A comparison of current practices in German manufacturing industries

European Journalof Purchasing& Supply Management, Vol. 3, No. 3, pp. 147-154, 1997

Pergamon

PII:S0969-7012(97)00007-5

© 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0969-7012/97 $17.00 + 0.00

JIT procurement A comparison of current practices in German manufacturing industries Joachim Reese and Roland Geisel Chair of Production Economics and Business Data Processing, University of Liineburg, 21332 Liineburg, Germany

Supplier-customer relations based on JIT deliveries are becoming more and more common in many industries. Theoretical discussion indicates both advantages and disadvantages. This paper covers the results of a comprehensive survey of three different German industrial branches presented from the customer's point of view. The questions answered concerned the objectives, dissemination, and success of JIT. The survey revealed that the JIT concept is seldom used in the same way or to the same extent, despite already being widely spread. It still needs to be developed further in future. © 1997 Elsevier Science Ltd Keywords: JIT concept, strategic supply management

Japanese strategies of production management, such as lean production and just-in-time (JIT) production, are alternatives to the traditional manufacturing techniques and are being implemented more and more by European firms (e.g. Warnecke, 1993, p 16). The JIT principle, as a central element of lean production, represents a modern concept for decentralized planning and production control. With its application, short-term capacity and material requirement planning are focused on the actual production situation. Therefore, there is no need for any systematic inventory. The JIT principle requires a constant material flow through the whole firm, ensuring that disruptions to the production process are discovered immediately on site and thus can be overcome at once. As previous results show, the establishment of the JIT principle may become a relevant factor for an essentially improved total cost performance in a firm's production area (Womack et al, 1990). Furthermore, quality improvements can be expected as well as increasing labour productivity and order flexibility (Goyal and Deshmukh, 1992, p 18). JIT procurement of materials from outside the firm may be regarded as a special development of the JIT concept. Generally it is seen as the supply of goods as late as possible. JIT procurement, however, is not merely a pure supply concept. A further implication of the concept is the strong involvement of the supplier. In order to avoid loss of production, the quality of materials should firstly be examined by the supplier and, secondly, under no

circumstance be delivered too late. This requires detailed information about the production schedule and, as a consequence, a close cooperation between supplier and customer. As a rule, a long-term contractual agreement facilitates the cooperation and reduces the customer's supply risk. The contract's form is usually relational and causes high transaction cost, i.e. cost of running the relationship (Frazier et al, 1988, p 55). Occasionally, penalties are agreed upon in case of non-delivery. Eventually, the advantage of the cooperation depends on the form of the individual contracts and on the market power of the contracting parties (Fandel and Reese, 1991, p 55). In the economic theory the benefits of JIT procurement are acknowledged for regularly needed goods with a high usage (in money terms) (Fandel and Frangois, 1988, p 57). Concerning the cooperation with the supplier, two strategies (Porter, 1980, p 62 ft.) are mentioned to be supported by a JIT adoption: On the one hand, an investment strategy can be derived from the firm's overall strategy of quality leadership. The supplier's know-how is used in order to realize a lead in production quality. On the other hand, a skimming strategy is directed towards a general cost leadership. Regarding the reasons for the introduction of JIT procurement and its results, there is still a great lack of empirical study. To address this, from November 1994 up to February 1995, a widely spread empirical study was carried out in different industrial branches in the Federal Republic of 147

J Reese and R Geisel

ermany. The study analyzed the reasons and the materials taken for JIT procurement, as well as the degree of usage of this concept and the past results obtained by the firms. A further aim of this study was to detect the different forms of JIT procurement, which are being practised. As there is no single, comprehensive, and applicable definition of JIT procurement, different interpretations of this term are inevitable. Therefore it is not reasonable to generally define distinguishing marks. On the contrary, JIT procurement describes the strategic orientation of a firm. It depends on the firm's technological possibilities as well as on its cost and production structure. Subsequently, individual JIT definitions result from the heterogeneous strategies and structures. Scope of the study

