Category Archives: Just inTime Systems

YIELD MANAGEMENT AT NATIONAL CAR RENTAL

Faced with possible liquidation in 1993 by General Motors, its parent company, National Car Rental was under significant pressure to produce both a substantial and sustainable profit. To accomplish this, management decided to adopt a comprehensive revenue management system. Instead of a constant car rental price all the time, the revenue management system demonstrated that a variable pricing policy that would fluctuate with demand would result in significantly· higher profits.  The revenue management system was implemented in two phases. The first phase was introduced in July 1993, with the goal of showing immediate profits, which it did. The second phase focused on developing a state-of-the art  revenue management system for the car rental industry.This phase was successfully implemented in July 1994.  As a result of thus revenue ranaqernent system, profits were significantly increased, and General Moors was able to sell National Car Rental in 1995 for 3Il amount in excess of $1 billion.

In order to take maximum advantage of yield management, a service should have the following characteristics: (a) the ability to segment its markets. (b) high-fixed and low variable costs, (c) product perishability, and (d) the ability to presell capacity.

Market Segmentation

A major i sue in the successful implementation of yield management is the ability of the firm to segment its market. Proper segmentation will prevent all of the firm’s customers from taking advantage of price reductions when they are offered to fill available capacity.Market segmentation can be done in several ways. The first is to impose signify; .strictions on customers who use the lower prices. For example. airlines require customer stay over a Saturday night or to purchase their tickets from 7 to .30 days in advance to quify for lower airfares. These very same conditions. however. prevent the business. tr who usually travels midweek on short notice, from taking advantage of the lower  are  another method of segmentation is to offer lower prices on only specific days of t week or times of ‘the day. Movie theaters offer reduced ticket prices for matinees, which senior citizens can take advantage of during weekdays. Similarly. downtown hotels typically offer discounts on weekends when business travelers are home. as an incentive for tourists.

High-Fixed and Low- Variable Costs

High-fixed and low-variable co ts allow a firm to offer significant discounts while still being able to cover variable costs. When a service firm has this type of cost profile, profits are directly related to sales. In other words, the more sales generated. the more profits made. For example, if the variable cost associated with having a hotel room cleaned is estimated at $25 (which would include the labor to clean the room and the replacement of any material that was consumed. such as soap and shampoo, as well as fresh sheets and towels), then any price that the hotel could get for the room above the S25 variable cost would be financially beneficial (as opposed to leaving the room empty for the night).

JIT in Services

Service organizations and service operations within manufacturing firms present interesting opportunities for the application of JIT concepts. Despite the many differences between service and manufacturing, both share the most basic attributes of production. because they employ processes that add value to the basic inputs with the objective of creating an end product or service. JIT focuses on processes, not products and, therefore, it can be applied to any group of processes, including manufacturing and services. The JIT goal is approached by testing.

each step in the process to determine if it adds value to the product or service. If these steps do not add value, then the process is a candidate for reengineering. In this way. the process gradually and continually improves.  Both manufacturing and services can be improved with JlT because 60th involve processes, and JIT is essentially a process-oriented waste-elimination philosophy. The themes for JIT process improvement should therefore apply equally in a service environment.

Application of JIT to Services6

Duclos, Sea, and Lummus have suggested the following framework for describing the different ways in which JIT concepts have been applied to service organizations.

• Synchronization and balance of information and workflow.
• Total visibility of all components and processes.
• Continuous improvement of the process.
• Holistic approach to the elimination of waste.
• Flexibility in the use of resources.
• Respect for people

Synchronization and Balance of Information and Workflow Because services are intangible, it is important that there be synchronization between demand and capacity. In other words, capacity must be available when the customer demands it. From a  workflow balance perspective. Feather and Cross report that the application of JITtechniques identified existing bottlenecks and eliminated unnecessary inventory buffers in the processing of contracts." As as result. throughput time was reduced 60 percent and the backlog in the number of 3t to be processed was reduced 80 percent.

Concurrently Solve Problems and Measure Performance

A JIT application is not an overnight. turnkey installation. Rather, it is an evolutionary process that is continually seeking ways to improve production. Improvement is achieved by looking at problems as challenges rather than threats-problems that can be solved with  common sense and detailed, rigorous analysis.The techniques for problem-solving are primarily continuous improvement methods. Effective problem-solving means that the problem is solved permanently. Because JIT requires a team effort. problems are treated in a team context. Staff personnel are expected to  be seen frequently on the shop floor. and in some companies are expected to arrive a half hour before production workers to ensure that everything is in order, thereby avoiding problems. Continual education is absolutely essential if the system is to avoid stagnation. While lIT may cost little in the way of hardware. it requires the need for a substantial investment.

in training people at all levels of the organization to better understand what the system  demands and how they fit into it.Many performance measures emphasize the number of processes and practices' changed to improve materials flow and reduce labor content. and the degree to which they do so. If the processes physically improve over time. lower costs follow. According to Hall, a department head in a Japanese JIT system is likely to be evaluated on the following
factors.

