Homework 2

Overview:

Class Exercise/Lab. (JIT) Elimination of Waste

This exercise contains information about a Garment production system (see Below). Data on operations

are given by management asking us to determine Categories of waste. We must use the data to prove type

and existence of the waste in current operations. Once a waste is recognized, you must provide at least

two general method of eliminating the Waste. This exercise is composed of 2 parts.

1)- list of possible wastes in this type of systems

2)-Your findings/proposals (list of waste and how to eliminate them)

PART I

Type and description of wastes

Additionally, while thinking about wastes, there are three types of activities that should be defined within

organizations:

1. Value adding activity: those activities that, in the eyes of the final customer, make a product or service

more valuable. A value adding activity is simple to define; industries can ask themselves if they as a

customer would be happy to pay for it.

2. Necessary non-value adding activity: those activities that, in the eyes of the final customer, do not

make a product or service more valuable but are necessary, in the event the existing supply process is

radically changed. Such waste is more difficult to remove in the short term and should be a target for

longer term or radical change.

3. Non-value adding activity: those activities which, in the eyes of the final customer, do not make a product or service more valuable and are not necessary even under present circumstances. These

activities are clearly ‘wastes’ and should therefore be the target of immediate or, at least, short term

removal. L EAMPLE: The ABC Garment Inc, operates two plants (see Figure 1) in Eastern Virginia. Plant 1&2 produce

a special winter Jacket and two other small size products. In this case study, we are interested in

application of Continuous Improvement in the operations, specifically, production of jackets and

Waste Type 1. Overproduction

2. Defects Frequent errors,

3. Unnecessary inventory

4. Inappropriate processing

5. Excessive motion

6. Waiting

7. Unnecessary motion

Description Producing too much or too soon, resulting from poor flow of

Information

Product quality problems, or poor delivery performance

Excessive storage and delay of information or products, resulting

in excess inventory

Going about the work process using the wrong set of tools,

procedures or systems, often when a simpler approach may be

effective

Excessive movement of people, information or goods, resulting in

wasted time, effort and cost

Long periods of inactivity for people, information or goods

Poor workplace organization, resulting in poor ergonomics, for

example excessive bending or stretching and frequently lost items

Storage

Plant 2

purchase of raw material (yarn) used the production of jackets. After jackets are produced, they are

stored in a special storage (see figure 1). About 50% of raw material is stored in Plant 1 building and the

rest, in Plant 2 building. d= 30 miles d= distance in miles

To customers

A)- Historical data on Demand and Production of jackets and Yarn units in the 2 factories (about 55 miles

apart) operates

TABLE 1

Final Product (Jacket) Raw Material (Yarn)**

Year Production (SS) Demand (DD) Year Production (SS) Demand (DD)

Oct-2010

588202

261727

Oct-2010 110269 70944

Nov-2010 506152 664402 Nov-2010 104398 51926

Dec-2010 473379 565576 Dec-2010 123191 75568

Jan-2011

376092 242484 Jan-2011 50050 32292

Feb-2011

307313 175039 Feb-2011 99606 105538

Mar-2011

490599

316520

Mar-2011 101114 67142

Apr-2011 235028 653664 Apr-2011 86466 19035 May-11 190817 262863 May-2011 74000 54129 Jun-2011 252258 375152 Jun-2011 83486 27945

July-2011 23541 0 July-2011 0 0

Aug-2011 24526 0 Aug-2011 0 0 Sep-2011 276557 345262 Sep-2011 76758 10858

Oct-2011

2888552

301597

Oct-2011 20872 39447

Nov-2011 102433 193575 Nov-2011 65559 0

Dec-2011 171556 125249 Dec-2011 72882 0

Jan-2012

221032

205633

Jan-2012 65430 0

Feb-2012

269635

122749

Feb-2012 61887 17181

Mar-2012 240788 534905 Mar-2012 73770 1700

Apr-2012 231783 304739 Apr-2012 67653 20736

May-2012

186023

62232

May-2012 44593 30749

Jun-2012 267355 583408 Jun-2012 67017 51359 **All data points should be used except the those for July & August 2011 on Raw Material (yarn).

