so there are never any delays as the product never runs out.
- Potential for lower costs by ordering in larger quantities.
- The business is better able to handle unexpected changes in demand or the need for higher output as they will have the stocks available.
Within any business there are multiple factors that a customer can imprint on to recognise a brand and associate with quality. Businesses can use the customers intuition to their advantage, targeting on the key aspects of a quality product in order to maximise return. Here is a list of the common points a business can tailor in order to maximise their revenue;
- Profitability, Businesses must decide how much profit each product or service should undertake, whether it be a large return or a small one. Customers may be willing to buy a product purely on its premium price point.
- Customer Service, Businesses may wish to place the quality of their product on par with the quality of its customer service. Poor customer service could reflect badly on a quality product and vice versa.
- Competitiveness, Businesses may wish to use pricing in order to undercut the cost of its competitors. Businesses may also want to take on new locations and footfall in order to maximise profitability.
- Supply Chain, Business may cut costs and use cheaper suppliers, however unethical or environmental considerations could be overlooked and come back to haunt businesses later.
- Reliability, A product that is unreliable or prone to failure may mean that customers look elsewhere for new products, defined obsolescence could damage the perceived quality of the product as well, If it were to fail after a certain time because of a weak part, customers may feel frustrated having to buy new ones.
- Brand Image, For some customers a brand could be vital to what product they purchase, If a brand is damaged, it could affect the sales of businesses massively. Some businesses may also struggle to maintain a positive reputation if the business specialises in cheap services, such as transport or hotels and may not be too affected by bad publicity as the cheap price point means the demand for the product does not change (it is inelastic).
- Quality Control could also mean that products are of a constant high quality and should in tern allow a business to work effectively on producing high quality products for the consumer, who will hopefully repeat purchase. Kaizen and Total Quality Management can allow a business to excel at creating a quality product that is lean and high quality as it forces the product to be a standard that the business expects and what the customer wants.
- Brand Awareness, A customer who does not know a product exist may not buy it, additionally any customer who recognises a product may choose to buy it over a generic product because of it. Advertising and promotion can artificially create the connection between the customer and the brand of trust and safety in a product, that this is the product they should buy.
Lean production methods such as Kaizen and Kanban allow a business to motivate staff to use less waste and treat resources as a finite resource.
Lean Production for Expansion
Most businesses that are doing well consider expanding, when they do they need to use more effective methods of production in order to survive, this means cutting cost on waste and optimising lead times and output. Lean production is about continuously checking that the business processes are as fast as possible.
- Just In Time – Just In Time (JIT) requires a good relationship with suppliers who are going to deliver when you need them, this saves on storage cost. This also means that a business will have better cash flow if they can tie this together with trade credit.
- Total Quality Management – In TQM, Each Item is checked for consistency and to meet standards, although it may be expensive and time consuming, it could mean that the business has less waste.
Businesses may want to consider increasing machinery capacity or staff work overtime during expansion. Walking, waiting time and bad quality are eliminated or minimised in a lean production.
Lean Production Techniques
- Products are made to order, when they are ordered.
- Businesses only order new stock when it is needed.
- Items are only bought when they are needed or in demand.
- Essentially Pull is JIT (Just In Time).
- There is a reduced amount of leftover resources as products are made to order.
- One item is produced at a time, so there is not confusion in manufacture.
- The flow of production becomes highly predictable and focused.
- One product is made at a time, so production could be slow.
- Large objects may only be made one at a time.
- Batch ordering may not be possible, so businesses cannot take advantage of economy of scale.
- Standardise manufactured components.
- Takt is how fast a product is manufactured to meet demand.
- It allows a business to balance work to achieve a continuous flow.
- Continuous Improvement > Kaizen says ‘Continuous Improvement’ through self reflection.
- Products with defects must be fixed before being allowed to go on to the next stage of production.
- Rate of production is improved, as the rate off success is near optimal.
- Products with defects may still have been able to sell. It means waste could be higher than before.
- Products could also be higher quality.
Lead time is the time it takes for a customer to receive a product after ordering it.
Zero based budgets are are when budgets are reviewed without reference to the previous budget. Normally this does not happen, however it is growing in popularity, as it usually results in lower costs.