A study of system dynamics in just-in-time logistics C.L. Lai, W.B. Lee*, W.H. Ip Department of Manufacturing Engineering, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PR China Abstract Just-in-time (JIT) systems are designed to produce and deliver goods or services as needed, using minimal inventories. It is a logistics philosophy focused on reducing inefficiencies and unproductive time in the production process and is practiced by many manufacturing companies. However, earlier research and experience suggest that the interrelationship between JIT and other manufacturing system’s components such as product design and business strategies are more complex than it is suggested by the traditional JIT studies. In this paper, an alternative view of JIT is offered by using system dynamics (SD) that concentrates on the total system perspective. An integrated framework of JIT and a Kanban model was built using a SD tool and is used for modelling and simulating. It provides a new paradigm to analyse the logistics policies of a company and understand the customers, competitors, and suppliers interactions that shape the company’s performance over time. In this model, the strategies and action steps were addressed and adopted and the resulted in improvement in inventory control, quality and productivity. # 2003 Elsevier Science B.V. All rights reserved. Keywords: Just-in-time system; System dynamics 1. Introduction Today, Electronic Commerce (EC) and information technology have significantly improved the flow of information to and from the customers; the business processes of the entire supply system have aligned into a single entity. Just-in-time (JIT) deliver and inventory is now a reality for any company. EC is an emerging concept that describes the process of buying and selling or exchanging of products, service, and information via computer networks such as the Internet. It decreases the cost on creating, processing, distributing, storing, and retrieving paper-based information. It allows reduced inventories and overhead by facilitating ‘‘pull’’ type supply chain management [1]. In a pull-type system such as JIT the process starts from customer orders and uses JIT manufacturing. Boyett and Boyett [2] point out that in order to succeed in this dynamic world, companies must take not only traditional actions such as lowering cost and closing unprofitable facilities but also innovative activities such as customizing products, creating new products, or providing superb customer service [2]. Some of them are interrelated, which can be considered as mission critical activities. They can be performed in some or all of the processes of the organization, from the daily routine processing of payroll and order entry to strategic activities such as the acquisition of a company. The extension into supply chain is necessary, particularly in the process of interaction among a company and its suppliers, customers and partners. In this paper, the authors describe the JIT system, investigate the interrelationship of JIT in an EC environment using system dynamics (SD) to produce ‘‘Ithink’’ high-level mapping. Kanban pull system model is developed to analyse the logistics policies of a company and understand the customer, competitors, and suppliers relationships. 2. Just-in-time JIT philosophy, first introduced by the Toyota Motor Co. over 25 years ago, has attracted much interest in its basic underlying concept of which provide only the necessary products, at the necessary time and in the necessary quantity. It has also received considerable attention from both industry and academics. Various authors have discussed the JIT philosophy [3–6]. JIT can be described as a philosophy which attempts to incorporate all aspects of the operation processes from incoming material, actual manufacturing to deliveries. It has been developed to increase productivity through waste reduction and increasing the value added on the production processes. One of the elements of JIT is the Kanban method. Kanban is a ontrolled pull system. In a pull system, parts move in the same direction, but the information concerning the processing of the part is given by the subsequent process. These links between processes constitute feedback loops. Many researches suggest that the interrelationship between JIT and other manufacturing system’s components such as product design and business strategies are more complex than it is advocated by the traditional JIT studies. The study of JIT in an EC environment is even more complicate. The better the information system between a company and supplier, the less inventory the company has to stock and the lower its costs; the entire supply chain has many interdependent elements. The study of this relationships require a much more sophisticated approach than it is available from the literature. In this paper, we propose the use of system dynamic to investigate this complex dynamic system. 