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Conversion to a just-in-time production system: structural considerations
111
CONVERSION TO A JUST-IN-TIME PRODUCTION SYSTEM: STRUCTURAL CONSIDERATIONS K. Fatehi-Sedeh’
The success of Japanese companies in world markets and their effectiveness in the production of high quality products at low prices has created substantial interest in Japanesemanagement techniques. “Quality circles” have been widely cited asone of the important reasons behind the Japaneseindustrial achievements. However, Schonberger has effectively argued that the “quality circles” are a by-product of Just-In-Time (J.I.T.) production management and total quality control (TQC).’ According to Schonberger,J.I.T. is simple; it requires little use of computers; and it can provide a very tight control on inventory. Additionally, J.I.T. leads to higher quality and productivity, by creating an accountability for results which leads to worker responsibility and commitment. Some companies in the United States have implemented J.I.T. with reasonablesuccess.But their successhas depended on making appropriate internal changesas well as modifying external relationships such as those with suppliers and vendors.This paper identifies the structural requirements of J.I.T. and the changes that could facilitate the implementation of the J.I.T. system in an organization. The first section explains the concept of J.I.T. production management. The second section analyzes the structural requirements of the system and the third section briefly identifies some behavioral issues.
‘Dr. Uoiversity
Press,
K. Patehi-Scdeh in Wichita, Kansas
2 Richard 1982.
J. Schonbcgrr.
is with
Jqmese
the
hbmgemcnt
Department
Mmufmtutiag
Techiqma
of
Wichita
New
York:
State
Free
112
1.
The Concept
of Just-Zn-Time
Production
Management
Planning and control of repetitive manufacturing in the United States is primarily done by lot. That is, repetitive manufacturers normally produce, in a single lot (or batch), a large enough quantity to satisfy projected demand over some period of time. The repetitive manufacturer,using the batch system, then tries to minimize the sum of the cost of setting up the production facility to produce the lot and the cost of holding any excess finished goods and raw materials in inventory. The setting-up cost is often quite high. For instance, an automotive assembly line is often shut down for a few weeks while making the change from one model to another. Since the set-up cost is the same whether the firm produces a large lot or a small lot, the cost per unit produced is lower when produced in large quantities. However, producing in large quantities requires storing some of the units in inventory until they can be sold. The major cost of holding units in inventory is that of capital. Simplistically, if the capital is not invested in inventory, it could be invested in something else and earn a return. This foregone return is the cost of capital and it will increase as inventory increases. The text book concepts of Economic Order Quantity (EOQ) and Economic Manufacturing Quantity (EMQ) provide formuli which can be used to minimize the sum of the set-up costs and of the holding costs. The use of these models in repetitive manufacturing is basically a compromise between two conflicting goals of minimizing set-up time and minimizing inventory costs as shown in Figure 1. The Just-In-Time (J.I.T.) production system deals with these
Et
Ihnufactutins
Repetitive
+
-
large
Lot8
Set-up
coats
Inventory
Mnlmire
Time
System
-c
Hanufactarin6
1
Uinimlre
Repetitive
FiBwe
KII
-T
i Trade
High
Inventory
Off
m
114 two costs in an entirely new fashion.3 Inventory holding costs are minimized by not holding any inventory - that is, by making each item as it is ordered or sold. Set-up costs are central to the theme of J.I.T. production. The entire J.I.T. production system is based on management’s direct, ongoing dedication to the reduction of set-up costs. The objective is to reduce set-up costs to the point where one unit of a particular model and style can be produced and sold at a profit. A more attainable intermediate goal is to produce in small, constantsized lots. For example, Kawasaki Heavy Industries of Japan and its subsidiary, Kawasaki Motors Corporation, U.S.A. use a lot-size of 200.4 As a result, Kawasaki should never have more than 200 units in inventory, while with batch production, tens of thousandsof units in inventory would be common. Thus, we come to the basic difference between batch production and the J.I.T. production system. The J.I.T. system has a stated objective (an organization goal) of reducing set-up costs to an absolute minimum. Since the major ingredient of set-up costs is labor costs, this objective can also be stated in terms of reducing set-up time.’ The capital equipment and manpower training (specialization) requirements for the J.I.T. production system are different from the requirements for a batch production system. With
3R. Schonber~r.
Ibid.
Control
4Robcrt inJepen,
W. Wail, American
Driuing tbe Production
A Case
‘Robert Study.
W. HaII, Transfewing American Reduction
Productiui~ and Inventory
Macbinc: Conttol,
Productiom June 1981.
Planning
and
Japenere Production Methods to tbe United States: and Inventory Control, Kawasaki U.S.A. 1982.
115
minimum or no inventory as a safety cushion, each unit of product must be made right the first time. Therefore, another goal of the J.I.T. production system is to attain the highest possible level of quality. 6 The last factor to consider in this broad description of the J.I.T. production system is the factor that Nellman and Smith suggested may be the root-cause of Japanese efficiency. This factor is a severeshortage of space.’ By reducing inventory, J.I.T. reduces the amount of space that must be reservedfor inventory. The J.I.T. system uses flexible manufacturing that combines small lots and frequent set-ups. However, machines are designed such that set-up time is very short and the cost of set-up is negligible, resulting in minimum inventory. The low or zero inventory leads to minimum need for industrial space.As shown in Figure 2, a combination of these factors culminates in low cost, high quality products. In order for the J.I.T. system to operate successfully, some type of simple but effective information processing system is needed. The Japanese manufacturers use a system called “kanban.” Kanban uses a rectangular plate, of about 4 by 8 inches in dimension, which contains information on the work station, the part name, order quantity, code number and destination. That plate controls the flow of information between work stations. Through kanban, each work station activates actual production of the parts it needs at the preceding work station. The preceding work station processesthe parts as required by %bid. ‘David tion/Inventory
