How a leading heavy industries co., ltd in Korea implements JIT philosophy to its operations

Pergamon

0360-8352(94)OOl12-X

Computers ind. Engn8 Vol. 27, Nos 1--4, pp. 5-9, 1994 Elsevier Science Ltd. Printed in Great Britain

How a Leading Heavy Industries Co., Ltd in Korea Implements JIT Philosophy to its Operations gang

Duk

Su

Cheju National University. 690-756

Cheju, Cheju-Do, Korea

In today's economic environment, Korean corollaries are confronted with fierce competition both ckmesttc and offshore, in terms of quality and price. Industrialized countries like U.S.A., EC and Japan demand the Korean market be opened with high quality products, while developing countries like China, Thailand and Malaysia compete with Korea with Icae-quality, loe-prleed products. This a r t i c l e is to decrlbe how a leading heavy industries co., ltd. in Korea has applied JIT philosophy to i t s operations to gain competitiveness in domestic and international markets, while improving manufacturing lead times, productivity, quality, setup reduction, space reduction, inventory reductions and purchase price reductions,

mdmti0n I Many kinds(chemlcal, oll, gas, metal, heavy industry, etc) of large and medium sized companies in Korea implemented JIT philov, ophy to their operations to achieve tangible and short-term benefits such as lead time reduction, setup reduction, space reduction, etc s a w ell as less tangible and strategic benefits such as oompetltlveness in domestic and offshore markets, as many companies of industrtailed countries have adopted JIT[I,2]. Many western companies failed to understand the philosophy and considerable e f f o r t s required for a successful implementation. JIT could become established in the Japanese unique history and culture. Some U.S. manufaseturers are discarding billions of dollars of inveataent($ 800 billion in capital investment and $150 billion in worker training) they made in the 1980's to adopted the Japanese manufacturing ideas. Nearly 10 years after rushing to copy the Japanese, many U.S. companies have failed to dupIicute, let alone surpass, teir efficiency, The Americans were hampered by cultural differences and, they acknowledge, by misapplication of what they show in Japanese plants[3,4]. Similarly, many Korean oompanles find some difficulties in understanding and implementing JIT to their operations for restoring manufacturing competitiveness. a good example may be the case of Hyundai Motor Company, Ltd. last year. Because fleroe labour strike ocoured in a supplier co~Id'nt operate its factory and

supply parts and components. The strike had severe impact on the first 460 suppliers and the second 1400 suppliers subsequently. The llvundai could'nt operate its factory for months, either last year. The strike caused the Ityundai and Korean economy tremendos amount of loss. In other words, JIT didn't work in the Hyundai case. Ik~ause in the Korean and Japanese culture has been influenced by Confucianism very much, thwre are many similarities between them. However, there is still cultural differences between the both countries even though not as much as between Japan and i~stern countries. Therefore, Korean managers should overcome those cultural differences to recognize the philosophy fully. Toyota manufacturing philosophy(JIT) could send out roots and begin to grow in the Japanese unique history and culture. And all JIT calls for corporations to have certain level of financial capabilities to implement the system continually in a long period of time. Shonberger emphasize that JIT does not enormous amount of money for new, automated factory in his book, World Class Manufacturing[5]. However i t is evident that i t is needed to have at least a certain level of capital expenditure to maintain JIT environment as Zipkin i n s i s t s that corporations can enjoy the full benefits of JIT only with ample capacity levels[6]. Management also needs to he patient to gain long-term competitive advantages from JIT because JIT i t s e l f is a continuous improvement philosophy. This paper discusses the success factor for JIT and the payhack from JIT which are encountered in a specipic circumstances such as when a leading Korean heavy industries company try to apply JIT to i t s operations. JIT Philosophy Just-in-time(JIT) is defined differently according to people's perspectives. Some business people feel it is an approach; to others it is a methodology; and to others it is a philosophy, concept, or strategy. JIT is all these things and more. JIT is i n i t i a l l y considered as an approach to inventory management or quality control. The nature of JIT, can not be considered a limited inventory or quality control approach, but a multitude of approaches with applications throughout the business organization. JIT is not just for a couple of departments in an organization, it is for all departments in all types of organization. [7]

