TITLE OF DISSERTATION



INTERNAL LEAN MANUFACTURING PRACTICES AND JIT LOGISTICS

Supply Chain Management-Manufacturing

Yen-Chun Wu

SHU-TE Institute of Technology

Department of Business Administration

Taiwan

ABSTRACT

As automobile manufactures are striding toward the lean direction and demand JIT logistics from suppliers, suppliers with lean systems in place are more likely to be incorporated into the total system. For manufacturers, supplier support is a key element for the successful implementation of lean production. This exploratory study, based on a survey of over 100 large first-tier auto parts suppliers in the United States, investigates whether external JIT logistics practices can be facilitated by supplier’s use of internal lean manufacturing techniques inside the plant.

INTRODUCTION

Logistics or supply chain management refers to the art of managing the flow of materials and products from source to user (Copacino 1997). JIT is a comprehensive philosophy designed to increase quality and eliminate waste through the whole process (Hall 1983). According to Levy (1997), JIT delivery and low inventory are the heart of lean production. First, lean manufacturing requires rapid delivery from suppliers in order to avoid very high inventories (Sabel 1989). Second, a minimized inventory and substantially reducing sourcing, production, and delivery cycles will require manufactures to create uninterrupted materials of high quality parts from sourcing to manufacturers to market (Kasarda and Rondinelli 1998).

Helper (1991) suggests that if U.S. automakers wish to continue to compete in the global industry, which is characterized by technology-, time-, and quality-based competition, they will need to establish long-term, mutual trust relationships between suppliers and customers. Helper’s (1991) survey results indicate that in order to enhance long-term competitiveness it is important to encourage suppliers and customers to develop capabilities of JIT production as well as JIT delivery. Customers can obtain improvements in quality and delivery by motivating supplier to adopt JIT production and JIT delivery. Similarly, suppliers have had to learn to respond to the increasingly demanding needs of its customers in this competitive market, which is driven by ever requirements for cost reduction, responsiveness to customer needs and JIT supply (Owen and Kruse 1997).

A review of literature on lean production conducted by Sohal et al. (1989) shows that a growing and developing literature on lean manufacturing has been published since the late 1970s. Much of the literature, however, focuses on cost reduction, quality, design, administrative efficiency, and productivity (Schonberger 1982). Interest in lean manufacturing has not been translated into detailed empirical analysis of whether adoption of internal lean manufacturing techniques is also related to external logistics practices. The main thrust of this paper, taking the automotive parts supplier’s perspective, is the first empirical examination of the connection between JIT and various aspects of logistics system. The central research question in the paper is:

Do internal lean manufacturing practices facilitate Just-in-Time Logistics?

RESEARCH METHODOLOGY

The automobile industry had served as the prime industry for the analysis. Automobile manufacture is chosen in the study because of its richness, its complexity of needs as well as an unusual level of openness to scholarly inquiry in this industry (Nishiguchi 1994; Bensaou and Venkatraman 1995; Dyer 1996). Also, it is well recognized that the auto industry is more advanced in adopting JIT methods. The study population is defined as American first-tier automotive suppliers manufacturing individual parts, assembled components/subsystems for American automobile manufacturers and Japanese transplants located in the U.S. Suppliers of raw materials and semi-conductors, chemicals, indirect materials, tooling and dies, or consulting/engineering service are excluded in the study.

Previous studies try to investigate logistics performance from only one or few components of logistics practices. These studies don’t provide strong quantitative evidence because of the use of Likert scale “opinion-type” questions and limited measures. In contrast, this study will use factual (quantitative) questions as practical as possible and a comprehensive list of input components in order to yield strong publications.

The measures investigated in this study were developed largely based on an extensive literature review and personal plant visits. While some questions are borrowed from existing studies, most were designed by the authors to meet our particular study objectives. For some measures such as loading methods and transport routes, pictorial examples are provided to assist respondents in answering the questions. Individual measures will be described as they are presented in the results section--in most cases they are self-explanatory, e.g., % of freight, shifts of inventory, years of contract. When a measure is not self-explanatory, the measure is discussed in the section where the results are reported.