Management,
0. Nellman and Leighton 1. Smith, “Just-In-Time System Concepts Borrowed Back from Japan,” Second Quarter, 1982, p. 12.
vs Just Production
in Case:
Produc
and hwntoy
116
Figure
Just-In-Time
2
Production
r
System
~linlmum
>
Space
=l Si-mrt Set-u;, -. . 1 lae
SW311 9
b
3)
Hlnimum
)
Inventory -
T
Lots
1
L Low
thximum Quality
Flexible llanufacturing i
i
L
costs
117
the subsequent station in the exact quantities neededat the exact time needed. In addition to the above inside-the-plant factors, the J.I.T. system requires stable and reliable suppliers who must synchronize their operations with that of the final assembly plant. How they do so is an issue that will be addressedlater in this paper. There are, in conclusion, five basic goals of a Just-In-Time production system: minimum inventory, maximum quality, maximum labor efficiency, maximum machine utilization, and minimum space. The method by which these five basic goals are attained in a J.I.T. system affects both the degreeof specialization of tasks and the pattern of interrelationships between the specializedjobs, especially at the levels of the production worker (or production work group) and lower management. The Just-In-Time production system broadens (enriches) the production worker’s daily job and, at the same time, requires the worker to be much more skillful at integrating his/her own tasks with the tasks of others. The production worker is thus required to make m.ore decisions regarding the quality of work. In Japan, production workers actually have the formal authority to shut down an entire assembly line when there is a problem with quality.’ Lower management is given much more responsibility for assuring that deliveries are made precisely on time and in exactly the right quantities. Other technological characteristics of the Just-In-Time production system are: the range of products made can vary widely on a daily basis; all possible attempts to standardize components
*Nelhnan
and Smith,
Ibid.
118
are made, and while there is little difference in the complexity of a single product, a day’s production is significantly more complex in J.I.T. than in batch production. Thus; there is a good deal more output variety on a daily basis in a Just-In-Time production system than in a batch production system. II.
Just-In-Time and Structural Properties
The structure of an organization can be viewed as the “skeletal” features upon which the flesh of organizational processes,groupings, and activities reside.9 Designing organizational structure involves the processof identifying and establishing those features that serve to control or distinguish the organization and its parts.’ O Some of the maj or concepts in the literature on organizational structure are formalization, specialization, hierarchy of authority, decentralization and span of control, establishing influence mechanisms (authority), specialization (grouping of tasks and departmentalization), and developing means of coordination of efforts. The last two concepts have been referred to as differentiation and integration by some scholars.In describing the structural properties of J.I.T., references will be made to these concepts. The Ability
to Deal with
Environmental
Uncertainty.
Most of the questions regarding the appropriatenessof structural design for an organization are answered within the limits created by environmental uncertainties. The degree of environmental uncertainties dictates the structural properties most
Illinois:
9Elma H. Burack, The Dryden Press,
Or@mtion 1975, p. 25.
Analy#is:
Porcmmn
%obcrt H. MlM acm Organisatkmal and Canpaoy, 1983, p. 1%
Tbeoty
JJebovior.
and
Application.
Glenview,
Himdale,
Illinios:
Scott
119
appropriate for an organization.’ ’ Successful organizations are able to adapt to environmental changesby formulating strategies and designing structures that would best fit a given environment. Environmental uncertainties are the result of interaction between certain environmental factors. There are four factors that determine environmental uncertainties for an organization. These factors are: (1) social, political, and economic pressuresexerted on an organization; (b) the degree of technological change in the industry; (c) the reliability of resourcesand suppliers and (d) the stability of demand for the organization’s product or services.” The degree of volatility of these factors and the interaction between them determine the amount of uncertainty an organization may encounter. Figure 3 depicts these four factors and illustrates how their interaction influences the organizational structure for a J.I.T. system. Two of these factors, technological changesand stability of demand for the organization’s products and services, are the same for J.I.T. and batch production. A technological break-through remains the same for both systems and the stability of demand is not affected by the production process. However, to create stability of demand for their products, Japanese car manufacturers, based on extensive consumer research, have offered products aimed at broad segments of the market. For example, Honda sells only thirty-two variations of its popular Accord, including colors. This gives Honda greater
11Toan Burns and G. M. Stalker, Tbu Manogemcnt Twistock, 1965. Chapter 5. 12 Chapter
Robert
9.
Krcitncr,
h&ma~mt.
Boston: Houghton
of I~nowtions
Mifflin
London:
Company,
1983.
120
L
-TJ
121
economies of scale in engineering, manufacturing and distribution.13 Consequently, they are able to profitably sell their products at prices below those of their competition while still offering superior quality on each model. There can be differences in the economic pressureswhich result from the organization’s choice between the J.I.T. and batch production system. Since in practice J.I.T. has been more efficient and therefore more profitable than the traditional batch system,’ 4 it would seem that the economic pressureexerted on the organization would be higher for a batch system and lower for a J.I.T. However, insofar as the organization is effective in the production of high quality-low price products, regardlessof the production methods employed, the economic pressure could also be consideredequally important for both systems of production. The main factor that differentiates the degree of environmental uncertainty between the batch and J.I.T. systems is the reliability of suppliers. The J.I.T. organization will tolerate much less environmental uncertainty in terms of the stability of suppliers than the batchoriented organization. Since the J.I.T. system holds a minimum of inventory, it is absolutely imperative that the suppliers be completely reliable. A great deal of time and money is therefore spent training suppliers to deliver exactly the quantity offered precisely when it is scheduled to be delivered. This need for close coordination with suppliers creates a demand for boundary spanning position. According to Thompson, as environmental uncertainty increases,the organization will more
Journal,
13John Koteo, “ Giving WidC Choices May Thursday, December 15.1983, p. 29. 14Richard
J. Schonberger.
Ibid.
Be Hurting
Auto
Makters.”