Considered industries and firms For the empirical study, firms in the chemical industry, the consumer electronics industry, and the mechanical engineering industry in the Federal Republic of Germany were surveyed. The JIT concerns of each industry considered in the study were strong but varied greatly. In the chemical industry there is a great interest in minimizing the dangers of stockkeeping by reducing stocks. This is especially due to increasing public attention and the tightening up of federal regulations which in recent years caused progressively rising inventory cost (Browne, 1993, p 52). In the mechanical engineering industry, most of the products are exported. In 1993 the machine supplies to foreign countries amounted to a value of 113.3 billion DM, i.e. 59.5% of the total domestic machine production (VDMA, 1994, p 6). This outstanding result can be explained, above all, by a strength in R&D. However, in recent years, the German machine engineering industry could not escape recession. Between 1990 and 1993 the capacity utilization decreased from 92.9'/,,to 76.1% (VDMA, 1994, p 42). This is also due to the fact that, with market globalization, many firms are exposed to rising international competition. Constantly decreasing innovation cycles of products, the requirement of cost reduction, and the demand for increased flexibility are clear consequences. Above all, current assets are fixed to a high degree due to the organization of the production process. As a result, it appears that considerable savings may be realized by adopting ~JIT procurement. There is no exception for the consumer electronics industry from the tendency towards market internationalization and the merging of firms, i.e. organizational concentration. German firms offering consumer electronics are up against cost and innovation pressures from foreign firms,

Table 1

Method of data acquisition The poll was carried out by means of a standardized questionnaire, which consisted of four parts. A precis is given in Table2. The questionnaire contained mostly direct questions with tick-answers. The written form was chosen in order to collect the data as completely as possible. The questions were designed to obtain easily comparable and simply quantifiable answers. The questionnaire also excludes distortion in the results, e.g. through interviewer influence. The use of a standardized questionnaire was appropriate, because most questions were directed at simple characteristics specific to firms and facts easy to understand. Before mailing the questionnaire, interviews with experts, ually managers of purchasing departments, were conducted.

Respondents according to the industry and the firm's size

Small firms Large firms

148

who are able to offer low prices due to low wages and who have already edged a lot of German producers out of the market. The price competition is aggravated by the fact that most markets seem to be satisfied. Thus German producers are obliged on the one hand to increase investment in R&D activities and on the other hand to reduce the production cost. To succeed, the firms are anxious to orientate themselves towards the market needs. This is realizable by JIT procurement being highly flexible and, in the ideal case, not needing any stores, simultaneously providing high quality at a low cost level. The parent population of the study was determined through the address lists of the German Chamber of Commerce. On account of the large number of firms in the chemical industry (3138 firms) and in the mechanical engineering sector (6365 firms), the study limited these numbers according to staff size. Only those firms in the chemical industry with more than 100 employees and firms in the mechanical engineering sector with more than 500 employees were taken into consideration. In the consumer electronics industry a complete-population survey was made. The number of firms actually taken into account were 653 chemical firms, 388 firms in the mechanical engineering sector, and 151 firms in the consumer electronics industry. The response rates measured 18% in the chemical industry, 15% in the mechanical engineering sector, and 7% in the consumer electronics industry. Table I shows the distributions of the responding firms according to the firms' size. The response rates do not allow statistical inference for significance. Nevertheless, the number of firms observed permits a distinct insight into the nature of JIT procurement and its applications. According to the responses, the degree of dissemination of JIT procurement in the three branches is: 26% in the chemical industry, 39°/,, in the mechanical engineering sector, and 70°/,, in the consumer electronics industry.

