The gist of JIT
JIT, also called lean manufacturing, is a management philosophy focused on how the supply chain fits into the manufacturing process, says Dave Schoneker, past chairman of the International Pharmaceutical Excipients Council of the Americas. One of its main principles is to eliminate waste in the supply chain. To do this, a company should buy small quantities of raw materials from its suppliers and reduce the amount of materials that it stores as inventory. An efficient approval process must be instituted so that materials can be brought into the production process as close as possible to the start of manufacturing.In contrast to push manufacturing, or making products to stock, JIT is based on pull manufacturing, which manufactures product in response to actual consumer demand. The goal of JIT manufacturing is to create products only when they're needed, and only in the quantities necessary to satisfy the demand. Pull manufacturing requires a synchronized supply chain aligned with the manufacturing process.
Short setup times, an even flow of products through the factory, a high level of process control and reliability, and the possibility of continuous improvement are also important JIT principles. These elements help improve process efficiency, ensure product quality, and reduce costs.
It's good to be lean
Arguably the biggest benefit of JIT manufacturing is that it greatly reduces inventory, thus "quickly creating tax-free, positive cash flow," says Ken Thomas, president of Taith Group (Avon, IN) and retired head of Eli Lilly's (Indianapolis, IN) supply-chain management organization. "That liquid asset clearly has many advantages in the current economic environment," he adds.
JIT principles also can reduce throughput time by identifying and eliminating unnecessary procedures. Low throughput time helps a manufacturer respond quickly to sudden increases in demand, which sometimes occur after a new drug is launched. Long throughput times require a company to create a large inventory of a product before launch to rapidly satisfy a potential increase in demand. If demand turns out to be lower than predicted, a nonlean company would be left with excess inventory. By reducing inventory and throughput times, JIT manufacturing helps prevent this outcome, says Tom van Laar, head of global technical operations at Novartis.
Another important advantage of JIT manufacturing is that it reduces the likelihood that a company will run out of finished-product inventory, according to van Laar. Stockouts hurt a manufacturer's bottom line, and they are even worse for the pharmaceutical industry because they impede patients' access to drugs. JIT manufacturing "provides a way to still get the benefits of lower inventories, at the same time minimizing the chance of a stockout or poor customer service," says van Laar.
JIT principles can bring benefits to suppliers as well. Through a partnership, a manufacturer could help a supplier reduce inefficiencies in its processes, thereby resulting in lower costs that aid both parties. Such a partnership fosters long-term relationships and helps suppliers achieve the quality that manufacturers need. Some automobile companies adopted this technique many years ago, van Laar says, and shared the resulting benefits with their suppliers.