Evaluating Just-In-Time Projects
From a More Focused Framework
by Dale G. Sauers
Just-in-time (JIT) projects don't always yield the benefits hoped for. Too often, we do what we set out to do, but we fail to see impacts on the bottom line. Are the improvements going wrong? Or could it be that we are choosing the wrong projects?
Trying to determine which project will have the largest effect on the organization can be overwhelming. After all, there is an extensive list of JIT elements to consider, including setup time reduction, inventory reduction, quality at the source, supplier relations and group technology.1
While there is no way to guarantee a project's success, considering its contribution toward company goals is a step in the right direction. And using a goal focused framework can help ensure that the JIT project you initiate clearly impacts the bottom line.
Attaining goals and correcting constraints
To see JIT project results, begin by articulating a goal that everyone agrees with. Eliyahu M. Goldratt says that the goal of any for profit company is to make more money.2 We'll consider this--making more money--our goal for the remainder of this article.
If our goal is making more money, then productivity improvement would be a logical criterion regarding project selection. Productivity is defined as the output the organization attains per unit of resource expended. Increased productivity either generates more output from the same amount of resources or generates the same amount of output from fewer resources. Clearly, JIT projects that increase productivity contribute to our goal.
Goldratt also suggests that all organizations face constraints or else they would consistently make more money.3 Sometimes the company's constraint is internal, a bottleneck work center for example. If the company is operating at less than capacity, on the other hand, the constraint is external--market acceptance of the product. These factors offer two more criteria for JIT project selection.
Goldratt's managerial accounting system, throughput accounting,4 provides the JIT project selection framework needed for internal constraints. The accounting system defines unit throughput as the unit's selling price minus the total variable cost associated with providing a unit of product. The throughput rate is defined as the throughput per minute at the limiting constraints.
If our goal is to make more money, more throughput, we should identify the bottleneck causing the most serious constraint to throughput and choose that as our JIT project.
When the constraint to making more money is product acceptance in the marketplace, it's important to consider order qualifiers and order winners.5 Order qualifiers are the minimum levels of competency needed to compete in today's global market. Order winners are competency levels needed to actually get orders. Typical order qualifiers/winners include competencies such as quality, lead times and agility in reacting to market changes. If the market itself is a constraint to making more money, JIT projects that increase such competencies will move us toward our goal.
Sales and marketing
Since obtaining orders involves sales and marketing functions, production
must work with sales and marketing in project selection.
If sales and marketing are not involved, they are less likely to make an effort to capitalize on any new capabilities the project offers.
If we intend to reach our goal by improving product acceptance, we must verify that the improved competency is desired by the marketplace and that sales and marketing are committed to capitalizing on the new competency. As a result, projects addressing market share need to be pitched to both manufacturing and sales and marketing management. The following approach is recommended:
1. Identify the order qualifier/winner competency that the project addresses.
2. Ask sales and marketing the following:
- Is this capability improvement of interest to the sales and marketing areas?
- If so, what actions will sales and marketing initiate to take advantage of the improvement?
- If the project's improvements materialize, can you quantify the expected benefits?
Too often, manufacturing makes improvements because they are possible or because it is assumed that the customer will find the improvements desirable. Cooperation from sales and marketing can ensure not only that the project's results will be utilized, but that the project is necessary in the first place.
1. Kenneth Wantuck, "Just-in-Time for America Video Series--Management Overview" (Southfield, MI: KWA Media, 1992).
2. Eliyahu M. Goldratt and Jeff Cox, The Goal (Great Barrington, MA: North River Press, 1984).
3. Eliyahu M. Goldratt, It's Not Luck (Great Barrington, MA: North River Press, 1994).
4. Eric Noreen, Debra Smith and James T. Mackey, The Theory of Constraints and Its Implication for Managerial Accounting (Great Barrington, MA: North River Press, 1995).
5. Terry Hill, Manufacturing Strategy, second edition (New York: McGraw Hill, 1994).
DALE G. SAUERS is professor of management at York College in Pennsylvania. He earned a master's degree in quantitative management science from the University of Houston. Sauers is an ASQ member.