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Selected papers from the 16th Annual Conference on Computers and Industrial Engineering In other words JIT is an operation philosophy and operation strategy, not a system. JIT is based on eight key principles: [7, 8] [] A stockless production manufacturing approach [] Not a destination but a journey ,~ Reducing inventory, control Iing cost

improving

quality,

and

A concept where the primary goal is to have only the lowest necessary level of material arrive at the plant or to be made within the plant exactly when it is ready to be used. [] An opportunity for change and change

not a

threat

to

[] Seek unitary production [] Respect people [] Maintain long-term emphasis While Kanhan is a thoroughly Japanese ~rd(meaning 'card' acre l i t e r a l l y , ' v i s i b l e c a r d ' ) , just-in-time is simply an English phrase that Japanese industry has adopted and that may not have a suitable Japanese equivalent. I t is hard to say when the term and the concept ~as used in Japan[9]. According to Toyota company ne~paper(1983), Mr. Kiichiro Toyota was the f i r s t man who used the term in his speech for ceremony for the completion of Toyota motor company which was established with the capital of $ 3.5 million in Nov. 3. 1938. The concept of the term, JIT by Mr. giichiro was not clear, but i t meant the s p i r i t of creation, challenge and courage at that time[lO]. The Toyota company managed by Mr. Kiichiro made a rapid progress. The Toyota expanded production capacity to make 2000 cars a month in 1939. After World War II, Toyota produced its first small model car. However, because of unstable Japanese society, skyrocketing price hike, declining consumers' purchasing po~er, Japanese auto industries were paralyzed and Toyota's financial structure became worse. Toyota could not sell its cars, and a lot of cars were piled up mountain high in its yard. At last Toyota was in financial crisis in 1949. Toyota almost went bankrupy. Toyota could not pay the employees for three months. A violent labour strike took place in Toyota. Toyota learned several lessons during the labour strike: Once Toyota c a n ' t make p r o f i t , although union's demand is right and valid, the demand is meaningless at all. Toyota must not allow even the smallest waste in i t s operations for making p r o f i t . (~) Management and anion should help each other for the progress of the Toyota. Toyota can not make any progress without the promotion of employee's welfare and vice versa[5]. The world knows about just-in-time, because since the mid-1970s Mr. Taiichi Ohnc, a Toyota vice president of manufacturing, and several of Hr. Ohnc's collegues have been a r t i c u l a t e l y explaining the concept of the Toyota system in a series of articles, papers, and books[9]. Ohno incidentally stated the Toyota got the idea from U.S. supermankets[6]. The Toyota system evolved into the Just-ln-Time system.

There are several operational henlfits and some of the issues mmagers should be aware of when implementing a JIT as followe:[4] Operational benifits of JIT: ® Reduce space requirements. ® Reduce inventory investment in purchased parts, raw materials, work in process and finished goods. ® Reduce manufacturing lead times. ®Increase the productivity of direct labor employees, indirect support employees and clerical staff. ® Increase equipment utilization. ® Reduce paperwork and require only simple planning systems. ® Set valid p r i o r i t i e s for production scheduling. ® Encourage participation by the work force. ® Increase product quality. Some of the issues managers should be aware when implementing JIT: ® Require workers and f i r s t - l i n e supervisors to take r e s p o n s i b i l i t y for shop-floor production control and productivity improvements. ® Require an atmosphere of close cooperation and mutual t r u s t between the work force and management. ® Require daily production schedules that are v i r t u a l l y identical for extended periods. ® Require actual daily production to closely approximate the daily schedule. ® Cannot respond rapidly to changes in product design, product mix, or large demand volumes. ® Require a large number of production setups and frequent shll~ents of purchased items from suppliers. ® Require parts to be produced and meved in the smallest containers possible. ® Not well-suited for irregularly used parts or specially ordered products. ® May require layout changes. ® May require changes in reward systems. ® Require revision of purchase agreements as the number of suppliers shrinks. In t h e i r field suvvey for 33 companies in U.S.A., Im and Lee found out several major benefits of JIT. Both quality and inventory reduction are the most benefits of JIT; cost reduction and the cycle or through put time follow rhea. Other benefits are problem solving, enhancement of productivity, manufacturing f l e x i b i l i t y for f a s t response to ~ r k e t / customers, better control of engineering change, worker enhancement, si|plified scheduling, improved oo~unioation between operations, etc. Table 1 shows the specific benefits of JIT [11]. Table 1. Specific benefits of JIT Benefit

