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ISBM Assignments Inventory Management-ISBM-1
Product Name : Inventory Management-ISBM-1
Product Code : AC1
Category : ISBM
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In the mid-1990s, more than fifty executives and engineers from major automobile companies worldwide visited Toyota Motor Company's (Toyota)1 manufacturing complex at Georgetown, US, to study the Toyota Production System (TPS). The visit also included an intensive question and answer session. Even though the visitors were from competing automakers, including Ford and Chrysler, Toyota did not deny them access to the plant.


The TPS aimed to produce world-class, quality automobiles at competitive prices. It was built on two main principles, Just-in-Time (JIT) production and Jidoka.


JIT was used not only in manufacturing but also in product development, supplier relations and distribution. Analysts remarked that despite imitating Toyota's JIT for many years, no other automaker in the world had been able to make their production systems and processes as efficient as Toyota had done.


Analysts felt that though other leading automakers like Mercedes-Benz, Honda and DaimlerChrysler excelled in advanced engineering techniques, engine technology and styling, they did not match Toyota in efficiency, productivity and quality. Executives of rival companies also appreciated Toyota's manufacturing and product development systems. Officials at GM commented, "Toyota is the benchmark in manufacturing and product development." A top executive at Ford said, "Toyota is far ahead in developing markets that the real race is for the second place." Some executives at BMW also considered Toyota the best car company in the world.


The early adoption of JIT principles by Toyota seemed to have helped the company achieve significant success. It helped the company respond quickly to changing customer needs and offer high quality products at low costs, thus increasing customer satisfaction .




Toyota's history goes back to 1897, when Sakichi Toyoda (Sakichi) diversified into the handloom machinery business from his family traditional business of carpentry. He founded Toyoda Automatic Loom Works (TALW) in 1926 for manufacturing automatic looms. Sakichi invented a loom that stopped automatically when any of the threads snapped. This concept of designing equipment to stop so that defects could be fixed immediately formed the basis of the Toyota Production System (TPS) that went on to become a major factor in the company's success.


In 1933, Sakichi established an automobile department within TALW and the first passenger car prototype was developed in 1935.


Sakichi's son Kiichiro Toyoda (Kiichiro) convinced him to enter the automobile business. After this the production of Model AA began and Toyota Motor Corporation was established in 1937. Kiichiro visited the Ford Motor Company in Detroit to study the US automotive industry. He saw that an average US worker's production was nine times that of a Japanese worker. He realized that the productivity of the Japanese automobile industry had to be increased if it were to compete globally.


Back in Japan, he customized the Ford production system to suit Japanese market. He also devised a system wherein each process in the assembly line of production would produce only the number of parts needed at the next step on the production line, which made logistics management easier as material was procured according to consumption. This system was referred to as Just-in-Time (JIT) within the Toyota Group.


The JIT production was defined as 'producing only necessary units in a necessary quantity at a necessary time resulting in decreased excess inventories and excess workforce, thereby increasing productivity.'


Kiichiro realized that by relying solely on the central planning approach, it would be very difficult to implement JIT in all the processes for an automobile. Hence, TPS followed the production flow conversely. People working in one process went to the preceding one to withdraw the necessary units in the necessary quantities at the necessary time.



Developed by the Japanese, the JIT production system was one of the most significant production management approaches of the post World War II era. The system comprised a set of activities aimed at increasing production volume through the optimum use of inventories of raw materials, work-in-process, and finished goods. In a JIT production system, a workstation gets a part just in time, completes its work and the part is moved through the system quickly.


JIT was based on the principle of producing only what is needed and nothing more than needed. The Japanese believed that anything produced over the quantity required was a waste.




  • Define JIT? What was the benefit of JIT in Toyota?



Case - 2


'Carcom' is a supplier of automotive safety components employing around 700 staff which is located on two sites in Northern Ireland. The company was originally American owned but after a joint venture with a Japanese partner in the late 1980s, it was eventually bought out by the latter.


The quality initiative began in 1988-89 with a five-year plan based on the Kaizen philosophy, this concept having been picked up from the Japanese partner. This was driven by senior management in response to what they saw as increasing customer demand and operating considerations. The achievement of ISO 9001 registration in 1990 brought together processes carried out by departments which had previously been undertaken in isolation. The company is now focusing on Kaizen with the principles of improvement, customer delight, systems focus and participation. A range of quality management tools and techniques are used. A TQM steering committee is responsible for overall direction but there is also a further steering committee to oversee implementation of the Quality Improvement Teams (QITs) as well as a full time coordinator. There are teams of shopfloor operators based on natural workgroups, and these tend to focus on product problems and environmental issues (such as working conditions). In contrast, Kaizen teams focus on process improvements (for example, die change) and problem-solving workgroups are established in response to specific customer concerns (for example, warranty claims).


