When Japanese price quality competition became so keen, it was originally thought that the reasons were rooted in their culture and in the supports given to life long employment. The cultural and environmental supports of the work environment are undoubtedly important, but the really important causes are to be found in what happens on the factory floor. Examination of the Japanese operating system produces results that are quite predictable. The system involves a relentless process of improvement, which starts with a drive to reduce production lot sizes.
Reduction of Lot sizes:
For a given inventory cost smaller set up costs result in a smaller EOQ. Thus, in practice set up costs justify smaller lot sizes and provide greater flexibility for changeovers from one product to another.
This simple logic has formed the basis for many inventory control methods in both the United States and Japan. The difference in practice, however, is that the Japanese do not accept set up costs as given. Rather, they expend great effort to reduce the set up costs through tool design, quick clamping devices and carefully worked out procedures. The objective is to reduce set up costs to the point that EOQ = 1 unit. Of course, if EOQ = 1 unit, the immediate benefits are that in process inventories are reduced and the flexibility to change over production from one product to another is improved. However, reduction in production lot sizes triggers a chain of events involving improved motivation and a focus on just-in-time and on scrap and quality control.
Motivational Effects and feedback:
If a worker produces a part and passes it directly to the next worker, the second worker can report a defect almost immediately. On being told that the part is defective, the first worker is motivated to find the cause and correct it before large quantities of scrap are produced. The smaller the production lot size, the more immediate the discovery of defects will be. The result is that each pair of operations in the sequence is closely linked and the awareness of the interdependence of the two operations, and particularly the two workers, is enhanced.
If production were in large lots and completed parts were placed in intermediate storage to be with drawn as needed, this linkage would be destroyed. In many instances, we might not even know which worker produced the defectives to provide the feedback to correct future defects. The system takes advantage of one of the simplest principles of learning, knowledge of results.
Small Group Activities:
The close linking of workers and the feeling of responsibility engendered creates committed workers who carry their concerns about all aspects of job performance home with them and into social situations involving coworkers. Schonberger (1982) contends that quality circles were not really molded from employee participation principles but through the worker commitment generated by JIT concepts. Quality circles are really self generated; employee participation is a result of the production situation.
Withdrawal of Buffer Inventory:
Buffer inventories perform the function of absorbing variations in flow rates in production systems. One of the direct effects of reducing lot sizes for JIT production is lower in-process inventories in the system, as shown. The larger the variations, the larger the buffer inventory required to insulate each operation in the sequence from the effects of lack of material supply. The Japanese recognize the function of buffer inventories, but they deal with it philosophically rather differently.
By systematically removing a portion of the buffer stocks, Japanese managers expose workers to the problems that cause variation in flow. These problems then become goals for problem solution. When the problems that cause variation have been solved, Japanese managers remove more of the insulating buffer stock, revealing the next set of problems that cause variations in flow. The workers are never allowed to become complacent; they are faced with continually perfecting the process. Inventories in the aggregate are reduced, and productivity is improved. The heightened awareness of the causes of irregular output stimulate ideas for improvement. This result leads to smoother output rates because of fewer interruptions due to quality problems which reduces the need for buffer stock. The improved scrap and quality control that results from lot size reductions and JIT production also results in smoother output rates because there are fewer interruptions in flow that might otherwise occur because of poor quality. We have, in effect, a hand to mouth system of supply between operations.