WuIJ Street
122
frequently utilize the services of boundary spanning positions such as purchasing agents, contract negotiators and the like. The individual in a boundary spanning position acts as a buffer between the organization and the environment to create more certainty.’ ’ This expected relationship appears in the Japanese companies using the J .I.T. system.’ 6 The Japanesemake more frequent use of the boundary spannersthan their American competitors. In fact, in most casesthe Japanesemanufacturers have considerable control over their suppliers. This influence and control is such that engineering and production aspects of the supplier are quite often influenced by the manufacturer.” In times of economic adversity, certain suppliers of parts and components (dependent suppliers) are used as a buffer. In these cases the manufacturer may terminate the use of dependent part suppliers and have its own employee do the work performed by the part’s supplier at the supplier’s plant or at its own facilities.’ 8 Differentiation
and Integration.
The structural variation that an organization assumesunder J.I.T. could also be clarified by applying the theory of differentiation and integration. ’ 9 Differentiation refers to the differences
15Jmncs
D. Thompson,
Orguniwtion
in Action.
New
York:
McGraw-Hill,
1967,
p. 20. 16 CatI Peg&, ment Subcontractors,” 1983, pp. 3-9.
“Criticrl Aspects of Japanese Component Suppliers Intamationd Journal of Production Management,
and EmployVol. 3, No. 1,
“Ibid. 181bid.
wood,
19 Paul Illinois:
R. Lawrence and Jay W. Lorsch, Richard D. Irwin, 1969.
Oqanisation
and Environment.
Home
123
in cognitive and emotional orientation of members of different departments, differences that are the consequencesof specialization. When organizations divide the decision-making authority among various levels and the tasks to be performed among taskspecialized units, different goal orientations are created for the members because of increased specialization. This adds to the amount of conflict present among the members. Differentiation is necessaryfor the purpose of efficiency and effectiveness, yet’ it can causeproblems. To solve the problems, organizations have to integrate differentiated activities and efforts. Integration refers to the quality of the state of collaboration and the techniques used by departments and members to resolve organizational conflicts. In other words, differentiation refers to those forces pushing various segments of the organization apart and integration refers to those that pull it together. In this regard there are two differences evident between J.I.T. and the batch system. First, there is less technical specialization and division of labor in a J.I.T. system than a batch system. There are, thus, fewer forces pushing the organization apart. There is also less departmentalization in a J.I.T. organization. Thus, it would seem that the J.I.T. organizations would be less differentiated and more integrated than the batch-oriented organizations. The quality of interaction achieved in an organization is directly influenced by the information processingcapacity of that organization. The kanban system seems to be a very simple but efficient information processingsystem that can efficiently handle the flow of information required for integration among various subunits of the fii.
124
According to Bums’ and Stalker’s” classification of organizations as mechanistic or organic, it would appear that the J.I.T. organization should tend to be more organic (flexible) than the batch-oriented organization (rigid). This would be causedby the J.I.T.‘s increased ability to respond to uncertainty and improved integration over the batch system. Decision Making Authority. The interaction among various levels of organization in a J.I.T. system is quite different from that of a batch system. This difference and the consequent structural outcome could be better explained by using decision-making theories. Decisions may be either standard (routine) or nonstandard (exceptions). Routine decisions may be covered by rules, programs or goals.*’ When a decision must be made, one should determine if there is a standard operating procedure (s.0.p.) to regulate that decision. If there is no s.o.p., the decision must be referred to higher levels of the organization where it can be handled. It is very important to realize that the daily variety encountered in and the amount of decision making authority given to the lower levels in J.I.T. is a “planned variety” that would reduce the amount of uncertainty and unpredictability that would otherwise be present in the upper levels of the organization structure. The upper levels of management should have to process fewer exceptions becausethe lowest levels of the organization cope with a large amount of variety on a daily basis, and, therefore, should be less likely to face a problem which is outside their daily experience.
*%m 21
Sons.
Burns
and G. M. Stalker,
J~IIICS Much md 1958. Chapter 6.
Herbert
Ibid Simon,
Orgabcrtions.
New
York:
John
Wiley
and
125
The Just-In-Time production system therefore provides almost a textbook example of an organization adopting Galbraith’s’ * last option - that of providing a broader perspective at a lower level and relaxing the standard operating procedures (s.o.p.) so that decisions can be made without being referred upward. There is one major difference however; the lower level that Galbraith was referring to was at the managerial level, while the Just-In-Time production system broadens the perspective of the people on the shop floor. J.I.T. accomplishes this broadened perspective by both direct contact between the people involved in the productive process and by the formation of work groups. Span of Control. Since the basic difference between J.I.T. and batch production at the upper and middle management levels is J.I.T.‘s reduced information processing needs, it follows that the J.I.T. system can allow a wider span of control at these levels than the batchoriented system. That is, in a J.I.T. system fewer upper-level managers can supervise more middle-level managers than is possible in a batch-oriented system. The reverse is true at the production and lowest management levels. Since the J.I.T. system requires more information processing on the shop floor, there must be a narrower span of control than is possible in the batch-oriented system. This problem is apparently alleviated somewhat in the J.I.T. system by more use of the production work group. Because of the narrower span of control, the lower management needs a broader information base. Hence, group decision making should be quite helpful to the J.I.T. organization at this level. This is actually the case. The shop
Interface,
22Jay Galbraith, May 1974, Vol.
“Orgaoization 4, pp. 28-36.
Design:
An
Information
Processiag
View,”
,
High
Uarrover
High
Wider
Low
Span
Span
of
of
Work
control
InformatIon
control
Group
nt
Lover
Decision-Flaking
the
Level
the
and
Hiddle
procesred at Management
at the Middle Hanagcment
at the tlanageaent
Level
Processed
Upper
Level
Level
Hanagement
Lover
Upper
Lou
Wider
Lou
thrrover
High
Lee*
lntcgratlon
Hore
BATCH SYSTBH
More
and
Structure:
PACTORS
System
Differentiation
Information
Table 1 Organizational V.I. Batch
ORGMIZATIOHAL
J.I.I.
In
Less
J.I.T.
.