3. A modelling framework A conceptual framework illustrating the relationship between suppliers, company and customers is shown in Fig. 1. JIT benefits the manufacturing firms by reducing inventory, increasing flexibility, high product quality and increase productivity. JIT promise to receive frequent and reliable deliveries of high quality parts in small lot sizes and exact quantities. The implementation of EC in JIT system increases the efficiency and processes the information flow even quicker between the trading partners (customers, suppliers, transporter and their banks). In reality, very often the discrepancy of JIT occurs in the supplier’s failure, slow response to the customers and communication failure. Therefore, to avoid production stoppages, continuous update of supplier information is critical. Suppliers and the customer must work closely with transporters to ensure timely delivery of goods [7]. For successful JIT implementation, efficient and reliable communication with trading partners is essential [8]. On the other hand, EC is the business-to-business and business-to-customer communication technology that can be integrated via the computers of various trading partners. Reliable and fast exchange of business information among trading partners is its purpose. Firms that require rapid processing and delivery of goods, business transactions involving a tremendous amount of paper work, and buying and selling large volume of items; they are expected to benefit the most fromEC. JITmanufacturing fits this descriptionverywell, and thus has the potential to derive maximum benefits from it. 4. The system dynamic approach In this section, an attempt is made to study the behaviour of the company, customers and suppliers in order to determine the policies and strategies for those company who use JIT in an EC environment. The model is developed using SD. SD deals with the broad behaviour of the system and how it influences its own evolution into the future which facilitates decision making. It can be seen as the strategy issues which concern top management in the company [8]. Once the model has been built and tested, the analyst can use it to test alternative policies and to redesign the system so that its policies become more effective. The approach of SD was created and developed by a group of researchers led by Forrester at the Massachusetts Institute of Technology (MIT) in the late 1950s. This is the study of the information-feedback characteristic of industrial activity to show how organization structure, amplification and time delays interact to influence the success of the enterprise [9,10]. It is a framework for thinking about how the operating policies of a company and its customers, competitors, and suppliers interact to shape the company’s performance over time [11]. SD builds on information-feedback theory, which provides symbols for mapping business systems in terms of diagrams and equations, and a programming language for making computer simulation [12,13]. Ithink is a tool of SD and a software methodology for modelling, simulating and redesign manufacturing business [14]. Ithink software is a multi-level, hierarchical environment for constructing and interacting with model. There are two major layers: the high-level mapping layer and the model onstruction layer. An Equations View is provided to view the entities on the model construction layer in a list format, for rapid modification of variable definitions, and for easy exporting of equations from the model. Initially, the authors construct the influence diagram of JIT before building a detail model. It is the foundation on which quantitative models are built but is also a valuable device in its own right for describing and understanding systems. Fig. 2 shows the influence diagram of JIT. The solid lines show physical flows or material flows, they form the fundamental principles of this modelling paradigm. Broken lines represent influences which are not physical flows and indicate the information and action parts of the paradigm. The actions should be deliberate choices by the managers of the system or they may be the ungovernable reaction of nature of the state of the system. A box denotes an external driving force over which the system has no control and to which it must respond. In this case, the demand is a driving force. It is set by human action but, having been set, the JIT system simply has to respond to whatever it is. A ‘t’ and ‘_’ sign means that the variable at the tail of the arrow changes proportional and opposite respectively. Items in bold are constant factors. Fig. 3 shows the information flow and material flow in JIT manufacturing system using high-level mapping of Ithink. The critical elements include quality, maintenance, production and waste elimination. JIT systems are designed to produce or deliver goods or services as needed, using minimal inventories. It is actually a philosophy that focuses on reducing inefficiencies and unproductive time in the production process. Embodied in the JIT system are the concepts of continuous improvement and total quality control, as well as employee involvement and inventory reduction. In this model, much attention has been given to JIT manufacturing under the name of the Kanban-controlled pull system, which differs from the conventional push system. Kanban in a pull system is a signal attached to standard containers which issues the production and withdrawal of parts between work stations. It is viewed as an information system that controls production. The most basic Kanban system uses single-card signal. Different methods for the calculation of the number of Kanban signals have been designed. Bitran and Chang [15] have designed a mathematical programming model for the Kanban system in a deterministic multi-stage production environment. Markovian models of a batch manufacturing system by using single-stage single- and dual-card Kanban system and a twostage Kanban system to study the effects of Kanban size on inventory and backorder costs [16]. Moreover, provided a thorough explanation of the Kanban system and the conditions for its implementation using a SD model for a threestage transfer line [17]. Bara