Number of employees < 1.000 > 1.000

Chemical industry 79% 21%

Meehaninal engineering sector 64% 36%

Consumer electronics industry 82% 18%

J I T procurement

Table 2 P a r t A:

P a r t B:

P a r t C:

P a r t D:

Precis of the mailed questionnaire General firm's data - Name - N u m b e r of employees - Cash flow p.a. - Business sections - JIT use (only for JIT users) Reasons and results - Date of J1T introduction - Tactical and strategic reasons - Selection criteria for JIT materials - Type of J1T materials - Extent of JIT procurement (percentage of ,liT materials) - N u m b e r of supplies - Cooperation with supplier - Rationalization effects on the supply side - Rationalization effetcs on the demand side - Overall success of JIT use - Further extension of JIT use (only for non-,liT users) - Reasons for non-JIT use - JIT use intended in future Personal data of the respondent - N a m e and m a n a g e m e n t position - Address for further information

After the questions were screened in the course of these interviews, in order to ensure the validity of the results, the questionnaire was mailed. Although the questionnaire was not directly addressed by names to special managers, the responses showed that the contacted persons were completely authorized to answer the questions. They were mostly members of the executive board of directors as well as head officers responsible for purchasing management and control.

Reasons for introducing JIT procurement Strategic reasons In the study, the reasons for using JIT procurement are split into two categories - - strategic reasons and tactical reasons. The main strategic reason for introducing JIT procurement, whichever branch is considered, is the pursuit of cost leadership (see Table 3). In contrast, only 9"/,, of the respondents in the mechanical engineering sector mention the strategic objective of quality improvement, while there are 29% of the respondents in the chemical industry who are aiming at better quality. This may be because strong competition in the mechanical engineering sector caused considerable quality improvements in the past but, consequently, reduced the range for further improvements. Other strategic reasons for introducing JIT procurement are of minor interest. However, in the mechanical engineering sector as well as in the chemical industry nearly one third of the firms use the JIT concept as a

Table 3

reactive strategy in order to meet increased competitive pressure. Due to the small number of respondents to this question in the consumer electronics industry, a further differentiation of the reasons for introducing J1T, as well as a statistical evaluation of the answers to the other questions, were not recorded. Tactical reasons The tactical reasons for introducing JIT procurement should reflect the firms' strategic orientation. The decrease in inventory cost and the decrease in stock play an important role in using JIT procurement in all the observed industrial branches. Obviously, there is a close connection between both objectives. JIT procurement lowers storage utilization which, in the long term, leads to a reduction of storage capacities. Furthermore, less inventory causes a reduction of current assets. In the chemical industry the amount of inventory cost fundamentally depends on further factors. Because of the special characteristics of chemical materials (i,e. dangerous substances), storage involves a risk which has to be managed by investment in appropriate safety measures. This reason is explicitly mentioned by a quarter of the firms. In the mechanical engineering sector, the reduction of personnel costs also plays an important role for more than 50% of the firms. Obviously, this tactical reason for JIT introduction is closely correlated with the strategic cost orientation in this industry. The tactical reasons, above all, reflect a desire for rationalization. This coincides with the dominating strategic objective, but simultaneously means that not all opportunities in JIT procurement are being exploited. It is striking that only half of the JIT users in the chemical industry and in the mechanical engineering sector also intend the transfer of quality control to the suppliers. This is even less for the consumer electronics industry. The tactical reasons for JIT procurement and their importance are listed in Table 4. Period of &troduction The synchronization of procurement and production processes as a strategy for materials management has always existed. In the chemical industry, nearly a third of the firms introduced a synchronization strategy even before 1980. The earliest date mentioned was 1945. If the development since 1980 is considered, a permanent increase in the frequency of introduction can be stated. A growing relevance of this concept may also be expected for the coming years, if the firms' present plans for JIT use are taken into account. In the mechanical engineering sector JIT procurement was already practised in the middle of the 80s. However,

Main strategic reasons for the introduction of JIT procurement (several answers possible; further reasons not listed)

Cost leadership Quality i m p r o v e m e n t

Mechanical 86% 9%

engineering sector

Chemical industry 71% 29%

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Table 4

Maintactical reasonsfor the introductionof JIT procurement(severalanswerspossible) Mechanical engineering sector