Note: demand statistics for Yarn is 50% of the Yarn needed in the whole operations

d=45 miles

Plant 1

B)- The standard practice (if followed) requires using 0.10 units of yarn for each jacket. Yarn purchased

is used in producing jackets and two other garments. Historical data shows that, total yarn used in the

production of the two other garments is approximately the same as the total used for jacket., Data

required to do this project is given in table 1 above.

Assumptions:

Assuming the company receives the raw material at the beginning of each month and ship the finished

product (produced in a period) at the end of the same period. Determine average inventory level for

the jackets and Yarn units. Note that, standard practice requires only 1200 units of yarn and jacket

(each) in inventory. The following cost information is made available for your study.

Per unit of jacket per unit of yarn

Inventory carrying cost $ 3.75 $0.91

Transportation/handling cost/mile $.65 $.22

What is required.

This is a JIT project and the objective is to improve the operations by eliminating waste as much as

possible. Use the data provided and Determine:

1). Types of waste (list as many as you recognize from the list shown above)

2). Quantify the waste (In time, $,%..).

3). Develop at least 2 alternative solution to eliminate the waste. (Explain your solution (a few lines)

4. Show % improvement in operation if we implement your recommendations

Hints: It is possible to find all types of wastes listed in page 1 of this document in this system. Some

(page 1, items, 1, 3, &5) more severe than others.

Question 1 …….

Question 2:……

Question 3:……….

Question 4:……

SOLUTION: (See the last page for direction and understanding the solution)

As a first step, it is necessary to compare production/purchase with demand for the jackets as well as

demand for yarn (on average per month basis)

A)- Production/purchase B)-Demand A-B (overproduction)

--------------------------------- ------------------- ---------------------------

Jackets 400454 315.688.5 84765.5

Yarn 77874.5 36008.6 41805.9 **

Figure 1 and 2 shows the absence of balance between production volume and demand for jacket.

(Random)

Conclusion: On average, the company carried an average extra inventory of 84765.5 jacket. Similar

statement is also true for Yarn. If the produced/purchased Yarn shown in table was for all products

(Jacket & the other two products), then average extra inventory of yarn =38145.8-32728.6 =5417 units

➔ Types of waste involved include: 1)-Overproduction Waste. 2)-Unnecessary Inventory. In addition

to the ese 2 obvious Waste, There were probably waste involving “Excessive and/or Unnecessary

motion”

Figure 1(vertical access in in 1000)

Figure 2 (vertical access in in 1000)

Answer s to Questions

Question 1: Types of waste involved are:

1)-Overproduction

2)- Excess Inventory

3)- Unnecessary transportation (location of the warehouse with respect to the two plants)

4)- Excess motion /move ( excess inventory require more than required handling)

5)- Overproduction and excess inventory require more labor, more monitoring, more

waiting and more damaged product (reject and waste) which are all unnecessary.

P ro

d

u se

d

Question #2:

1)-Overproduction. We proved before that volume of overproduction was:

Jacket: ➔ 84765.5 units per month (average value) ➔ 84765.5/400454 =21.16%

**Yarn ➔41805.9 “ “ “ “ “ “ (this may be = 5857 if the assumption

discussed in “Conclusion” is applied ➔ 5857/77874.5 = 7.52%

2)- Excess inventory. (the same values as in item 1 above. However, if we consider the

requirement for a safety stock of (desired by management) 1200, then excess inventory

will be 83565.8 and 4657 units for Jackets and Yarn respectfully.