Differences
The
of
of
Dacisiona
Decisions
Organlration
Degree
the
at
Functions Decisions
Hade
at
criteria is Structure,
not
that
monitor
Lower
Low
Low
LOW
Low
BATCH SY STEl4
and
Centralized
Planning Hanagment
Levels
Levels
baaed on Dale, Srnest, New York: American
the
Lower
Structure*
FACTORS
System
that Top Ilanageaent does Lower Level Declsfons
Ilade
ORGANIZATIONAL
Table 2 Ln Organizational J.I.T. v.a. Batch
Number of Different rely on Lower Level
Importance
Number
The
The
The
*Centralization-decentralization Developing the Company baociation. 1952.
Decentralized
Nigh
Nish
Niph
High
J.I.T.
Mffcrcnces
future state of organization and cover a large number of issuesand problems. As long as the organizational requirements and goals are accomplished, minimum interference is made by the higher level management in this process.The J.I.T. organization can therefore be referred to as more decentralized or less centralized than the batch-oriented organization.
III. Bebavioml Issues The structural arrangementof an organization is a framework within which people interact and engage in work activities. Various dimensions of organizational structure such as centralization, span of control and differentiation influence the behavior of people at work. Although each person is unique and therefore, each grouping or organization of people is unique, for the individuals and for groups the structural properties of the organization can make a difference in terms of work behavior and performance. Figure 4 shows how the J.I.T. production system which is based on small lots, frequent machine set-ups, a wide range of products and multi-skilled labor, affects job variety and job content at the level of the shop floor. To be noted is the fact that the increased variety, difficulty and complexity of jobs coupled with an improvement in the amount of autonomy offered a worker creates an environment that allows for the satisfaction of higher order needs. Another behavioral aspect of the J.I.T. system is the nature of role specificity. The J.I.T. production management,with its low level of specificity of role prescription, provides workers with more autonomy and discretion in performance of day-today tasks than the batch system. It involves “richer” jobs in the form of
129
x
130
more content as proposed by job-enrichment advocates. It also incorporates the reinforcement principles of immediate rewards and feedback.’ 4 Furthermore, there is fertile ground for a growth in feeling of responsibility and commitment becauseof the need to avoid errors and produce the right product the first time. This type of job design fits best in an organic structure. Hickson, in his review of the literature, shows that basedon the degree of role specificity, we can classify organizations into two categories.2’ The traditional, bureaucratic, mechanistic and authoritarian organizations are regarded as being high on specificity of role prescription, allowing the worker limited personal discretion and autonomy in task performance. Organic, flexible and participative organizations are consideredto have lower specificity of role prescription offering more autonomy. J.I.T. organizations could be regarded as belonging to the second category. Finally in evaluating the behavioral aspectsof J.I.T., account must be taken of the role of employees’ attitudes. The Just-InTime production system will not work without the highest level of quality of workmanship. If there is any significant incidence of product defects, then an inventory of safety stock must be maintained. Similarly, the J.I.T. production system will not work without the highest level of worker loyalty. The J.I.T. organization depends on its employees to help isolate and eliminate the sources of production problems and to complete the daily schedule regardlessof those problems if at all possible.26 Therefore,
24R. 25D. S&nceQna?teny.
J. Schon~r, J.
26Ndlman
Iii&on, Vol.
Ibid. “Convergence 11. No. 2, Sqxanber
and Smith.
Ibid.
in
Otgmizational 1966, p. 227.
Theory,”
Adminirinrtme
131
the J.I.T. organization must use every opportunity to improve its employees’ work-related attitudes. The J.I.T. organization must strive to maintain good employee relations to a significantly greater degreethan is true of batch production.
IV. Conclusion An organization attempting to employ the J.I.T. production system needs to make certain adjustments in its existing organizational structure and the resultant managerialpractices. The characteristic of J.I.T. which seems most important to organization design is the breadth of perspective neededon the shop floor. The production worker must be aware of how a particular task affects, and is affected by, the other operations in the production system. The required breadth of perspective is provided to a certain degree by using work groups and constant training. But management must look for additional ways of gaining breadth of perspective. One way in which the perspective of the production work group might be made broader and, therefore, the group itself be made more efficient is to add more flexibility into the operation. This could be done through a systematic rotation of production workers among various tasks. It could be done through the assignment of new duties beyond their present skills and normal responsibilities. An example of this process actually occurring was provided by an experience of the Kawasaki plant in Lincoln, Nebraska. The no-layoff policy of the Kawasaki plant combined with a soft market and high rate of productivity improvement resulted in excess labor. The excess workers were assigned to diverse new tasks such as building a storeroom, rebuilding a frame welding area for J.I.T. parts flow and attaching a
132
new J.I.T. oriented feeder line to one production line.27 The workers who had those opportunities to see the broader picture and to work on diverse tasks were later found to be more knowledeable, and consequently were able and inclined to offer quality suggestionsfor improving productivity.2 a The adoption of a J .I.T. production system cannot be regardedas a simple conversion from one method of operation to another method. It requires a rearrangement of the organization’s structural variables to accommodate the demands that J.I.T. puts on the organization. In this regard the modification of existing patterns of communication - to provide more information processing capacity - and decentralization of the decision-making process should be regarded as the first step. Subsequently, as the organization continues to use the J.I.T. system more changes will become necessary.But with an understanding of the nature of J.I.T. and with a continuous monitoring of the adaption process; the organization should be able to find the proper fit between its structural variables and internal operating system, and thereby successfully move from a mechanistic form toward the more advancedorganic type. That is the long run implication of adopting the J.I.T. system.
“Richard J. Schoobcrgcr. Approaches to U.S. Iodustty,” 1982. pp. 479-487.
Readiig,
‘The Transfer Acudemy of
2%. Ouchi, Tbmy Z: How Am&an Mass.: Addision-Wesley, 1981.
of Japaoese
hknufacturing Vol.
Management Rdew, Business
Can Meet
Managaneot 7, No. 3, July
tbr Japanese
Cbalknge.