I. Improvement trends, including number of improvement projects undertaken, trends
in costs, and productivity.
2. Quality trends, including reduction in defect rates, improvement in process
capability. and improvement in quality procedures.
3. Running to a level schedule and providing parts when others need them.
4. Trends in departmental inventory levels (e.g., speed of flow).
5. Staying within budget for expenses.
6. Developing workforce skills, versatility, participation in changes, and morale.

JIT Layouts Design Flow Process

J IT requires that the plant layout be designed to ensure balanced workflow with a minimum of work in process. This means that we must view each workstation as an integral part of the overall production line, whether or not a physical line actually exists. Capacity balancing is done using the same logic as for an assembly line, and operations are linked through a pull system (described later). This also means that the system designer must have a vision of how all aspects of the internal and external logistics system are related to the layout. Consequently, the concepts of supply chain management are integrally linked to JlT.

Preventive maintenance is emphasized to ensure that a continuous workflow is not interrupted by machine downtime or as a result of poor quality from malfunctioning equipment. Much of this maintenance is carried out by the operators because they are responsible  or the quality of products coming off the machines, and also because of their sensitivity to the idiosyncrasies of the machines as a result of working on them day in and day out. Finally, the fact that the JITphilosophy favors man simple machines rather than a few complex ones enables the operators to handle routine maintenance activities.  education in setup changeover time and lot sizes are interrelated and are key to achieving a  smooth flow (and JIT success in general). Exhibit 14.11 illustrates the fundamental relationship between lot size and setup cost. Under the traditional approach. setup cost is  treated as a c constant and the o optimal order quantity is shown as six. Under the Kanban approach of JIT, setup cost is treated as a variable and the optimal order quantity. in this case,  is reduced to two. This type of reduction can be achieved by employing setup time-saving procedures such as those described earlier in the chapter. The ultimate goal of JlT from uninvented ry standpoint is Too achieve an economic lot size of one. Even though we already have described the various types of layouts in Chapter 8, we  briefly will describe a line flow operation and a job-shop layout to show how JIT can be applied. Most people think of high-volume assembly lines when they think of JIT. This is because most of the literature and discussions on this topic have been about line layouts. However, job-shop environments. where functions are grouped together, offer perhaps the  greatest benefits for JIT application.In assembly or fabrication lines. the focus is on product flow. Volumes may be high enough or tasks simple enough or cost low enough so that the required resource- (people.  machines, materials, etc.) can be arranged close together in a simple flow.The majority of manufacturing plant" are process oriented. being organized b) function (i.e .. similar machines are grouped together). Many service facilities also are organized by function or process: hospitals. universities, department stores. and so forth. The main reason for this organization is because these machines or processes serve a variety of needs. none of which is large enough to justify a machine of its own. In this environment. the product or person requiring service must move longer distances.

JIT IS INTEGRAL TO SATURN’S SUCCESS

When Genera! Motors announced the Saturn project, its goal was very clear: to recapture the sn1~II-car market from
the Japanese. To accomplish this, GM incorporated many new and innovative concepts in designing Saturn’s manufacturing  facility in.Spring Hill, Tennessee. For example, much higher percentage of the components are produced   n-site instead of at a remote facility and transported toSpring Hill, which is the norm at other automobile assembly plants. Thus the facility includes a foundry to cast crankshafts and engine blocks, as well as huge injection molding machines to make the various plastic components. Linking these processes together is a just-in-time (JIT) “lean” system that is the tightest JIT system in the auto industry. according to Alec Bedrock, Saturn’s former VP of purchasing. There are very few buffer inventories separating the vehicle assembly line from the component manufacturing process. As an ill ratio, there are  usually less than two-hours worth of powertrains between the engine plant and the assembly line. Suppliers deliver their products to the plant or LOC (Local Optimization Center; 24 hours a day, and deliveries must be made within a fifteen-minute window to be considered on time. If a late delivery causes a delay in production, the supplier can be fined $500 per minute. Ryder, Saturn’s logistic partner, manages the scheduling of both dock me and truck routes. Penske Corporation manages the LOC where parts are sequenced and delivered hourly to the Saturn plant. The LOC is a recent improvement that takes additional motor storage out of the plant, thereby increasing the manufacturing floor space. which allows Saturn to produce its small sport utility vehicle, the VUE. without expanding any of the manufacturing facilities. Parts are off-loaded and delivered directly to the point of use on the asset by line. There is no receiving area and no incoming inspection of material. Production parts are delivered daily. with larger items like radiators and frontend modules delivered more frequently. For example. seat  from the seating supplier are delivered in proper assembly
line sequence every 30 minutes.