and Singh [18] used a SD modelling approach and provided a comprehensive analysis of push, pull and long-pull systems and investigated the effects of these systems on WIP inventories and throughput. In Fig. 3, the thin arrows show the information flow. There are forward and backward flow between the production and quality unit. This information is used to continuous improvement of the operation. Inspection is conducted on the products according to the specification and standards. The quality report of the product is returned back to production to improve the operation by adjusting the machine or through other improvements methods. The quality unit also continues to seek ways to improve operations such as the introduction of total quality management (TQM). JIT will be successful if a company produces quality goods at source i.e. ‘‘doing it right first time’’. Thus the information from quality to production is very important. Maintenance is also a critical part for JIT. Maintenance unit should keep records of breakdown, repairs and costs fromthe production unit, so as to predict the time for machine breakdown, carrying maintenance, replacing equipment and machines. Elimination of waste is the main theme of JIT; the level of scrap should report to the production. Adjustment is needed to improve the scrap. Scheduling, assembly planning, distribution of work force and bill of material also should be provided to the production and guide them to eliminate the unnecessary wastes. Besides the high-level mapping, Ithink can show us the detail of each unit which can be seen in construction model layer. 5. A case study The modelling approach, data collection and analysis have been experimented and conducted in an electronics factory. To align with the application of EC in the company, it is necessary to improve and integrate with JIT supply chain; JIT delivery and inventory are found to be essential to support EC. Before the improvement through JIT, there are many operation problems; for example, it was found that records on the shop floor were erased deliberately by the operators to hide the scrap parts which they threw away. The actual WIP on the record was thus always inaccurate and unreliable. Moreover, the information about the customers and supplier were often incorrect. After JIT implementation, many of these problems were eliminated. EC now provides a business-to-business platform between customer and the company, and supplier and the company. Reliable and fast exchange of business information among them is achieved. This company has taken four steps to ensure JIT is successful. They are summarized into the following: 1. Keep patience: always allow adequate time for the production people to learn, understand and try out the concepts of JIT manufacturing. 2. Small steps: each method change should have a clear target and the scope is small enough to let people manage the implementation at ease. Seeing the results achieved, people would generally have higher confidence to prepare for another step. 3. Simplicity: simplicity in inventory and material control allows production people to have high physical visibility of the material flow by means of visual aids like standard containers, colour coding of containers/Kanbans which prevent error in handling. 4. Integration: a sound inventory and material control system will not work if the other factors of JIT are not integrated in the manufacturing. In this study, the SD model of Kanban signal is used to identify the problem of long production run. The new system can now maintain the synchronization of inventory and material flow between the production cells. In addition, the reduction of WIP can be simply done by gradual withdrawal of Kanban signals circulating in the production floor and reduction of setup time for model changeover. Now the company is able to manage and carry out different types and models of business transactions such as customer, supplier, production and delivery without much human interventions. The inventory and material stored at the production, warehouse, vendors and partners can be linked toWeb servers and database servers to conduct EC. All information can be real-time and JIT, capable of storing and uploading information of the products whether those areWIP, produced or sold. 6. Conclusions This paper proposes a SD methodology for studying a new generation of JIT in an EC environment. EC facilities the JIT manufacturing; it integrates the information flow from the customer to the supplier, forming a single supply chain. The fast and accurately information flow minimize the error and improve the communication in customer, supplier and the company. However, to make the best use of EC era, effective policy and decision making should be addressed. SD allows manager to understand the JIT and EC behaviour and their relationships with the company and its partners. It helps the manager to make policy and decision through a systematic approach using model design and development. In this paper, the authors have described some of the SD models of JIT. These are merely the initially steps and attempts to the design and construction of a comprehensive model of JIT under EC environment. Further research is required to extend the variables and elements and to conduct experiments to investigate the stability of the system under various conditions such as the sudden increase in demand and random demand; experimentation on the system behaviour of different types of customer and modes of manufacturing. 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