Senior managers stress that a long-term approach is now being taken which is in contrast to some of the programmes in the early 1980s. These former piecameal initiatives included quality circles which had been characterized by considerable changes in personnel , with a number of champions having moved on leaving behind a flagging initiative in contrast, the company is now taking time to get the processes right and providing a central focus through quality for change. Cultural change is the aim but it is recognized that only incremental progress can be achieved and that a supportive attitude is required from management Thus, QIT members are given extensive training and are encouraged to tackle problems which give earlly success and build teamwork, rather than put pressure on teams to deliver immediately on big issues.


The Impact of TQM


While it is still early days, the initiative is already felt to have had a major impact. The management structure has been reduced by one layer, shopfloor layout has been improved, and scrap rates, stock, work-in-progress and inspection times have been reduced, so too have the numbers of inspectors, whose role is now seen as one of analysts. Employee response to these changes has generally been positive, and the company nas spent considerable effort in relating 'qualiy' directly to employees' work, particularly through the use of measures which are displayed adjacent to the workstation and maintained by staff themselves. The unions were assured that there would not be job losses as a result of Kaizen, although they continue to have concems about this and also raise the issue of payment for changes in job roles - particulady in relation to SpC. The company has adopted an open information policy to foster greater trust at the workplace, and business-related issues are given greater prominence at the joint works committee meetings. Management also believe that the quality initiative has led to a reduction in union infliuences although this was not an original objective



The Strategic Nature ofl the Human Resource Function


The human resource function has emerged from a welfare to a more strategic role in recent years. This has been assisted by an MD who is regarded as a 'people' s person' claiming that 'you can't divorce people from quality,' and by the appointment of a personnel director to the boatd together with a new industrial relations manager. This has broadened the role of human resources and enhanaed its status The appointment of a training manager was significant, since under the previous regime little off-the-job training was conducted. Training budgets have actually increased in volume and monetary terms despite the company's recently recorded trading losses. Recruitment and selection are becoming more sophisticated as the company wish to idenfify teamworkers.


The links between human resources and quality were made explicitly by tbe MD : "We cannot separate HR from TQM, and without HR the QIP will not work effectively." In addition to the issues mentioned above, the function was also seen as being important in building the people aspect into the strategic quality planning process. addressing the problem of absenteeism, and supporting line management by helping to change employee attitudes/organizational culture. In addition, the function has provided appropriate training programmes for quality, in which there has been considerable investment in time and resources, it has counselled the mentors to the QIT, and ensured that managers communicate with staff by providing advice on the best means of doing this. Quality principles are also being developed in relation to the human resource function, with specific targets being set (for example, for absenteeism) as well as more general aims (for example, on training).



  • Analyse the links between TQM and HRM with reference both to this case study and more generally?
  • How might the principles of TQM be applied to a personnel function?


Case – 3

Passenger Interchange

In most major cities the amount of congestion on the roads is increasing. Some of this is due to commercial vehicles, but by far the majority is due to private cars.There are several ways of controlling the number of vehicles using certain areas. These include prohibition ofcars in pedestrian areas, restricted entry, limits onparking, traffic calming schemes, and so on. A relatively new approach has road-user charging, where cars pay afee to use a particular length of road, with the fee possibly changing with prevailing traffic conditions.


Generally, the most effective approach to reducing traific congestion is to improve public transport. These services must be attractive to people who judge them by a range of factors, such as the comfort of seating, amount of crowding, handling of luggage, availability offood, toilets, safety, facilities in waiting areas. availabilityof escalators and lifts, and so on. However, the dominant considerations are cost, time and reliability.


Buses are often the most flexible form of public transport, with the time for a journey consisting of four parts:


  • joining time, which is the time needed to get to a bus stop
  • waiting time, until the bus arrives
  • journey time, to acnrallg do the traveling
  • leaving time, to get from the bus to the final destination


Transport policies can reduce these times by acombination of frequent services, well-planned routes, and bus priority schemes. Then convenient journeys andsubsidised travel make buses an attractive alternative.


One problem, however, is that people have to change buses, or transfer between buses and other types of transport, including cars, planes, trains, ferries and trams.Then there are additional times for moving between onetype of transport and the next, and waiting for the nextpart of the service. These can be minimised by an integrated transport system with frequent, connecting services at 'passenger interchanges'.


Passenger interchanges seem a good idea, but theyare not universally popular. Most people prefer a straight-through journey between two points, even if this is less frequent than an integrated service with interchanges. The reason is probably because there are more opportunities for things to go wrong, and experiences suggests that even starting a journey does not guarantee that it will successfully finish.