Cost associate with excess inventory = 83656.8*3.73 + 4657 *0.91 = $315924

3)- cost associated with unnecessary transportation/handling is that the warehouse is location. should

Change from current location to a new location approximately between the two plants

➔ The excess (unnecessary) transportation = (75-55) /75 = 26.67 %

4)- No data is available to quantify other wastes

Question 3-4

Overproduction:

1)- cut overproduction/purchase quantity. Purchase enough to meet the demand (the purchased

quantity must be X% more than demand, where X is the percentage required for safety stock and

rejected (damaged, scrapped, …)

2)- Improve sales forecast. only through a good forecasting system, the company could predict

demand level for the next month.

Excess Inventory:

1)- if we eliminate the overproduction problem as stated in the previous part, the

Excess inventory cost/waste will be eliminated resulting in $315924 savings

2)- If possible, the production planning and inventory replenishment should be based on say a

weekly schedule not monthly. (closer to JIT inventory system)

Using weekly replenishment, average inventory will be smaller and cost of carrying

inventory will drop from $315924 to ($315924 *12/52) = $72906. This is a reduction of

77% in inventory carrying cost.

3)- Use EOQ system of inventory

Excess motion/transportation:

1)- Move the warehouse to a location where total distance traveled from the two plant to the

warehouse will be minimized (55 miles). The savings (cost reduction) due to this waste

reduction alternative, is shown in question 2 as 26.67 % and the $ value is:

Total transportation cost/month of moving 400454 units of Jackets and 77874.5 units of Yarn

= (400454) *0.65 + (77874.5) * 0.22 = $223427.5

Savings (if we change location of warehouse) = (26.67%) *(223427.5 = $69420.7

2)- Implementing the item2 1 and 2 (See overproduction above) will result in eliminating

excess/unnecessary labor usage, excess motion, and related wastes). We need additional data

to quantify other savings because of waste elimination.

Discussion & Assignment Help: waste Elimination.

In JIT project, the primary focus is on eliminating waste. But, to eliminate waste, as a first step, we

have to define it (in the context of the system under study) and then determine the types of waste

in the system and quantify the impact of each type, on the performance measures of the system.

Note that in early part of the study, we need to look at waste in the overall system (those that are

obvious) and after that, if further studies are needed, search for waste in the sub-systems and

continue this process to the smallest component of the whole system.

In Assignment #2 that you are working on now, It is obvious that monthly production volume of

jackets and yarn compared to their corresponding demand volume, are random and does not follow

a logical pattern. Comparing production with demand for each product on a monthly basis will

show that we had shortage (Demand > production) in some months or overproduction (Production

> demand) in others.

In this case study (or similar ones), since initial inventory is not given, do not conduct an inventory

analysis to find out whether in a row (Monthly data) there is a balance between Production volume

data and data on demand for that month. The information represents 2 years of data from an

ongoing operation. The data provided does in table 1 does not imply that this company’s

operations started on September 2010 or stopped on June 2012. For instance, they we able to sell

more jacket in September 2010 than they produce the same period, because, the beginning

inventory in September was high enough to allow them to meet the demand from the inventory.

To find and quantify wastes in the system. let us assume that the sample data is large enough to be

used in the Waste Elimination study. (in real-life situations, we need at least 30 pieces of data to

make sure that the sample is large enough to make the result statistically valid). Let:

X= Average monthly production Y= Average monthly demand

If X > Y, this imply that we have “Overproduction”. This will create other waste in the system

which may include inventory, labor force, ….

If X < Y, there are two interpretation (see below)

a) We did not satisfy customer demand (waste of resources. Capability….). ➔ We did

not use all our resources efficiently to produce enough to meet the demand.

b). On September 1, 2010, we had a large inventory of jackets in storage which

allowed us to (combined with production) meet customers demand for 2 years

As shown in this case study, a lean system aims at balancing periodic input and output, while a

traditional system continues operations without requiring such a balance. This is possible because

a traditional system maintains large volume of inventories and allows us to satisfy customer

demand from Inventory. Inventory and operations related to maintaining inventory are all very

costly.

Using the data provided, you can quantify those losses and determine the cost associated with each

type of waste