Murphy Case Analysis
Murphy Case Analysis
Just-In-time manufacturing, or JIT, is a management philosophy aimed at eliminating manufacturing wastes by producing only the right amount and combination of parts at the right place at the right time. This is based on the fact that wastes result from any activity that adds cost without adding value to the product.
The goal of JIT, is to minimize the presence of non-value-adding operations and non-moving inventories in the production line. This will result in shorter throughput times, better on-time delivery performance, higher equipment utilization, lesser space requirement, lower costs, and greater profits. The key behind a successful implementation of JIT is the reduction of inventory levels at the various stations of the production line to the absolute minimum.
This necessitates good coordination between stations such that every station produces only the exact volume that the next station needs. On the other hand, a station pulls in only the exact volume that it needs from the preceding station. In this case, Murphy’s management started the implementation of JIT without wholly understanding the concept; the poor performance was caused by lack of knowledge about JIT and lack of communication/coordination between the departments.
Problems at Murphy:
The CEO of Murphy Manufacturing liked the idea of JIT (reducing inventory holding cost while improving production efficiency) based on a few books he read, thus he wanted to implement this concept in his company even though the present MRP system had been working very well for a long time. On the other hand, Joe Vollbrach, Vice President of Operations for Murphy Manufacturing, initiated the implementation process based on the way it was working in the book examples he read without doing any feasibility study a or having a complete understanding about how to implement JIT concept in a small manufacturing environment like which Murphy is in.
The result is disastrous, purchasing department are constantly ordering materials at very high cost; the shipping/receiving department are harassed by endless loading/unloading task; production efficiency was down due to lack of production materials and no clear production schedule; sales people has to deal with angry customers because most the order aren’t shipped/delivered on time.
General JIT Implementation Guidelines:
Since JIT encompasses a number of functional areas of the company, top management support are a must. Full acceptance by top management is required to empower middle management to overcome the inevitable roadblocks in implementation. In this case, John should take the initiative to be the champion of JIT concept and provide the full support for implementation.
Second, training and education as a fundamental requirement for JIT implementation in order to promote a significant change in attitude of the workforce that will create an environment conducive to completing the implementation. Training courses should be made available for employees to fully understand JIT concept and harness it.
Third, it is important that JIT is seen as a philosophy rather than a set of add-on techniques to current practices. The company must question why and how it uses JIT and be able to figure out the results of undertaking JIT and incorporate them into its marketplace strategy. By adhering to these guidelines on implementation and instill the knowledge of JIT concept to entire employees at Murphy’s, the transition process to JIT will go smoothly and best JIT implementation techniques will be utilized.
The pros/cons of implementing JIT in Small Manufacturing Enterprises:
Most publications discussing JIT implementation focus on large manufacturing firms, the environment in which the concepts arose. Because of the limitations that small manufacturing enterprises face, which include limited staffing and material resources and reduced bargaining power with customers’ suppliers and financial institutions, it is not clear that all JIT components are applicable to every environment. Thus choosing the right JIT implementation strategy is crucial for Murphy’s future successes.
Most Small Manufacturing Enterprises depend heavily on a few major customers, thus normally suffer fluctuating demand from these key customers. In regard to vendor relationships, their purchase volume is not large enough to give them leverage over their suppliers to purchase in a small batch size with a good quality at a definite time. Compared to large firms, Small Manufacturing Enterprises normally have limited free cash to fund investment in new production concepts or technologies. They also lack bargaining power with their creditors and debtors, and have difficulties in getting loans from financial institution. Hence, forward planning is constrained by cash flow maintenance. Consequently, if Small Manufacturing Enterprises get involved in innovative projects at all, they will focus on projects with short term returns and overlook initiatives promoting long-term results.
Small Manufacturing Enterprises also have limited non-cash resources (machinery or people). They do not normally have specific departments such as a training department or an engineering department. With limited management staff there is a small pool for potential champions of new techniques. Also, small firms may be so small that a change in production cannot be implemented without affecting the entire plant. This is another barrier for Small Manufacturing Enterprises to improve their operations as they have to risk the whole factory in order to know whether a certain technique is appropriate or not to the company. Which is very true in this situation, slight modification in any one of the major operation departments, will affect the entire company. Thus, every step has to be carefully analyzed and backup techniques needs to be developed.
However, there are also several advantages for small manufacturers compared to big ones. Small firms normally do not have union contracts and usually have fewer problems with resistance to change compared to large companies. A flatter organization is typical in small firms and it fosters more frequent open communication. Therefore, the decision making process is simpler and the result is conveyed faster throughout the employees. Compared to large firms, small firms are used to working in smaller batches and are more accustomed to a flexible response to demand changes.
Problems in Implementing JIT Components:
First, Cross training is common for small manufacturers because of the need to cover absent employees from a small labor pool and is also easier to implement than in large companies. The only problem is that extensive training is costly. Small manufacturers may train key employees individually and ask them to impart their knowledge to other worker. In this case, all the middle management can learn about JIT concept then passing it to production employees.
Second, most small companies are very dependent on a few major customers. They lack bargaining power with their key customers and will not be able to compel these customers to order on a stable demand rate. The most desirable situation would be the cooperation of their customers in sharing their forecast demand and production schedule. Achieving this may be limited by bargaining power and therefore the result may be production based on inaccurate forecasts resulting in using finished goods inventory as a buffer. Production leveling can be a great barrier for small businesses to fully adopt JIT.
Third, JIT Purchasing is normally implemented as the last component, especially for small manufacturers, due toe lack of bargaining power with their suppliers. Small manufacturers normally do not give enough sales to their vendors and are forced to order in large batches and store a large amount of raw material or they will suffer a higher cost to get the materials just-in-time. All these potential problems need to be studied, when implementing the JIT concept at Murphy.