Chemical industry

86% 86% 55% 46% 41% 46%

95% 71% 24% 52% 48% 33%

46% 23% 5%

29% 24% 24%

Cost reasons

Decreaseof inventorycosts Stock reduction Decreaseof personnelcost Transferof qualitycontrol Improvementof servicedegree Flexibilitywith regardto demand fluctuations Qualitative reasons

Higherscheduleeffectiveness Exchangeof know-howwith suppliers Further aspects (e.g. technicalrequirements) two thirds of the responding firms have been using the concept since 1990. This development is similar in the consumer electronics industry. Parts selected

Another important criterion for selection is the reorder cycle of materials. In principle, long reorder cycles prevent the firms from making a quick reaction to changes in demand. JIT procurement is hardly considered under these circumstances. The reorder cycle is of relevance especially in the chemical industry. Germany is characterized by its shortage of raw materials, A large number of raw materials have to be imported from other countries. Out of this, further risks have to be taken into account, such as the transport risk and the risk of political disturbances in the country of origin. As compared with the chemical industry, the supplier firms in the mechanical engineering sector are not widely spread, i.e. the reorder cycle remains less relevant. Each third firm also quoted existing inventory restrictions as a selection criterion for JIT adoption. The number of firms ordering JIT parts according to the parts quality (about 18% in the mechanical engineering sector and 25% in the chemical industry) is quite remarkable. In the mechanical engineering sector, perishable goods are identified (e.g. those which are not rustproof) whereas the respective chemical goods are mostly specified as dangerous goods.

for JIT procurement

Criteria for selection

A necessary requirement for introducing JIT procurement is a detailed analysis and evaluation of the parts in question. Multiple criteria for selection have to be considered. The criteria mentioned in Table 5 appear to be of high relevance, independent of industry sector. Above all, regularly supplied goods with high usage are suited for JIT procurement. Two out of three firms emphasize the importance of regular usage. This corresponds with the results of the interviews that the accuracy to forecast the demand is of particular relevance in the case of JIT procurement. If the material demand can be calculated exactly and on time, the supplier as well as the customer are.given enough lead time to order. More than half the firms, however, also stress the importance of the materials usage (in money terms). Class A materials (high usage) are procured just in time to a much higher extent than class B materials (medium) and class C materials (low). On an average 72% of all class A materials in the chemical industry are supplied just in time. For class B materials and class C materials the benchmark figures are 43% and 40%, respectively. In the mechanical engineering industry the figures are considerably smaller, i.e. 33% and 11% and 9%, respectively. Apart from the peculiarities of chemical materials, the organization of production in both industries is a further factor explaining these differences. While singleitem or job shop production is mainly practised in the mechanical engineering industry, mass and flow shop production dominates in the chemical industry. This means that the rationalization effect striven for, especially for class A materials, is not as high in the mechanical engineering industry as in the chemical industry. Table 5

ABC and XYZ analyzes are mainly used when determining suitable parts for JIT procurement. Two out of three firms apply an ABC analysis to select appropriate parts for JIT procurement. More than half the firms combine this method with an XYZ analysis, i.e. a classification of materials according to the regularity of usage (class X materials: regular usage, class Y materials: fluctuating usage, class Z materials: sporadic usage). If this is compared with the frequency of mentioning regular usage as a selection criterion (see Table 5), there seems to be an inconsistency at first glance: the relevance of an XYZ analysis does not seem to match the importance of the corresponding selection criterion. However, an XYZ analysis can also be used in combination with other

Selectioncriteriafor goods of J1Tprocurement(severalanswers possible)

Usage in moneyterms Regular usage Reordercycle Inventoryrestrictions Characteristicsof materials 150

Selection methods

Mechanical engineering sector

59% 68% 27% 36% 18%

Chemical industry

50% 68%

46% 39% 25%

JIT procurement analyzes, such as the reorder cycle, size of inventory, and special characteristics of the materials. On the other hand, the results suggest that an ABC analysis is not suited as an independent selection method. Only in about 10% of the cases an ABC analysis is chosen as unique selection method. For chemicals the general characteristics (liquids) and the safety requirements are far more important than the materials usage. For the mechanical engineering sector, an ABC analysis seems to offer problems when there are only small differences in the value of the materials. Products, such as gears, drives, or compressors, only need a few basic materials such as iron and steel. These materials cannot be classified according to their usage in money terms, but at best according to the structure of use.