Number of organtsations a

Quality Inventory reduction Cost reduction Cycle reduction Problem solving

26 26 20 19 5

78.8 78.8 60.6 57.6 15.2

33 organisations in total. Lee pointed out specifically the potential benefits of Japanese manufacturing management technique for Korean manafacturlng firms such as improvements in quality,

Selected papers from the 16th Annual Conference on Computers and Industrial Engineering reduction in costs, increamd t ~ p u t and increased flexibility, improve raponsiveness, reducing product development time and improved capability to widen product range[ 12].

The Adoption of JIT in a Heavy Industries The company having 2400 employess, about 40 suppliers and about 500 stdx~ontractors supplying I00 kinds of parts and ccaponents and raw materials respectively for the company, and 0.43 billion dollars of total sales volume per year has started to implement JIT management innovation movement since January 1991 to adapt and respond to changing economic environment to gain competitiveness in domestic and offshore ma'kets. Figure 1 shous specific JIT implementation plan for the company. Important a c t i v i t i e s which the company has implemented for JIT are as fol lows : 1. A consultant frea Japan has visited and taught for 2 days for A factory in Changwon city and 1 day for a factory in Secul every month since January 1991. And Korean consultant also has guided the factory for 9 days every month since 1991. 2. S e l f - r e l i a n t improvement teams were organized to eradicate the i r r a t i o n a l i t i e s and wastes in the factories. A factory in Changuon c i t y and B factory in seoul has 24 teams and 17 teams respectively. Each teas should solve mere than at least 2 themes every month and present t h e i r case for the improvement a c t i v i t i e s . 3. In order to implement the JIT, the company's lecturer and consultants educate al I the employees JIT philosopy and how to fight against wastes. The company educate and produce shop floor leader and i t s oen consultant, teaching for 22,449 ~l. 4. In order to make the factory comfortable and safe, the company practiced so called 5S. The 5S's are: proper arrangement ( the Japanese term, s e l r i ), orderliness seit~m, cleanliness seiso, clean up seiketsa and discipline shitui~[7]. 5. Flexible work force a c t i v i t i e s enabled the company to reduce man lx~er by 272 persons through improving work method and layout. 6. The company developed i t s own unique Kanban for bolt and nut commonly used for NIP and defects zeroes. The unique Kanhan method ~ s introduced to other manufacturing companies in nation-wide IE contest in 1993. Many companies were very interested in the unique Kanban method. 7. The compeny reduced set-up times successfully for 62 cases. 3 teus have been organized for the improvement activities since August 1993. There are also about 300 QC circles in the company. 8. Realizing that the company and suppliers should he like brothers, the company has taught the suppliers about JIT philosophy since August 1993. 9. The company has achieved process rationalization through improving lay-out, reducing the length of the assembly line, establishing U-shaped line. The company has made improvements for I00 cases. 10. Because machine is one of three essential factors(man, machine, material), it influences absolutely productivity and quality. Therefore, the ecapany developed 'machine 5S movement'. I1. Establishing Nulti Skill School, the company enables every employee to be good at more than at least two kinds of s k i l l . Therefore, 94% of the employees have more than 2 skills, 79% have more than 3 kinds of skills.

