JIT Manufacturing Commitments Increase Pressure on Suppliers
Suppliers are under continued pressure to reduce costs while delivering products to their OEM customers on time to fulfill their manufacturing deadlines. Just in Time (JIT) manufacturing has been a mainstay in the automobile industry, particularly in Japan, where it originated at Toyota. The JIT principle is to meet the immediate demands of customers, instead of building up and stocking inventory in anticipation of demand. This reduces the need for inventory, thereby reducing space requirements, wasted product, and wasted time manufacturing components that may never be used – all to save costs. Manufacturing Tomorrow defines JIT as “a manufacturer makes only what is needed, only when it is needed, and only in the amount needed.”
Because OEM customers, the purchasers, do not hold inventory of parts, they depend entirely upon the supplier’s ability to manufacture and deliver necessary parts as quickly as possible as they are needed.
While JIT manufacturing and purchasing may have cost and efficiency advantages, it doesn’t come without risks. One of the biggest issues with JIT is that the lack of inventory means any interruption to the supply of materials and components will inevitably cause a delay in manufacturing and delivery of finished product. JIT purchasing fundamentally impacts the physical flow of materials from the supplier to the buyer.
As such, suppliers are often scored on their ability to adhere to their JIT commitments. These scores have become a valuable selling point in attracting new customers. One of the measurements is delivery performance, monitoring the degree of improvement in on-time deliveries from suppliers. Much of the logistics performance comes down to how well the supplier is able to manage transportation costs, even while purchasers are more demanding on how their shipments are to be delivered. In order to reduce their inventory, they require suppliers to deliver product weekly or even daily, sometimes at precise times during the day.
These tight timeframes are a far cry from the typical monthly turnaround. Without parts and materials delivered on time and in full, the entire plant cannot produce. This means that on-time delivery is as important as quality control.
In fact, the primary downside of JIT is the assumption that the flow of goods will remain constant. Disruptions happen. Perhaps this is why JIT has taken longer to become mainstream than in Japan. Even as JIT was gaining steam in the United States at the turn of the century, thanks to Ford and Dell, the challenges were already being recognized. In a Computerworld article from 2000, an analyst is quoted as saying, “Manufacturers can afford fewer errors in the delivery of the supplier’s component; if a part isn’t there, the assembly line stops, and that can result in the loss of manpower and cash.”
Little has changed since, requiring manufacturers to look seriously at how they minimize their risk in interrupting the supply chain. One of the biggest culprits can be logistics.
Addressing Logistics in JIT Commitments
While suppliers may not be able to control every potential delay in manufacturing, they can take a proactive role in preventing delays in shipping product. They play a vital part in how well the supply chain runs. In fact, because of their position in the supply chain, they can set the course for the entire manufacturing process from raw material to end product.
Suppliers must prioritize reducing shipping delays and the impact any delays could have on the downstream supply chain. A JIT commitment is just that – a commitment; a pledge. Without proper insight into the risks that impact logistics, OEM and their suppliers are playing defense. They can only react to issues once they’ve already occurred. This can dramatically increase expenditures and result in missed delivery deadlines.
Logistics management processes must, therefore, include intelligent analytics capable of detecting all risks to shipments, analyzing those risks for probability and severity, and recommending lower-risk alternatives. Companies who attempt to gather and evaluate this data manually will never be able to compete with the companies deploying modern predictive technology. Risks will be missed, under- or over-estimated, and/or found too late to make proactive decisions that can mitigate risks.
Intelligent Analytics to Lessen the Impact of Shipping Delays
Several factors play into how feasible it is for suppliers to meet their OEM client’s JIT commitments. One of the biggest drivers is perhaps the least controllable: the weather. Inclement weather and extreme temperatures frequently cause significant delays and sometimes product damage. There are also natural disasters and infrastructure outages that can turn a routine shipment into an economic loss.
The key to developing an offense against inevitable logistics challenges is to have comprehensive, reliable data days before the shipment is scheduled to leave the dock. Artificial intelligence is now being used to rapidly assess every shipment’s origin, destination, pickup time and projected delivery time to stimulate the shipment’s lifecycle. It then collects multiple pieces of weather and infrastructure data from various sources to overlay those risks on the map. Each shipment is scored on a scale to indicate low, medium or high risk, along with flags of where along the route the shipment may face these risks. The best part is the software is able to provide these detailed insights up to 10 days before pickup, giving decision-makers plenty of time to find lower-risk alternatives that will enable JIT manufacturing.
By combining scheduled shipment data with risk data, suppliers can instantly see the connection between threats and downstream customers. They are better able to meet their commitments to their OEM client’s JIT needs by making changes to the shipping schedule, the carrier, mode or the lane, or even the supplier.
Understanding potential delays ahead of time can mitigate costs as well as reduce the need for spending extra on air freight in emergency situations, a fairly common (and hugely expensive) option for suppliers in the auto and electronics industries, as well as time-sensitive loads like pharma. Using technology, suppliers are able to find the most financially prudent way to meet customer commitments rather than being forced to use the fastest option regardless of cost.
Making The Shift from Legacy Logistics Tools to Intelligent Analytics
For suppliers who take their JIT commitments seriously, transitioning to intelligent analytics is an obvious solution. The technology has finally caught up with the logistics industry and should be a prioritized investment. The supply chain insight it provides can save both suppliers and OEMs money while increasing revenue, efficiency, and effectiveness.