CONVERSION TO A JUST-IN-TIME PRODUCTION SYSTEM: STRUCTURAL CONSIDERATIONS K. Fatehi-Sedeh’
The success of Japanese companies in world markets and their effectiveness in the production of high quality products at low prices has created substantial interest in Japanesemanagement techniques. “Quality circles” have been widely cited asone of the important reasons behind the Japaneseindustrial achievements. However, Schonberger has effectively argued that the “quality circles” are a by-product of Just-In-Time (J.I.T.) production management and total quality control (TQC).’ According to Schonberger,J.I.T. is simple; it requires little use of computers; and it can provide a very tight control on inventory. Additionally, J.I.T. leads to higher quality and productivity, by creating an accountability for results which leads to worker responsibility and commitment. Some companies in the United States have implemented J.I.T. with reasonablesuccess.But their successhas depended on making appropriate internal changesas well as modifying external relationships such as those with suppliers and vendors.This paper identifies the structural requirements of J.I.T. and the changes that could facilitate the implementation of the J.I.T. system in an organization. The first section explains the concept of J.I.T. production management. The second section analyzes the structural requirements of the system and the third section briefly identifies some behavioral issues.
‘Dr. Uoiversity
Press,
K. Patehi-Scdeh in Wichita, Kansas
2 Richard 1982.
J. Schonbcgrr.
is with
Jqmese
the
hbmgemcnt
Department
Mmufmtutiag
Techiqma
of
Wichita
New
York:
State
Free
112
1.
The Concept
of Just-Zn-Time
Production
Management
Planning and control of repetitive manufacturing in the United States is primarily done by lot. That is, repetitive manufacturers normally produce, in a single lot (or batch), a large enough quantity to satisfy projected demand over some period of time. The repetitive manufacturer,using the batch system, then tries to minimize the sum of the cost of setting up the production facility to produce the lot and the cost of holding any excess finished goods and raw materials in inventory. The setting-up cost is often quite high. For instance, an automotive assembly line is often shut down for a few weeks while making the change from one model to another. Since the set-up cost is the same whether the firm produces a large lot or a small lot, the cost per unit produced is lower when produced in large quantities. However, producing in large quantities requires storing some of the units in inventory until they can be sold. The major cost of holding units in inventory is that of capital. Simplistically, if the capital is not invested in inventory, it could be invested in something else and earn a return. This foregone return is the cost of capital and it will increase as inventory increases. The text book concepts of Economic Order Quantity (EOQ) and Economic Manufacturing Quantity (EMQ) provide formuli which can be used to minimize the sum of the set-up costs and of the holding costs. The use of these models in repetitive manufacturing is basically a compromise between two conflicting goals of minimizing set-up time and minimizing inventory costs as shown in Figure 1. The Just-In-Time (J.I.T.) production system deals with these
Et
Ihnufactutins
Repetitive
+
-
large
Lot8
Set-up
coats
Inventory
Mnlmire
Time
System
-c
Hanufactarin6
1
Uinimlre
Repetitive
FiBwe
KII
-T
i Trade
High
Inventory
Off
m
114 two costs in an entirely new fashion.3 Inventory holding costs are minimized by not holding any inventory - that is, by making each item as it is ordered or sold. Set-up costs are central to the theme of J.I.T. production. The entire J.I.T. production system is based on management’s direct, ongoing dedication to the reduction of set-up costs. The objective is to reduce set-up costs to the point where one unit of a particular model and style can be produced and sold at a profit. A more attainable intermediate goal is to produce in small, constantsized lots. For example, Kawasaki Heavy Industries of Japan and its subsidiary, Kawasaki Motors Corporation, U.S.A. use a lot-size of 200.4 As a result, Kawasaki should never have more than 200 units in inventory, while with batch production, tens of thousandsof units in inventory would be common. Thus, we come to the basic difference between batch production and the J.I.T. production system. The J.I.T. system has a stated objective (an organization goal) of reducing set-up costs to an absolute minimum. Since the major ingredient of set-up costs is labor costs, this objective can also be stated in terms of reducing set-up time.’ The capital equipment and manpower training (specialization) requirements for the J.I.T. production system are different from the requirements for a batch production system. With
3R. Schonber~r.
Ibid.
Control
4Robcrt inJepen,
W. Wail, American
Driuing tbe Production
A Case
‘Robert Study.
W. HaII, Transfewing American Reduction
Productiui~ and Inventory
Macbinc: Conttol,
Productiom June 1981.
Planning
and
Japenere Production Methods to tbe United States: and Inventory Control, Kawasaki U.S.A. 1982.
115
minimum or no inventory as a safety cushion, each unit of product must be made right the first time. Therefore, another goal of the J.I.T. production system is to attain the highest possible level of quality. 6 The last factor to consider in this broad description of the J.I.T. production system is the factor that Nellman and Smith suggested may be the root-cause of Japanese efficiency. This factor is a severeshortage of space.’ By reducing inventory, J.I.T. reduces the amount of space that must be reservedfor inventory. The J.I.T. system uses flexible manufacturing that combines small lots and frequent set-ups. However, machines are designed such that set-up time is very short and the cost of set-up is negligible, resulting in minimum inventory. The low or zero inventory leads to minimum need for industrial space.As shown in Figure 2, a combination of these factors culminates in low cost, high quality products. In order for the J.I.T. system to operate successfully, some type of simple but effective information processing system is needed. The Japanese manufacturers use a system called “kanban.” Kanban uses a rectangular plate, of about 4 by 8 inches in dimension, which contains information on the work station, the part name, order quantity, code number and destination. That plate controls the flow of information between work stations. Through kanban, each work station activates actual production of the parts it needs at the preceding work station. The preceding work station processesthe parts as required by %bid. ‘David tion/Inventory