Analysis of covariance (ANCOVA) is used in the study to detect whether significant differences exist between lean and non-lean plants in their logistics practices. All comparisons were investigated by controlling the effects of other variables such as annual sales, product type (interior body, exterior body, mechanics, engine, or electronics), product complexity (measured by the number of different parts making up the final product), and customer identity (Japan/US customer). To make such a comparison, the 194 cases were equally divided into three roughly equal-sized groups, based upon their scores on the degree of “leanness.” These ranged from the most lean to the least lean. The study compares the lowest scoring group (N=65) (referred to as non-lean suppliers) with the highest scoring group (N=65) (referred to as lean suppliers). We omitted the middle group because we suspected our measures were not sensitive enough to classify suppliers that have mixed systems.

SUMMARY

In response to global challenges, companies are now trying to put into place lean production system such as the Daimler-Chrysler Operation System, Ford Production System, and Delphi Production System (Liker 1997). As they have been transforming all of their manufacturing to their own versions of TPS (Liker 1997), they will be motivated to switch to lean suppliers (MacDuffie and Helper 1997). To be competitive in the changing global market, a supplier needs to respond rapidly. One way to do this, while meeting demands for high quality and cost reductions, is becoming a lean supplier and having an efficient logistics system (MacDuffie and Helper 1997; Kasarda and Rondinelli 1998; Wu 1999).

This is the first empirical study of automotive suppliers in the U.S. to ask detailed questions about their JIT logistics practices, including internal and external practices. Much of the past work has focused on the production performance inside the plant or on logistics systems. The purpose of the study is to investigate if significant differences exist in logistics practices and capabilities between lean suppliers and non-lean suppliers.

Our results indicate lean suppliers are not only able to reduce their inventory level significantly but they also spend much less in emergency shipping and no more on routine shipping. Our results are in line with Droge and Germain’s (1998) study. The results of our study also demonstrate an inverse relationship between the degree of leanness and the amount of inventory kept on hand. Manufacturers that invest significant resources toward implementing JIT in their factories will in general benefit by carrying smaller amounts of inbound, WIP, and finished goods inventory. The inverse relationship exists regardless of the firm’s operating context (absolute size). By using several JIT techniques, lean suppliers achieve higher performance in on-time staging. Therefore, lean suppliers appear better able to reduce expedited outbound shipments.

In order to reduce their costs and provide better service to the shippers, suppliers are relying extensively on information technology such as electronic data interchange. Our study provides evidence that Electronic Data Interchange (EDI) plays an important role in supply chain management. Supply chain management emphasizes vendor responsiveness, flexibility, and dependability as a means to improve customer service and logistics productivity. Timely and accurate information exchange between supply chain partners is essential for responsiveness, flexibility, and dependability (Crum et al. 1996). Our results indicate that for lean suppliers, the need to track the status and location of shipment is increasing as more companies implement JIT or other inventory-reduction programs. Overall, our results show that lean suppliers use more EDI than non-lean suppliers.

Our results show that motor trucking still dominated inbound/outbound transportation in the JIT systems and American suppliers made some progress in loading methods and routes though no significant differences exist between lean suppliers and non-lean suppliers. For lean suppliers, shipment sizes tended to be smaller and shipment frequencies greater and their ability to effectively monitor and respond to the transportation process becomes extremely important (Wu 1998). As expected, our results show full outbound vehicle loads would sometimes be difficult to attain, and partially filled trucks would be frequent, resulting in poorer vehicle utilization.

The study also provides evidence that lean suppliers are able to reduce logistics costs over time as compared to non-supplier firms. Much of the existing literature in purchasing, materials, production and inventory management pays attention to the benefits to the supplier firm in terms of reductions in manufacturing costs. Our results suggest that the benefits of long-term relationships go beyond just manufacturing efficiencies. The empirical findings in our study support this approach.

To sum up, by comparing many different independent variables between suppliers with and without use of internal lean manufacturing techniques, our study provides empirical evidence that use of internal lean manufacturing techniques not only have a significant impact on plant performance but also facilitate many external logistics practices.

References

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Sohal, A. S., A. Z. Keller, R. H. Fouad (1989). “A Review of Literature Relating to JIT.” International Journal of Production Management 9(3): 15-25.

Wu, Y. C., F. T. Yu, K. Chang (1998). “Lean Manufacturing: From the Trucking Perspective.” Proceedings of 14th International Conference on CAD/CAM, Robotics & Factories of the Future. December 1-3: 690-699.

Wu, Y. C. and F. T. Yu. (1999). “A Comparative Study: Supplier Logistics Performance.” Proceedings of Second International Conference on Operations and Quantitative Management. January 3-6: 304-311.

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