Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

6.2.6 Generally Valid Advantages of the Lean / Just-in-Time Concept for Materials Management

Intended learning outcomes: Describe the effect of forecast errors through the combining of requirements in batches across many production structure levels. Explain the effect of longer and shorter lead time on the (customer) order penetration point.

The lean / just-in-time concept discussed in Sections 6.2.1 to 6.2.5 can also aid the MRP technique (see Section 12.3), which often does not achieve satisfactory results in the quasi-deterministic case. Lean/JIT corresponds exactly to the above two demands. Thus, production and procurement costs decrease.

1. Reduction of batch or lot size through reduction in setup time results in combining fewer requirements in production or procurement batches at all levels. This is particularly important for lower production structure levels, where forecast errors will affect orders for components that will be required for end products far in the future. Figure shows the positive effect that results if a batch sizing policy of lot-for-lot — every requirement is translated into exactly one order — can be achieved (see also Section 12.4.1).

On the one hand, demand at lower production structure levels becomes more continuous, which with any stochastic technique results in smaller safety stocks. In the quasi-deterministic case, it is sometimes even possible to change over to purely stochastic techniques. On the other hand, the probability of production or procurement errors due to forecast errors decreases, because time buckets are reduced and orders are released only for requirements forecasted for the near future.

With product families with many variants (and thus nonrepetitive production to customer order), the prerequisite is lot size one (or batch size one). Here, companies have always been faced with the problem of how to reduce setup time. Lean/JIT is thus also advantageous for deterministic materials management.

Fig.        Effect of forecast errors through the combining of requirements in batches across many production structure levels.

2. Lead time reduction allows a (customer) order penetration point lower in the product structure. Figure shows this positive effect

Fig.        (Customer) order penetration point with longer and shorter lead time.

The customer tolerance time now corresponds to a greater portion of the — now shortened — cumulative lead time. With this, a larger part of value-adding processes lie within a deterministic area. Forecast errors affect a smaller part of the value-adding chain. Because forecasts pertain to the near future, forecasted demand is also smaller.

Through increased production within the required delivery lead time, certain orders can now be produced — thanks to lead time reduction — for which there can be no stockpiling for economic reasons. This is the case with nonrepetitive production. In this way, additional sales can be realized. This is a further example of the advantages of the lean / just-in-time concept for deterministic materials management.

The following exercise illustrates the effect of lead time reduction explained before.
Drag the stocking level to the left, then to the right, and watch the delivery times and stocking levels change. Then apply JIT techniques ("after JIT") and find the differences.

Quiz: Find the correct answers to the following questions - not yet available

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Course section 6.2: Subsections and their intended learning outcomes