12. In order to spread the JIT philosophy, the c o m l ~ issues H-JIT News Letter once a month, and distributes it to the employees. The news letter contains JIT implementation c~ses and the implementation technique. There has been impressive payback frol JIT since 1991 in the company : manufacturing lead time reduced 40%, setup reduction 20%, space reduction 20%, productivity increase(direct) 40%, productivity increase(indirect) 10%, quality improvement 20%, finished goods 60%, purchase price reduction 5Z, work in process 20%, inventory reductions(ra~ materials) 50%, work force reduced 12%. Figure 2, 3, 4 shows the impressive performance. In a field survey of the Heavy Industries Co., Ltd, the factors mo~t commonly mentioned by the managers for the payback from JIT are as below(In decreasing order of ialxrtance) [13, 14]. Table 2. Factors critical to JIT success i. sustained senior management support. 2. thorot~h examination of company operations to asertains the applicability of JIT - e.g. formulation of a business plan based on clearly stated aims, objectives and strategies; analysis of why JIT is needed; 3. strong and committed JIT leader/coordl -nator; 4. employee involvement from the outset, including understanding the JIT philosophy, skills acquisition and training; 5. demonstrable benefits of JIT, which have reinforced management and employee ccamitment; 6. regular staff meetings, good commnication; 7. company-wlde implementation of JIT-i.e. extended beyond merely the manufacturing phase to supply and delivery; 8. readiness to seek external assistance - e.g. consultants to solve problems and to maintain program mementum; 9. pre-existence of a quality program; 10. engineers dedicated to achieving result; 11. implementation of JIT in conjunction with other techniques; 12. need to question and where necessary to move beyond traditional methods, and to he 13. identification of the level of customer service to he achieved. 14. conviction that the program will succeed and persistence in overcoming problems en route; JIT has proved to be an effective and efficient manufacturing management philosophy. The cempany has achieved various strategic advantages of JIT as mentioned above since it implemented the philosophy since 1991. However the company should maintain favorable labour relationship in the future. The ocapany should try to utilize the consulting effectively in order that the results fro= improvement should be related directly with profits of the company. The company need to help suppliers to make good quality parts and components. The company also need to maintain good relationship with suppliers like brothers, while providing them with investement for automation, computerizations, R & D, teaching JIT philosophy, and paying them quickly when the ~ p a n y pm~chases parts and components from the suppl lets. Large portion of payback from JIT will have to be reinvested for R & D, process innovation, suppliers, etc to make more profit by an increase in sales and

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Selected papers from the 16th Annual Conference on Computers and Industrial Engineering market share. And payback from JIT should he compatible with the company bonus system for the employees. Although the company has implemented JIT in a bundle, the company will need to implement JIT well suited for departments and products in the future. Finally, the company will have to avoid the factors mentioned below that might occur and lead to JIT failure in the future[14]. Factors that may lead to JIT failure : * lack of management oommlttment and focused leadership; * supplier difflcultles-e.g, poor quality, inability to comply with JIT delivery; * insufficient time and human resources to both implement JIT and meet production s~hedules; * other company d i f f i c u l t i e s - e.g. downturn in the market, financial problems, ownership changes; * the need to introduce T~ to complement JIT; * the deemed inappropriateness of JIT to company operet ions; * lack of perseverance, and the propensity to revert to traditional practices when difficulties Were encountered; * no-one appointed solely as JIT coordinator with no other responsibilities; * soepticlss by shop-floor workers; * reslstence to chnnge/reluctance to abandon traditional practices; * weakness exposed by JIT-e.g. lengthly set-ups, poor quality - not adequately addressed; * lack of practical assistance from consultants; * efforts not sufficiently focused-l.e, trying to achieve too many things at once. * superficial attempt to reorganize plant layout not matched by accompanying changes to manufacturing processes; * incompatibility of JIT ulth the coapany bonus system.

[7] Har~ J. SohueiderJans. Topics in Just-In-Time Management. 1993 by Allyn i Bacon. pp.4 - 13.

[8] William W. Luggen. Flexible Manufacturing Cells and System. 1991 by Prentice-Hall, Inc. pp.146 - 147. [9] Richard J. Schonherger.

