ABC Classification System

An important aspect of Inventory Management is that items held in inventory are not
of equal importance in terms of rupees invested, profit potential, sales or usage
volume. ABC Classification System controls inventories by dividing items into 3
groups A, B and C respectively.
1. Group A consists of High Rupee (Monetary) Value, which account for a
small portion about 10% of the total inventory usage.
2. Group B consists of Medium Rupee (Monetary) Value, which account for
about 20% of the total inventory usage.
3. Group C consists of Low Rupee (Monetary) Value, which account for a
large portion about 70% of the total inventory usage.
4. The level of control reflects cost benefit concerns.
5. Group A items are reviewed on a regular basis.
6. Group B items are reviewed at a less frequency than Group A items but more than
Group C items.
7. Group C items are not reviewed and order is placed directly.
 JUST IN TIME PRODUCTION SYSTEM
Just In Time Production or Lean Production systems focus on the efficient delivery of products or services.
Some of the distinguishing elements of the JIT systems are a pull method to manage material flow,
consistently high quantity, small lot sizes, uniform work station loads. The JIT systems provide an
organizational structure for improved supplier coordination by integrating the logistics, production and
purchasing processes. When Operations Manager focuses on their organization’s competitive advantage
they aim for low cost of production, consistent quality with reductions in inventory, space requirements,
paperwork and increases in productivity, employee participation and effectiveness.
JIT/Lean Production
Lean Manufacturing: is a management philosophy focusing on reduction of the seven
wastes.
1. Over-production ( Capacity exceeding demand)
2. Waiting time
3. Transportation
4. Processing
5. Costs
6. Inventory
7. Motion ( Lack of coordination of body movements).
Key lean manufacturing principles
1. Key lean manufacturing principles include:
2. Perfect first-time quality - quest for zero defects
3. Waste minimization
4. Continuous improvement
5. Pull processing: products are pulled from the consumer end, not pushed from the production end.
6. Flexibility
7. Building and maintaining a long term relationship with suppliers through collaborative risk sharing, cost
sharing and information sharing arrangements.
Applications of Lean Manufacturing
1. Lean Healthcare Systems
2. Lean Software Manufacturing
3. Systems Engineering
4. Lean Systems in Defense Industry
Generic Strategy for Implementation of a Lean program
1. Top Management to agree and discuss their lean vision.
2. Management brainstorm to identify project leader and set objectives.
3. Communicate plan and vision to the workforce.
4. Ask for volunteers to form the Lean Implementation team.
5. Appoint members of the Lean Manufacturing Implementation Team.
6. Train the Implementation Team in the various lean tools.
Organizational and Operational Strategies
1. Organizations aiming for JIT system should focus on the Human Resource Management with proper
system of incentives, rewards, labor classification, cooperation and trust in place.
2. Organizations should concentrate on effective management of inventory, purchasing, logistics and
scheduling.
3. Organizations should develop a demand base system so less waste is generated and good management of
high quality, small lot sizes, good quality, standardized components and work methods is ensured.
4. Lean or JIT Systems are effective only if they are designed to produce or deliver the right product or the
right services in the right quantities just in time to serve subsequent processes or customers.
5. Organizations who design their Operations on JIT philosophy need to encourage partnership concept
whether it’s between organization’s purchasing department and supplier or partnership between
management and labor.
Lean Systems in Services
1. Consistently high quality
2. Uniform facility loads
3. Standardized work methods
4. Close supplier ties
5. Flexible workforce
6. Automation
7. Preventive maintenance
8. Pull method of materials flow
9. Line flows.
Operational Benefits
1. Reduce space requirements
2. Reduce inventory investment
3. Reduce lead times
4. Increase labour productivity
5. Increase equipment utilization
6. Reduce paperwork and simple planning systems
7. Valid priorities for scheduling
8. Workforce participation
9. Increase product quality.
Implemental Issues
1. Organizational considerations
a. Human cost of JIT systems
b. Cooperation and trust
c. Reward systems and labour classifications
2. Process considerations
3. Inventory and scheduling
a. MPS stability
 b. Setups
c. Purchasing and logistics

JUST IN TIME
􀂾 Just-In-Time (JIT): JIT can be defined as an integrated set of activities
designed to achieve
high-volume production using minimal inventories (raw materials, work in
process, and
finished goods).
􀂾 JIT also involves the elimination of waste in production effort.
􀂾 JIT also involves the timing of production resources (i.e., parts arrive at the
next
workstation “just in time”).
Just-in-time (JIT): A highly coordinated processing system in which goods move
through the
system, and services are performed, just as they are needed. As operations
managers we should
remember this point onwards that
1. JIT is also known as lean production
2. JIT is the true pull (demand) system
3. JIT operates with very little “fat”
Summary JIT Goals and Building Blocks
Goal of JIT: The ultimate goal of JIT is a balanced system. JIT achieves a
smooth, rapid flow of
materials through the system. The ultimate as well as supporting goals are
represented below in the form of a pyramid.

Secondary Goals
1. Eliminate disruptions
2. Make system flexible
3. Eliminate waste, especially excess inventory
Big vs. Little JIT
1. Big JIT – broad focus ( Includes Internal as well as External)
a. Vendor relations
b. Human relations
c. Technology management
d. Materials and inventory management
2. Little JIT – narrow focus Internal to organization
a. Scheduling materials
b. Scheduling services of production
JIT Building Blocks
1. Product design
2. Process design
3. Personnel/organizational elements
4. Manufacturing planning and control
The Lean Production System
Based on two philosophies:
1. Elimination of waste
2. Respect for people
Traditional Supplier Network
1. The organizations make its suppliers compete against each other.
2. Also the suppliers can supply the same component or raw material to the
organizations
competitors thus harming the organizations business.
3. Organizations tend to waste resources and a lot of time looses its suppliers
to the competitors.
4. Suppliers too end up absorbing poor order placement from the
organizations.
5. The whole network faces sluggishness or inertia.

Tiered Supplier Network

1. The suppliers work as a strategic alliance to provide components to the
organization.
2. Inventory costs as well as the overall time involved are reduced.
3. Order execution is improved and organizations do not face the challenge of
loosing its suppliers to the competitors.
4. There is little or no rivalry between the suppliers
Transitioning to a JIT System
1. Get top management commitment
2. Decide which parts need most effort
3. Obtain support of workers
4. Try to reduce scrap material
5. Start by trying to reduce setup times
6. Incorporate quality
7. Gradually convert operations
8. Convert suppliers to JIT
9. Prepare for obstacles
Obstacles to Conversion
1. Management may not be committed
2. Workers/management may not be cooperative
3. Suppliers may resist
JIT in Services
The basic goal of the demand flow technology in the service organization is to
provide optimum
response to the customer with the highest quality service and lowest possible
cost.
1. Eliminate disruptions
2. Make system flexible
3. Reduce setup and lead times
4. Eliminate waste
5. Simplify the process
JIT in Services (Examples)
1. Upgrade Quality
2. Clarify Process Flows
3. Develop Supplier Networks
4. Introduce Demand-Pull Scheduling
5. Reorganize Physical Configuration
6. Eliminate Unnecessary Activities
7. Level the Facility Load
JIT II
JIT II: a supplier representative works right in the company’s plant, making
sure there is an
appropriate supply on hand.
Benefits of JIT Systems
1. Reduced inventory levels
2. High quality
3. Flexibility
4. Reduced lead times
5. Increased productivity