JIT purchasing Systems

The Japanese seem to depend more heavily on suppliers than do US manufacturers, especially in the auto industry. For example, Toyota’s purchased materials account for nearly 80 % of its sales compared to less than 50% for General Motors, 60% for Ford, and 71% for Chrysler.

The characteristics of Japanese JIT purchasing are unique, in terms of both general philosophy and in detailed procedures. The term JIT purchasing suggests an emphasis on timing, which is true but it does not suggests the broad philosophical underpinnings of the system. Although the term comes from the emphasis on supplying materials just in time for use on the factory floor, equally important are the close relationships with a few long term suppliers](approaching sole source in the ideal), geographically close suppliers, loose specifications and contracts, and frequent deliveries of small, exact quantities.

Long term stable relationships:

The system is designed to provide long term stable relationships with suppliers that foster mutual confidence so that the supplier will invest in a nearby plant and in equipment that will improve productivity and quality. Rather than using the threat of the loss of supply contracts as a means of keeping suppliers in line, the system depends on coterminous objectives in which the typical supplier dedicates a large fraction of its capacity to a buyer in a specialized location. Although the supplier takes a substantial risk in locating a plant near the buyer, the risk is balanced in part by the buyer’s increased dependence on the supplier’s quality as well as its responsiveness. Perhaps the most extreme example is “Toyota City” where the Toyota plant is surrounded by a system of satellite supplier plants. But even Japanese operating in the United States establish these practices with their suppliers. Mr. Paul Hagusa, the president of Sharp manufacturing Company of America says ‘once a supplier begins working with Sharp and shows a willingness to improve’, the relationship can last a long time.

Buyers commonly invest in suppliers’ businesses, providing another basis for control. But in addition, control is exercised through constant visits of buyer representatives to the suppliers’ plants. Thus the buyer comes to know the supplier’s strength and weakness and often provides consultation and advice. In addition suppliers also visit the buyers’ plants frequently to gain a better understanding of problems.

Simple Purchase Agreements:

JIT purchase agreements tend to be simple, specifying price, specifications and an overall quantity to be delivered in accordance with long term production schedules. The specifications are focused on product performance, rather than being highly detailed. These blanket orders provide the umbrella under which actual deliveries are matched to the work center’s rate of use, which is often controlled by the use of kanban order cards. Every effort is made to stabilize production rates in the buyer’s plant so that the flow of materials from the supplier to the buyer can also be established on a steady rate basis.

Whereas the practice in the United States is to specify every conceivable design feature, the Japanese practice is to avoid over specification, leaving the supplier room to innovate. Specifications contain critical dimensions and other performance requirements, but they avoid restrictions that dictate how the product is to be manufactured. The supplier can then employ its expertise to the maximum.

Small but frequent deliveries:

The suppliers’ proximity contributes to achieving the objective of small but frequent deliveries. In addition, rather than shipping a target quantity plus or minus ten percent or more, the quantity delivered is exact. Instead of counting on receipt, Japanese practice takes advantages of standard packaging so that the count is obvious, and variations from the expected quantity is the exception rather tan the rule. The expectation that the quantity delivered will be constant relives the buyer from the need to hold buffer inventories to guard against the effects of components shortages.

There are many secondary benefits from the JIT purchasing system. Inventories are greatly reduced in the buyer’s plant since it is working off the suppliers’ inventory. Even the suppliers’ inventory is smaller because of the nearly continuous supply rate. There is a great deal less paperwork in the system because of the blankets contracts and simpler specifications. As a result of an assured steady flow, suppliers can minimize peak capacity requirements and retain a trained labor force. In addition, proximity makes for easy communication and closer coordination between suppliers and buyers’ engineering and quality control personnel.

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