Management,
0. Nellman and Leighton 1. Smith, “Just-In-Time System Concepts Borrowed Back from Japan,” Second Quarter, 1982, p. 12.
vs Just Production
in Case:
Produc
and hwntoy
116
Figure
Just-In-Time
2
Production
r
System
~linlmum
>
Space
=l Si-mrt Set-u;, -. . 1 lae
SW311 9
b
3)
Hlnimum
)
Inventory -
T
Lots
1
L Low
thximum Quality
Flexible llanufacturing i
i
L
costs
117
the subsequent station in the exact quantities neededat the exact time needed. In addition to the above inside-the-plant factors, the J.I.T. system requires stable and reliable suppliers who must synchronize their operations with that of the final assembly plant. How they do so is an issue that will be addressedlater in this paper. There are, in conclusion, five basic goals of a Just-In-Time production system: minimum inventory, maximum quality, maximum labor efficiency, maximum machine utilization, and minimum space. The method by which these five basic goals are attained in a J.I.T. system affects both the degreeof specialization of tasks and the pattern of interrelationships between the specializedjobs, especially at the levels of the production worker (or production work group) and lower management. The Just-In-Time production system broadens (enriches) the production worker’s daily job and, at the same time, requires the worker to be much more skillful at integrating his/her own tasks with the tasks of others. The production worker is thus required to make m.ore decisions regarding the quality of work. In Japan, production workers actually have the formal authority to shut down an entire assembly line when there is a problem with quality.’ Lower management is given much more responsibility for assuring that deliveries are made precisely on time and in exactly the right quantities. Other technological characteristics of the Just-In-Time production system are: the range of products made can vary widely on a daily basis; all possible attempts to standardize components
*Nelhnan
and Smith,
Ibid.
118
are made, and while there is little difference in the complexity of a single product, a day’s production is significantly more complex in J.I.T. than in batch production. Thus; there is a good deal more output variety on a daily basis in a Just-In-Time production system than in a batch production system. II.
Just-In-Time and Structural Properties
The structure of an organization can be viewed as the “skeletal” features upon which the flesh of organizational processes,groupings, and activities reside.9 Designing organizational structure involves the processof identifying and establishing those features that serve to control or distinguish the organization and its parts.’ O Some of the maj or concepts in the literature on organizational structure are formalization, specialization, hierarchy of authority, decentralization and span of control, establishing influence mechanisms (authority), specialization (grouping of tasks and departmentalization), and developing means of coordination of efforts. The last two concepts have been referred to as differentiation and integration by some scholars.In describing the structural properties of J.I.T., references will be made to these concepts. The Ability
to Deal with
Environmental
Uncertainty.
Most of the questions regarding the appropriatenessof structural design for an organization are answered within the limits created by environmental uncertainties. The degree of environmental uncertainties dictates the structural properties most
Illinois:
9Elma H. Burack, The Dryden Press,
Or@mtion 1975, p. 25.
Analy#is:
Porcmmn
%obcrt H. MlM acm Organisatkmal and Canpaoy, 1983, p. 1%
Tbeoty
JJebovior.
and
Application.
Glenview,
Himdale,
Illinios:
Scott
119
appropriate for an organization.’ ’ Successful organizations are able to adapt to environmental changesby formulating strategies and designing structures that would best fit a given environment. Environmental uncertainties are the result of interaction between certain environmental factors. There are four factors that determine environmental uncertainties for an organization. These factors are: (1) social, political, and economic pressuresexerted on an organization; (b) the degree of technological change in the industry; (c) the reliability of resourcesand suppliers and (d) the stability of demand for the organization’s product or services.” The degree of volatility of these factors and the interaction between them determine the amount of uncertainty an organization may encounter. Figure 3 depicts these four factors and illustrates how their interaction influences the organizational structure for a J.I.T. system. Two of these factors, technological changesand stability of demand for the organization’s products and services, are the same for J.I.T. and batch production. A technological break-through remains the same for both systems and the stability of demand is not affected by the production process. However, to create stability of demand for their products, Japanese car manufacturers, based on extensive consumer research, have offered products aimed at broad segments of the market. For example, Honda sells only thirty-two variations of its popular Accord, including colors. This gives Honda greater
11Toan Burns and G. M. Stalker, Tbu Manogemcnt Twistock, 1965. Chapter 5. 12 Chapter
Robert
9.
Krcitncr,
h&ma~mt.
Boston: Houghton
of I~nowtions
Mifflin
London:
Company,
1983.
120
L
-TJ
121
economies of scale in engineering, manufacturing and distribution.13 Consequently, they are able to profitably sell their products at prices below those of their competition while still offering superior quality on each model. There can be differences in the economic pressureswhich result from the organization’s choice between the J.I.T. and batch production system. Since in practice J.I.T. has been more efficient and therefore more profitable than the traditional batch system,’ 4 it would seem that the economic pressureexerted on the organization would be higher for a batch system and lower for a J.I.T. However, insofar as the organization is effective in the production of high quality-low price products, regardlessof the production methods employed, the economic pressure could also be consideredequally important for both systems of production. The main factor that differentiates the degree of environmental uncertainty between the batch and J.I.T. systems is the reliability of suppliers. The J.I.T. organization will tolerate much less environmental uncertainty in terms of the stability of suppliers than the batchoriented organization. Since the J.I.T. system holds a minimum of inventory, it is absolutely imperative that the suppliers be completely reliable. A great deal of time and money is therefore spent training suppliers to deliver exactly the quantity offered precisely when it is scheduled to be delivered. This need for close coordination with suppliers creates a demand for boundary spanning position. According to Thompson, as environmental uncertainty increases,the organization will more
Journal,
13John Koteo, “ Giving WidC Choices May Thursday, December 15.1983, p. 29. 14Richard
J. Schonberger.
Ibid.
Be Hurting
Auto
Makters.”