that this principle works at all. The answers to the corresponding question show that suppliers were already responsible for perfect quality before JIT procurement was introduced. However, there exist other firms where the consumer still has quality control. There are several reasons for this. In some firms, after having shortly introduced .liT procurement, the transfer of quality control to the supplier was not completely carried out. It is, however, still sought. Furthermore, the products of the pharmaceutical industry are characterized by extreme quality requirements of clients and legislator (Rigoni et al, 1985). Because the customer is legally responsible for quality control, it appears that a complete delegation of this task is not possible.

Cooperation with the suppliers

The intensity of cooperation between supplier and customer may proceed in four steps (Wildemann, 1990, p 170). Sporadic purchase (step 1) may become regular purchase, however not yet synonymous with close cooperation (step 2). Long-term basic contracts and standardized order forms, e.g. such as call-off orders, define step 3. Most farreaching cooperation also includes joint research and development, cost analysis and logistics (step 4). The realization of steps 1 and 2 within JIT procurement can nearly be taken for granted in the considered industries. Basic contracts (step 3) exist in 86% (mechanical engineering sector) and 73% (chemical industry), respectively. The purchase order procedure in the chemical industry has been standardized to almost the same extent. In the mechanical engineering sector the standardized order is not of the same importance, even if each second firm already decided on this kind of cooperation. One reason is apparently the different production structure. Due to special customer demands, the mechanical engineering industry requires individual order procedures. Furthermore, for just a small percentage of the firms in both industries, call-off orders are important. Step 3 in the development of cooperation is executed, above all, for class A materials. The cooperation between supplier and customer, beyond direct supply contracts (step 4), concentrates on optimizing the logistics system as well as on joint R&D in all three sectors. The need for an optimal design of the logistics system results from the dislocation of production and supply industries in Germany and the high utilization of the traffic network. The transport of goods frequently becomes the bottleneck in the supply chain (Reese, 1994, p 3). The significance of joint R&D is of similar importance. It arises from the technical level in the mechanical engineering sector and the chemical industry in the Federal Republic of Germany. Both industrial sectors mainly produce highly developed complex goods, which require considerable development processes for the supplied parts. Therefore, the supplier's R&D activities are an immediate consequence of each buying-decision. A joint cost analysis offers the chance of finding out any inefficiency in the procurement process as well as

Number of suppliers When using the JIT principle, a transition from multisource to single- or dual-source procurement per material is recommended (e.g. Jalali et al, 1991, p 247). Increasingly, firms are convinced that a high degree of service should be achieved by a close partnership between customer and supplier. In a previous study it was stated that 29.5% of the contacted firms in the German chemical industry have no more than two suppliers for one product (Homburg, 1994). The advantage of a dual-source supply is that the orders can be split among the suppliers. According to Wildemann (1988, p 39), a 70:30% division of the orders should be chosen. Only the main supplier should be involved in the JIT procurement process. This avoids the customer's extreme dependence on only one supplier, so that the delivery can be guaranteed to a high degree. At the same time the customer's risk of being uncoupled from the technical development drops. The study indicates at least for the chemical and the consumer electronics industries, that the hypothesis of a dual-source supply is valid for goods supplied just in time, no matter if class A, B or C materials are considered. In the consumer electronics industry, most producers get their JIT parts from one to three suppliers. In the chemical industry things are more complicated; nearly two thirds of the firms have between one and five JIT suppliers for each material.