Japanese Hansfacturing

Techniques. The Free Press. 1986. [10] Kin T m e - ~ . Just-In-Time Hanufacturing System 1990. Korean Standards Association. [II] Jan H. le, Sang H. Lee. "Implementation of Juat-In-Time Systems in U.s. Manufacturing Firms". International Journal of Operations & Prxxtuction Management. Vol. 9. No. 1. p p . 5 - 14. [12] Choong Y. Lee. '~rhe Adoption of Japanese Hanufacturing Management Techniques in Korea Hanufacturing Industry". International Journal of Operations & Production ~ m e n t . Vol. 12. No. 1. 1992. pp.66 - 81. [13] A r i k Sohal/Danny Samson "fhe adoption of advanced unufacturing technology and Japanese management practices in Auatriallan manufacturing Industry'. Proceedings of Pan-Pacific Conference vi. May, 1990. [14] Danny Snason. Fdmufacturlng and Operations strategy Prentice Hall of Australia Pry Ltd. 1991. pp.66

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i=ll~l Tne company's JIT implementation plan. Just In Time J

[1] II-woon KIn, Jin H. In, Jong-Dse Jin. "Comparative Study on manufacturing technologies in Korea, Ja[~m, and U.S.A " ~ i n g s of pan-Pacific Conference vL,

I I"inte l H I

II

May 1990 [2] Chung Myung Ho. "New PIxxluctlon Practices, Personnel Management, and Labour Relations In Korea Manufacturing Industries." Ph.D dissertation.

[3] Areal Kumar Naj. "Some U.S. manufactures abandon

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/To al

II othi

I

-~ weventlve H prodact ion ~-~assuranon ~-

i /"intena' ll

II

I l

I

Japanese ideas" Hay I0. 1993 Asian Wall Street Journal, [4] Lee J. KraJewskl/Lee P. Ritzman. Operations Management 2rid, 3rd edition, 1990, 1993. by Addison Wesley . pp.716 - 717. [5] Richard J. S'chonberger, World class Manufacturing: The Lessons of Simplicity Applied.

The Free Press

1982. [6] Paul H. Zipkln "Does Manufacturing revolution?" Harvard Business Review. Febusry 1991.

need a JIT January -

I

1

Practice of 5 S

I Reformation of way of thinking

I

"

Selected papers from the 16th Annual Conference on Computers and Industrial Engineering

Figure 3. Inventory Reduction Trends.

Figure 2. Productivity Improvement Trends

(Z)

185 180 )roductlon:(~------O 175 work f o r ~ : A • 170 168 155 150 145J 14G 135 13¢ 125 120 115

~

production(t) ~ork force (person) productivity ( 1.145/)@1)

Total inventory: ~

(l()

rawMteriml::

,,, it[

}

/~ NIP: O - - - - O • finished goods:&-~. ,&..

~it 1447. 78

115I

7C 87

887.

49

64 61 58 58 52

I00~

90 85 8O 75 70 65 60 55 SO 45 4O 38 3O year

1

productivity:it

II0 105 I00

95

9

917.

....t,•657.

s4z~

88z

46 43 40 37 34 31 28 25 22 19 16 90 0,24 bil

2,292

31.8

91

92

0.31 bil (128~)

0.34 bll (138~)

2,187(967.)

2,086(91~)

38.9(122Z)

93

0.28 bll (115g)

year

90

91

92

93

Total In~nto~(~y)

62

83(85~.)

41.5(87Z)

52(83.87.)

raw material (day)

12.8

7.1(557.)

7.3(57¢)

8.32(687-)

18.9

19(100~)

10.2(541) 7.9(42Z)

30.3

26.4(877.)

23.9(79~)

2,020(88~)

44.8(140"/.) 36.6(1447.) WIP (day) finished(day)goods

Fixture 4. Manufacturinglead~imes reduced 50~

35,7(1187.)

ThePayba¢kfrom JIT Productivityincreases (direct) 40~ Productivityincreases

Qualityinprovements 20~