Here is a question for you, is JIT a push-system or a pull-system? For decades you have been lead to believe that it is a "pull" system, but in fact you are "pushing" to make parts available, thinking that the resource will need it or use it. Just because the resource used the previous supply does not mean that it will use the next. In other words, the past is not necessarily an indication of the future. You may have already known that, and may argue that just filling buffer-zones is the best way to minimize inventory, especially if the buffers are not owned by your company. However, you are just passing the responsibility of holding the supply to some other point in the supply chain, along with the associated cost-of-capital that goes with it. Naturally, the buffers need to be able to handle the largest tolerable demand surge. So, if the past demand is more than the future, then inventory will sit there until it is needed or written-off.
With that in mind, I think it's logical to say that a JIT system that looks at historical demand is really a push-system, but we want to do better than that. We want to be able to look to the future in order to have a real pull-system. At the end of the day, JIT is a cost-reduction system to keep up utilization and reduce inventory levels in a supply chain that has fairly steady demand. What happens if the demand changes all of a sudden? What if red-widgets are more popular than green ones, today? How fast can you propagate the changes by resetting all of the buffers? Undoing the buffers is like pushing the proverbial tooth paste back into the tube! It will stay out until you finally use it, or wash it down the sink. Of course as long as the supply chain is simple, with a linear flow, flat demand, and just a few constraints, fixed buffer-based inventory planning will still work well. But it will also come down crashing if you have tens of different products sharing resources, constant changes in demand patterns, or supply lead-times. These factors, and many others, change the production "rhythm" to the market. Should the supply rhythm on a certain product be bang-bang-bang-bang, or would it be bang-----bang-----bang---.bang? Which rhythm would generate the most revenue and profit while satisfying your customers?
In the final analysis, JIT is a system of Available-on-Supply and it pushes based on a fixed rhythm associated to the speed of a machine or inventory availability. In that case, you better prey the historical demand does not change. Why would you want to be held hostage by your supply?! So what should we do if we want a system that is Available-on-Demand, that is more responsive to changes in the market place. A system like this would change the "beat" and buffer-allocations based on the actual demand, and would be more attuned to the market-whether it be bang-bang--bang, or bang-bang...bang-bang-bang---bangbangbangbangbangbang--------bang. For each product you would have a different "bang" profile. The combination of all the profiles sets the rhythm for your entire supply chain. Hence, when you put it all together, the result is a beautiful orchestration of drum-beats harmonized to the tune of the market demand.
To dynamically re-tune and reallocate material, capacity, and buffers is not easy but it's being done by many best-in-class companies out there. You basically need two critical components, visibility and control of your supply chain. That means visibility into your demand, inventory levels, and the ability to quickly control your production capacity, and suppliers' capabilities. It is not a near sighted system that only looks at one level down the stream. You must understand what needs to be done in all areas of the supply chain as the demand conditions change. To have this kind of control over your supply chain, it takes some reexamination of your processes and advanced technologies in the areas of Demand Planning, Multi-Echelon Inventory Optimization, Production Planning, and Performance Management. Demand Planning will focus on making sure you are getting accurate demand signals from the market, MEIO will help you manage the right buffers for the expected demand, Production Planning will control your supply flow to those buffers, and Performance Management will give you dashboard like visibility over all of these critical points in your supply chain. Again, I have said this many time before, but it's very hard to do this with spreadsheets and pure experience. So take a little time to see how advanced technology can help you in one or more of these areas and you maybe surprised how quickly you can retune your supply chain from JIT to Available-on-Demand.
If you are interested in this topic, I also suggest reading: How-to-Guide: Justify A Supply Chain Planning System, or feel free to contact us at any time.
Dr. K. Cyrus Hadavi is the president and CEO of Adexa, for more information about the author please click here.