WuIJ Street
122
frequently utilize the services of boundary spanning positions such as purchasing agents, contract negotiators and the like. The individual in a boundary spanning position acts as a buffer between the organization and the environment to create more certainty.’ ’ This expected relationship appears in the Japanese companies using the J .I.T. system.’ 6 The Japanesemake more frequent use of the boundary spannersthan their American competitors. In fact, in most casesthe Japanesemanufacturers have considerable control over their suppliers. This influence and control is such that engineering and production aspects of the supplier are quite often influenced by the manufacturer.” In times of economic adversity, certain suppliers of parts and components (dependent suppliers) are used as a buffer. In these cases the manufacturer may terminate the use of dependent part suppliers and have its own employee do the work performed by the part’s supplier at the supplier’s plant or at its own facilities.’ 8 Differentiation
and Integration.
The structural variation that an organization assumesunder J.I.T. could also be clarified by applying the theory of differentiation and integration. ’ 9 Differentiation refers to the differences
15Jmncs
D. Thompson,
Orguniwtion
in Action.
New
York:
McGraw-Hill,
1967,
p. 20. 16 CatI Peg&, ment Subcontractors,” 1983, pp. 3-9.
“Criticrl Aspects of Japanese Component Suppliers Intamationd Journal of Production Management,
and EmployVol. 3, No. 1,
“Ibid. 181bid.
wood,
19 Paul Illinois:
R. Lawrence and Jay W. Lorsch, Richard D. Irwin, 1969.
Oqanisation
and Environment.
Home
123
in cognitive and emotional orientation of members of different departments, differences that are the consequencesof specialization. When organizations divide the decision-making authority among various levels and the tasks to be performed among taskspecialized units, different goal orientations are created for the members because of increased specialization. This adds to the amount of conflict present among the members. Differentiation is necessaryfor the purpose of efficiency and effectiveness, yet’ it can causeproblems. To solve the problems, organizations have to integrate differentiated activities and efforts. Integration refers to the quality of the state of collaboration and the techniques used by departments and members to resolve organizational conflicts. In other words, differentiation refers to those forces pushing various segments of the organization apart and integration refers to those that pull it together. In this regard there are two differences evident between J.I.T. and the batch system. First, there is less technical specialization and division of labor in a J.I.T. system than a batch system. There are, thus, fewer forces pushing the organization apart. There is also less departmentalization in a J.I.T. organization. Thus, it would seem that the J.I.T. organizations would be less differentiated and more integrated than the batch-oriented organizations. The quality of interaction achieved in an organization is directly influenced by the information processingcapacity of that organization. The kanban system seems to be a very simple but efficient information processingsystem that can efficiently handle the flow of information required for integration among various subunits of the fii.
124
According to Bums’ and Stalker’s” classification of organizations as mechanistic or organic, it would appear that the J.I.T. organization should tend to be more organic (flexible) than the batch-oriented organization (rigid). This would be causedby the J.I.T.‘s increased ability to respond to uncertainty and improved integration over the batch system. Decision Making Authority. The interaction among various levels of organization in a J.I.T. system is quite different from that of a batch system. This difference and the consequent structural outcome could be better explained by using decision-making theories. Decisions may be either standard (routine) or nonstandard (exceptions). Routine decisions may be covered by rules, programs or goals.*’ When a decision must be made, one should determine if there is a standard operating procedure (s.0.p.) to regulate that decision. If there is no s.o.p., the decision must be referred to higher levels of the organization where it can be handled. It is very important to realize that the daily variety encountered in and the amount of decision making authority given to the lower levels in J.I.T. is a “planned variety” that would reduce the amount of uncertainty and unpredictability that would otherwise be present in the upper levels of the organization structure. The upper levels of management should have to process fewer exceptions becausethe lowest levels of the organization cope with a large amount of variety on a daily basis, and, therefore, should be less likely to face a problem which is outside their daily experience.
*%m 21
Sons.
Burns
and G. M. Stalker,
J~IIICS Much md 1958. Chapter 6.
Herbert
Ibid Simon,
Orgabcrtions.
New
York:
John
Wiley
and
125
The Just-In-Time production system therefore provides almost a textbook example of an organization adopting Galbraith’s’ * last option - that of providing a broader perspective at a lower level and relaxing the standard operating procedures (s.o.p.) so that decisions can be made without being referred upward. There is one major difference however; the lower level that Galbraith was referring to was at the managerial level, while the Just-In-Time production system broadens the perspective of the people on the shop floor. J.I.T. accomplishes this broadened perspective by both direct contact between the people involved in the productive process and by the formation of work groups. Span of Control. Since the basic difference between J.I.T. and batch production at the upper and middle management levels is J.I.T.‘s reduced information processing needs, it follows that the J.I.T. system can allow a wider span of control at these levels than the batchoriented system. That is, in a J.I.T. system fewer upper-level managers can supervise more middle-level managers than is possible in a batch-oriented system. The reverse is true at the production and lowest management levels. Since the J.I.T. system requires more information processing on the shop floor, there must be a narrower span of control than is possible in the batch-oriented system. This problem is apparently alleviated somewhat in the J.I.T. system by more use of the production work group. Because of the narrower span of control, the lower management needs a broader information base. Hence, group decision making should be quite helpful to the J.I.T. organization at this level. This is actually the case. The shop
Interface,
22Jay Galbraith, May 1974, Vol.
“Orgaoization 4, pp. 28-36.
Design:
An
Information
Processiag
View,”
,
High
Uarrover
High
Wider
Low
Span
Span
of
of
Work
control
InformatIon
control
Group
nt
Lover
Decision-Flaking
the
Level
the
and
Hiddle
procesred at Management
at the Middle Hanagcment
at the tlanageaent
Level
Processed
Upper
Level
Level
Hanagement
Lover
Upper
Lou
Wider
Lou
thrrover
High
Lee*
lntcgratlon
Hore
BATCH SYSTBH
More
and
Structure:
PACTORS
System
Differentiation
Information
Table 1 Organizational V.I. Batch
ORGMIZATIOHAL
J.I.I.
In
Less
J.I.T.
.