Tramfer of quality control Nearly 50% of firms mentioned the transfer of quality control to the supplier as a reason for introducing JIT procurement (see Table 4). Today, it appears that quality control is mainly carried out by the supplier (chemical industry: 68%, and mechanical engineering sector: 73%). In a further 15% of the cases, joint quality control exists, and in only 20'¼, is this task still carried out exclusively by the customer. This is surprising, since quality control within the supplier has been identified as a basic requirement for the success of JIT procurement (Frazier et al, 1988, p 5). Only the delivery of zero defective parts can guarantee

Forms of cooperation

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J Reese and R Geisel

getting more information about possible cost savings. However, this requires the parties' willingness to reveal the own operational cost. Obviously and above all in the chemical industry, there is a need for more cooperation with respect to the cost situation. Up to now, only one third of the firms practise a form of joint cost analysis. Table 6 summarizes the different types of cooperation between supplier and customer as well as the current realization given in percentages.

Effectiveness of JIT procurement Success potential." supply according to production The effects of JIT procurement can be viewed from two sides - - the supply side and the demand side. Results on the supply side can be measured in terms of quantity and cost. Fewer than half the respondents were able to state exact percentage changes in these factors since the introduction of this concept. This is surprising, since the majority of the firms choose JIT procurement in order to gain cost leadership. Table 7 shows the results on the supply side of the firm, which must be restricted to relative changes as compared with the original situation. The general tendency of effects does not differ between the mechanical engineering and chemical industries. However, in the mechanical engineering sector the effects are not always as pronounced as in the chemical industry. The percentage of respondents with a decrease of capital tie-up cost and inventory level is most striking. Obviously, the goals (see Table 4) were not reached in every case. As far as absolute savings were recorded, the decrease of capital tie-up cost and inventory level is about 25%, independent of the sector considered. Every JIT supply arrangement causes frequent deliveries in small quantities. In order to judge the effects, changes in order cost and cost of receiving goods can be analyzed. Order cost remained constant for two thirds in the mechanical engineering sector and for half of the firms in the chemical industry. On average, the order cost only increased by about 2% for those few respondents who recorded absolute data. Clearly, there are other parameters counteracting the increase in order cost caused by more frequent orders. One factor is that, as a consequence of long-term contracts, some components of the purchase cost have to be calculated only once during the whole supply period, e.g. the cost of supplier selection. Furthermore, cost related to the order monitoring process is reduced by standardization.

Table 6 Step 1 ~/

Step 4

152

There is a similar countertrend regarding the cost of receiving goods. It is true that this cost is increasing due to frequent supplies, but the receipt of goods is simplified since the supplied materials have neither to be repacked nor to be stored intermediately. Nearly a quarter of the firms did not recognize a change in this cost. Therefore only a small increase of about 3.5% on an average was measured. The management of inventory control has been simplified in most of the considered cases. This can mainly be explained by stock reductions. But small stock reductions do not have direct effects on the stock administration. Thus, e.g. in the mechanical engineering sector, the inventory management cost remained constant for those cases where the inventory reduction was not more than 5%. The introduction of JIT procurement generally does not effect the quality of supplied parts. In some cases, however, the transfer of quality control to the supplier seems to reduce the number of defective parts. Only a very small percentage of firms mentioned an increase in defective parts, simultaneously pointing to problems concerning the cooperation with the supplier. It appears that the reorder cycle of materials can be reduced by adopting JIT procurement. Since the supplied parts are also selected according to this criterion (Table 4), this effect is hardly surprising. It is mainly due to a simplified order procedure. Usually, the changes are between 10% and 30%.

Success potentiaL" production according to customer's orders The preceding chapter described JIT procurement as a concept demanding resources just in case they are needed, indicating primarily savings of supply related costs. If JIT procurement is considered within the scope of a comprehensive JIT concept, the objectives expand to an optimization of the whole material flow from the supplier to the customer. Above all, the flow times of individual market orders could be reduced and firms might react better to customer demands and market changes. If production to order is achieved, direct increase in the firm's competitiveness can result. Finally, the study has been extended towards the service degree, the reaction to-demand fluctuations, and the organization of internal work flow. The service degree describes the firm's potential to fulfil the customer's requirements concerning the time, reliability, flexibility, and quantity of delivery. Indeed, the

