Mass production manufacturers set their production schedules based on a forecast of future needs, which, in turn, is based on historical data and trend analysis (see Figure 21.2). The great weakness of this system is that no one can predict the future with sufficient certainty, even with a complete and perfect understanding of the past and a good sense of current trends in the marketplace. One does not have to search long to find examples of failed attempts to correctly project the marketability of products. The Edsel is one of many automobiles that were released with great fanfare to a disinterested public. A new formula for Coca-Cola introduced in the late 1980s is another example of market predictions gone awry. IBM has case after case involving personal computers, such as the unlamented IBM PC Jr. (which failed in the marketplace in spite of the best market research IBM could muster). These failures demonstrate the difficulty of trying to determine beforehand what will sell and in what quantity.
Even products that are successful in the market have limits as to the quantities that buyers will absorb. When production is based on predictions of the future, risk of loss from overproduction is far greater than when production is based on actual demand. The previous section defined JIT/Lean as producing what is needed, only when it is needed, and only in the quantity that is needed (see Figure 21.3). The result of JIT/Lean is that no goods are produced without demand. This, in turn, means no goods are produced that cannot be sold at a price that supports the viability of the company.
So far, we have viewed JIT/Lean from the point of view of the manufacturer and the ultimate purchaser of the product— the producer and the customer. But if we look at the complete production process, we will find that it contains many producers and customers—internal producers and customers (see Figure 21.4). Each preceding process in the overall system is a producer, or supplier, and each succeeding process is a customer (see Chapter 7). JIT/Lean fits here as well as or better than with the manufacturer-and-purchaser model. No process in the system produces its output product until it is signaled to do so by the succeeding process. This can eliminate waste on a grand scale. It is the elimination of waste that justifies JIT/ Lean in any kind of manufacturing operation. Eliminating waste is translated into improving quality and lowering costs. Improving quality and lowering costs translate into becoming more competitive. Although improving competitiveness does not assure survival (the competition may still be ahead of you), being noncompetitive surely guarantees disaster.
Taiichi Ohno, the creator of the just-in-time/Lean system, saw that the mass production system produced waste at every step. He identified seven wastes:2
- Waiting (time)
- Processing itself
- Having unnecessary stock on hand
- Using unnecessary motion
- Producing defective goods
The elimination of these wastes is at the heart of the rationale for just-in-time/Lean: eliminate these wastes, and you will produce better products at lower cost. If the competition gets there first, your rationale for JIT/Lean is survival.
Source: Goetsch David L., Davis Stanley B. (2016), Quality Management for organizational excellence introduction to total Quality, Pearson; 8th edition.