Friday, April 2, 2010

Just In Time Case Study

I want to emphasize the need to implement the main principle of lean, the need for Just in Time (JIT) manufacturing. The need to define value and make it flow at the pull of the customer. Look back at my previous post how to implement Just In Time for an explanation.

Do you want to wait till your competitors achieve this while you sit there with an unresponsive factory offering lead times of many weeks while they can offer a lead time in days. Do you want your hard earned cash tied up in masses of stock that you will take months to sell and then have to invest it back into masses of raw materials and work in progress to produce more slow moving stock, while your competitor enjoys his cash?

I want to show you how a new viewpoint is required through a couple of examples of companies that I have been into over the years that I worked as a consultant. The following example is quite tragic and a real waste!

I visited a factory a few years back, a long established manufacturer of “traditional” board games and similar products such as puzzles, art and craft sets, painting by numbers and the like. At the time I was working on an initiative sponsored through the UK department of trade and industry and this company had phoned looking for a grant to fund new machinery. Whilst we did not have grants to hand out I suggested that it may be possible to free up the required money from the business and that I should come take a look. They were looking for about GBP30,000 for a business with over 2 million turnover.

The company was located in the middle of a large town in a magnificent series of very old building that were over 150 years old, they employed over a hundred staff and supplied direct to toy stores and other companies across the UK and Europe.

The company had a huge range of products, many hundreds of variants that they supplied from stock held in the largest part of their facility, the products themselves were assembled on simple production lines which basically selected all of the required components and placed them into the required packaging. There was a limited amount of injection molding to produce plastic game pieces, most component parts being brought in.

I spent time watching the operators assemble the games and other products, selecting the components, forming the boxes and packing and shrink wrapping them. The process was very simple, the lines did not take long to set up and all components were close to hand, each “line” was run by only one to three people and each “box” was swiftly filled and wrapped. There were a number of spare lines that were being kitted up for production that the operators moved onto when they were finished with the product they were producing.

The other half of the business concerned order fulfillment, operators took lists of orders from the many customers and worked their way through the many rooms of the warehouse to assemble the specific customer orders, generally a small pallet of products comprising 20 to 30 different products of single figure quantities.

Now some facts and figures regarding the operation to illustrate some issues, the turnover of the factory was a little over 2 million UK pounds every year, a figure that was declining due to competition in a price sensitive market. The business was operating at a loss! Stock holding of finished goods was almost 2 and a half million UK pounds, over a years worth of stock sat in the warehouse! Each year the company wrote off around 5% to 10% of this figure as being obsolete.

This in itself is horrific, the company holding so much stock as they felt that they had to have their entire range available to be able to satisfy orders rapidly. Indeed the customers expected next week delivery which they always achieved. So maybe this was necessary to achieve the market need for prompt and full delivery. But then consider the next set of “figures”.

Whilst I was watching the production processes I carefully timed each product being produced, each one took barely a minute to complete, the production operators making up around 40% of the total staff of the company. I then timed how long it took the warehouse staff to find and palletize the products that had been ordered, surprise surprise, they took longer to search through the various stacks and boxes of products across the various rooms of the warehouse than the production people took to produce them, a considerable amount more time, almost twice by my very rough timings. Around 50% of the staff were employed in the warehouse, the remaining 10% being employed within the offices. Remember my previous posts on manufacturing wastes?

I am sure that you can see that with a little organization it would be quicker to assemble the product to order than it would be to find the specific variant of the product in the stores, collect it adjust the stores figures and palletize it.

I could see that the company could do this very easily, they had many hundreds of variants but only about a dozen main products that would lend themselves to being set up as simple one person cells, instead of picking from stores, they could just go from cell to cell completing the required product as ordered, simple!

The owner confided that although the many customers liked their products there were many cheaper products on the market and that although some of the other suppliers were less flexible than they were, the customers were having to purchase elsewhere to get the reduced prices. The business could not afford to reduce prices any further as they were already making a loss and needed to rapidly cut costs. They were considering making redundancies and were fearful that they would have to close all together.

The answer was simple for this business, make to order! Shut down manufacturing, clear the stock, recoup the cash tied up. Then start to make what the customer wants when they ordered it. This was a business in crisis, they would have to shed jobs to survive, but once re-organized with a different production model they could hopefully expand their market share beyond what they had and re-hire workers. But they had to take action now or they would lose the business, it was that serious.

I hope that my explanation above is enough for you to see that Just in Time and lean manufacturing was the solution for this business, that they could save a significant portion of their costs and hopefully enable them to survive if not compete healthily.

The owner of the business was in his late seventies, had always run the business in this way, and his belief was that the only way to survive in the industry was to supply from stock and their superior range of British built products would help them survive. It did not matter how many ways it was explained to him, how many diagrams and graphs were drawn, how many additional people I brought to visit him (I made several subsequent visits to try to persuade him), he would not and could not change his mind set. His senior management were convinced, the staff were convinced as even they could see where the business was heading, but he was the owner and he was in charge, and in true old school traditional management style, ”into the valley of death rode the ....”

Unfortunately this business closed less than a year after my first visit with the loss of around 100 jobs, this business could have been saved and would have been able to grow if they had embraced the ideas of Just In Time and Lean Manufacturing. The owner was upset at the loss of the business but owning one of the largest pieces of prime real estate in the center of town he was consoled by the massive profit made when it was sold.

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