Forms of cooperation between supplier and customer Regular purchase Basic contract Standardized order Logistics Research and development Cost analysis

Mechanical engineering sector 76% 86% 50% 55% 45% 45%

Chemical industry 93% 73% 76% 57% 43% 33%

JIT procurement Table 7

Supply side effects of JIT procurement (percentage of respondents) Cost effects

Capital tie-up cost Inventory managemen~ cost Order cost Cost of receiving goods

Number of defective parts Inventory level Reorder cycle

Mechanical engineering sector increased decreased 0% 82% 5% 50% 18% 18% 17% 9% Further effects increased decreased 14% 18% 0% 73% 0% 55%

objective of an increase in service degree (Table 4) has been achieved (Table 8). On average, the positive change is 14%, in the chemical industry. Most of the analyzed firms, however, do not state a change. It is true that with JIT procurement the flow times of production orders are reduced, but the amount of final stocks is not influenced if the internal material flow is not organized according to the JIT principle. Concerning the firm's flexibility with regard to demand fluctuations, there are similar results. Flexibility here means the possibility of fast reactions to market changes. An improvement of flexibility can be stated for 41% (mechanical engineering sector) and 56%, (chemical industry) of the respondents, respectively (Table 8). In cases with no changes, it can be assumed that there is not yet any production according to the JIT concept. In many cases the whole material flow already runs just in time. If existing plans are taken into consideration it can be expected that in a few years, more than half of the firms will introduce a comprehensive JIT organization of the material flow. The service degree will then be automatically positively effected. However, up to 40% of the firms will in future not run the material flow just in time. The chemical industry has objections to a further dissemination of the JIT concept toward the production process, because the economic lot size of production cannot fall below a minimum value. JIT production requires that procurement and production times are shorter than the delivery time. This is exceptional for the chemical industry (Waters-Fuller, 1995, p 215). For example, in the pharmaceutical industry order and delivery time of goods are almost identical, so that a final stock will remain necessary.

Barriers to JIT procurement The dissemination of JIT procurement is between 26°/,, and 70% in the analyzed firms. As a result there remains

Table 8

Chemical industry increased 0% 9% 37 % 3%

decreased 87% 59% 16% 2%

increased 5% 5% 5%

decreased 43% 77% 57%

a considerable number of firms who up to now refuse to adopt the JIT principle and will apparently do so in future. A main argument is the unsuitable production structure (chemical industry: 58%, mechanical engineering sector: 82%), usually developed for made-to-order production. The reasons for not adopting the JIT concept due to procurement restrictions are manifold. In the chemical industry there is a wide range from long transport routes with corresponding procurement risks (36%) and a lack of the suppliers' willingness to deliver just in time (30%) (for the suppliers' scepticism see Helper, 1991, p 24) to the customers' worries of becoming dependent on suppliers (28%,). In the mechanical engineering sector another main reason against JIT is the lack of qualified personnel able to introduce this concept (29%). In total, the answers reveal that the coordination in the value chain often has to be improved. If this is done, the number of JIT users will grow further.

Summary and conclusions The analyzed firms judge the introduction of JIT procurement as a success. 85%, of the firms in the observed branches indicate that they have achieved their objectives. However, the positive effects still have to be recorded in many firms. Although the results seem unrepresentative, the study shows that cost reasons are the deciding factor for JIT use. It is evident that the majority of the firms are well aware of the quality effects of JIT procurement - - e.g. the improvement of product quality of supplied parts, the increase in service degree, and the quick response to fluctuation in demand. But the majority of firms do not appear to strive for strategic use of these characteristics of JIT procurement. Therefore it can be concluded that the success potential of this concept is not fully revealed.

Demand side effects of JIT procurement (percentage of respondents)

Service degree Flexibility with regard to demand fluctuations

Mechanical engineering sector increased decreased 36% 0%

Chemical industry increased 48%

decreased 4%

41%

56%

8%

0%

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