In practice, most major cities such as London and Paris have successful interchanges, and they are spreading into smaller towns, such as Montpellier in France. For theten years up to 2001, tbe population of Montpellier grewby more than 8.4 per cent, and it moved from being the 22nd largest town in France to the eighth largest. It has good transport links with the porti of Sete, an airport, inland waterways, main road networks and a fast rail linkto Paris. In 2001, public transport was enhanced with a 15 kilometre tramline connecting major sites in the towncentre with other transport links. At the same time, buses were rerouted to connect to the tram, cycling was encouraged for short distances, park-and-ride services were improved, and journeys were generally made easier, As a result, there lns been an increase in use of publlc transport, a reduction in the number of cars in the


town centre, and improved air quality. When the tram opened in 2000, a third of the population tried it in the first weekend, and it carried a million people within seven weeks of opening. In 2005, a second tramline will add 19 kilometres to the routes.



  • Are the problems of moving people significantly different from the problems of moving goods or Services?
  • What are the benefits of public transport over private transport ? Should public transport be encouraged and, if so, how?


CASE – 4


Vendor Managed Inventory popularly known as VMI is gaining great momentum in retail business processes. In this era of tough competition retailers are implementing every supply chain optimization process that will reduce their costs, reduce inventory levels and increase profits. Efficient supply chain management requires the rapid and accurate transfer of information throughout a supply system. Vendor Managed Inventory (VMI) is designed to facilitate that transfer and to provide major cost saving benefits to both suppliers and retailers customers. Vendor Managed Inventory is a continuous replenishment program that uses the exchange of information between the retailer and the supplier to allow the supplier to manage and replenish merchandise at the store or warehouse level. In this program, the retailer supplies the vendor with the information necessary to maintain just enough merchandise to meet customer demand. This enable the supplier to better project and anticipate the amount of product it needs to produce or supply.


Definition and Concept

Vendor managed inventory process can be defined as “A mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer/customer”. To say this in simple terms, VMI is a backward replenishment model where the supplier does the demand creation and demand fulfillment. In this model, instead of the customer managing his inventory and deciding how much to fulfill and when, the supplier does. The VMI concept provides improved visibility across the supply-chain pipeline that helps manufacturers, suppliers and retailers improve production planning, reduce inventory, improve inventory turnover and improve stock availability. With information available at a more detailed level, it allows the manufacturer to be more customer-specific in it’s planning. The VMI concept is being widely used in many packaged consumer goods processes where the end-user’s demand for products is relatively stable with short-term fluctuations in supply chain. With the ability of supply-chain applications to manage inventories at retailer locations, VMI concepts are being applied at both the distribution  centre level and the store level .




VMI Fulfillment Process from Retailer Perspective

In the fulfillment process using VMI, typically the activities of forecasting and creating the purchase orders are performed by the vendor/supplier and not by the retailer. Electronic data interchange (EDI) is an integral part of VMI process and takes a vital role in the process of data communication. The retailer sends the sales and inventory data to the vendor via EDI or other B2B Collaboration facilities and the supplier creates the purchase orders based on the established inventory levels and fill rates. In VMI process, the retailer is free of forecasting and creating the orders as the vendor generates the orders. The vendor is responsible for creating and maintaining the stock plan for the retailer. The vendor sends the shipment notices before shipping the product to the retailer’s store/warehouse. Soon after this, the vendor sends the invoice to the retailer. Upon receiving the product, the retailer does the invoice matching and handles payment through their account payable systems.


EDI Documents used in VMI

EDI is an integral part of VMI process. Some of the EDI transactions used in VMI are listed below:

  • Purchase Orders
  • Product Activity
  • Purchase Order Acknowledgement
  • Advance Ship Notice
  • Invoice





Benefits of VMI Process

The VMI process brings benefits for both retailers and suppliers. Some of those benefits are listed below.


Retailer Benefits

Reduced inventory: This is the most obvious benefit of VMI. Using the VMI process, the supplier is able to control the lead-time component of order point better than a customer with thousands of suppliers they have to deal with. Additionally, the supplier takes on a greater responsibility to have the product available when needed, thereby lowering the need for safety stock. Also, the supplier reviews the information on a more frequent basis, lowering the safety stock component. These factors contribute to significantly lower inventories.


Reduced stock-outs: The supplier keeps track of inventory movement and takes over responsibility of product availability resulting in a reduction of stock outs, there-by increasing end-customer satisfaction.


Reduced forecasting and purchasing activities: As the supplier does the forecasting and creating orders based on the demand information sent by the retailer, the retailer can reduce the costs on forecasting and purchasing activities.


Increase in sales: Due to less stock out situations, customers will find the right product at right time. Customers will come to the store again and again, there-by reflecting an increase in sales.



  • Summarize VMI and its advantage to retailers?
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