Differences
The
of
of
Dacisiona
Decisions
Organlration
Degree
the
at
Functions Decisions
Hade
at
criteria is Structure,
not
that
monitor
Lower
Low
Low
LOW
Low
BATCH SY STEl4
and
Centralized
Planning Hanagment
Levels
Levels
baaed on Dale, Srnest, New York: American
the
Lower
Structure*
FACTORS
System
that Top Ilanageaent does Lower Level Declsfons
Ilade
ORGANIZATIONAL
Table 2 Ln Organizational J.I.T. v.a. Batch
Number of Different rely on Lower Level
Importance
Number
The
The
The
*Centralization-decentralization Developing the Company baociation. 1952.
Decentralized
Nigh
Nish
Niph
High
J.I.T.
Mffcrcnces
future state of organization and cover a large number of issuesand problems. As long as the organizational requirements and goals are accomplished, minimum interference is made by the higher level management in this process.The J.I.T. organization can therefore be referred to as more decentralized or less centralized than the batch-oriented organization.
III. Bebavioml Issues The structural arrangementof an organization is a framework within which people interact and engage in work activities. Various dimensions of organizational structure such as centralization, span of control and differentiation influence the behavior of people at work. Although each person is unique and therefore, each grouping or organization of people is unique, for the individuals and for groups the structural properties of the organization can make a difference in terms of work behavior and performance. Figure 4 shows how the J.I.T. production system which is based on small lots, frequent machine set-ups, a wide range of products and multi-skilled labor, affects job variety and job content at the level of the shop floor. To be noted is the fact that the increased variety, difficulty and complexity of jobs coupled with an improvement in the amount of autonomy offered a worker creates an environment that allows for the satisfaction of higher order needs. Another behavioral aspect of the J.I.T. system is the nature of role specificity. The J.I.T. production management,with its low level of specificity of role prescription, provides workers with more autonomy and discretion in performance of day-today tasks than the batch system. It involves “richer” jobs in the form of
129
x
130
more content as proposed by job-enrichment advocates. It also incorporates the reinforcement principles of immediate rewards and feedback.’ 4 Furthermore, there is fertile ground for a growth in feeling of responsibility and commitment becauseof the need to avoid errors and produce the right product the first time. This type of job design fits best in an organic structure. Hickson, in his review of the literature, shows that basedon the degree of role specificity, we can classify organizations into two categories.2’ The traditional, bureaucratic, mechanistic and authoritarian organizations are regarded as being high on specificity of role prescription, allowing the worker limited personal discretion and autonomy in task performance. Organic, flexible and participative organizations are consideredto have lower specificity of role prescription offering more autonomy. J.I.T. organizations could be regarded as belonging to the second category. Finally in evaluating the behavioral aspectsof J.I.T., account must be taken of the role of employees’ attitudes. The Just-InTime production system will not work without the highest level of quality of workmanship. If there is any significant incidence of product defects, then an inventory of safety stock must be maintained. Similarly, the J.I.T. production system will not work without the highest level of worker loyalty. The J.I.T. organization depends on its employees to help isolate and eliminate the sources of production problems and to complete the daily schedule regardlessof those problems if at all possible.26 Therefore,
24R. 25D. S&nceQna?teny.
J. Schon~r, J.
26Ndlman
Iii&on, Vol.
Ibid. “Convergence 11. No. 2, Sqxanber
and Smith.
Ibid.
in
Otgmizational 1966, p. 227.
Theory,”
Adminirinrtme
131
the J.I.T. organization must use every opportunity to improve its employees’ work-related attitudes. The J.I.T. organization must strive to maintain good employee relations to a significantly greater degreethan is true of batch production.
IV. Conclusion An organization attempting to employ the J.I.T. production system needs to make certain adjustments in its existing organizational structure and the resultant managerialpractices. The characteristic of J.I.T. which seems most important to organization design is the breadth of perspective neededon the shop floor. The production worker must be aware of how a particular task affects, and is affected by, the other operations in the production system. The required breadth of perspective is provided to a certain degree by using work groups and constant training. But management must look for additional ways of gaining breadth of perspective. One way in which the perspective of the production work group might be made broader and, therefore, the group itself be made more efficient is to add more flexibility into the operation. This could be done through a systematic rotation of production workers among various tasks. It could be done through the assignment of new duties beyond their present skills and normal responsibilities. An example of this process actually occurring was provided by an experience of the Kawasaki plant in Lincoln, Nebraska. The no-layoff policy of the Kawasaki plant combined with a soft market and high rate of productivity improvement resulted in excess labor. The excess workers were assigned to diverse new tasks such as building a storeroom, rebuilding a frame welding area for J.I.T. parts flow and attaching a
132
new J.I.T. oriented feeder line to one production line.27 The workers who had those opportunities to see the broader picture and to work on diverse tasks were later found to be more knowledeable, and consequently were able and inclined to offer quality suggestionsfor improving productivity.2 a The adoption of a J .I.T. production system cannot be regardedas a simple conversion from one method of operation to another method. It requires a rearrangement of the organization’s structural variables to accommodate the demands that J.I.T. puts on the organization. In this regard the modification of existing patterns of communication - to provide more information processing capacity - and decentralization of the decision-making process should be regarded as the first step. Subsequently, as the organization continues to use the J.I.T. system more changes will become necessary.But with an understanding of the nature of J.I.T. and with a continuous monitoring of the adaption process; the organization should be able to find the proper fit between its structural variables and internal operating system, and thereby successfully move from a mechanistic form toward the more advancedorganic type. That is the long run implication of adopting the J.I.T. system.
“Richard J. Schoobcrgcr. Approaches to U.S. Iodustty,” 1982. pp. 479-487.
Readiig,
‘The Transfer Acudemy of
2%. Ouchi, Tbmy Z: How Am&an Mass.: Addision-Wesley, 1981.
of Japaoese
hknufacturing Vol.
Management Rdew, Business
Can Meet
Managaneot 7, No. 3, July
tbr Japanese
Cbalknge.