JIT causes dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency.
Japanese corporations cannot afford large amounts of land to warehouse finished products and parts. Before the 1950s this was thought to be a disadvantage because it reduced the economic lot size. An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product. The undesirable result would be a poor return on investment for a factory.
The chief engineer at Toyota in the 1950s examined accounting assumptions, and realized that another method was possible. The factory could be made more flexible, reducing the overhead costs of retooling, and therefore reducing the economic lot size to the available warehouse space.
Over a period of several years, Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding. Toyota was one of the first to apply flexible robotic systems for these tasks. Some of the changes were as simple as standardizing the hole sizes used to hang parts on hooks. The number and types of fasteners were reduced in order to standardize assembly steps and tools. In some cases identical subassemblies could be used in several models.
Toyota engineers then determined that the remaining critical retooling operation was the time to change the stamping dies used for body parts. Traditionally, these were adjusted by hand, with crowbars and wrenches. It sometimes took as long as several days to install a large (multiton) die set and achieve acceptable quality. Further, these were usually installed one at a time by a team of experts, so that the line would be down for several weeks.
Toyota implemented a program called "The Single Minute Exchange of Die," SMED. With very simple fixtures, measurements were substituted for adjustments. Almost immediately, die change times fell to about a half hour. At the same time, quality of the stampings became controlled by a written recipe, reducing the skill reuqired for the change. Analysis showed that the remaining time was used to search for hand tools, and move dies. Procedural changes (moving the new die in place with the line in operation) and dedicated tool-racks reduced die change times to as little as 40 seconds. Dies were changed in a ripple through the factory, as a new product began flowing.
After SMED, economic lot sizes fell to as little as one vehicle in some Toyota plants.
Carrying the process into parts-storage made it possible to store as little as one part in each assembly station. When a part disappeared, that was used as a sign to produce or order a new part.
Some surprising things occurred. A huge amount of cash appeared, apparently from nowhere, as in-process inventory was built out and sold. This by itself generated tremendous enthusiasm in upper management.
Another surprising effect was that the response time of the factory fell to about a day. This improved customer satisfaction by providing vehicles musually within a day or two of the minimum economic shipping delay.
Also, many vehicles began to be built to order, completely eliminating any risk that they would not be sold. This dramatically improved the company's return on equity by eliminating a major source of risk.
Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. The result was a severe quality assurance crisis, and a dramatic improvement in product quality. Eventually Toyota redesigned every part of its vehicles to eliminate or widen tolerances, while simultaneously implementing careful statistical controls. (See Total Quality Management). Toyota had to test and train suppliers of parts in order to assure quality and delivery. In some cases, they eliminated multiple suppliers.
When a process problem or bad parts surfaced on the production line, the entire production line had to be slowed, or even stopped. No inventory meant that a line could not operate from in-process inventory while a production problem was fixed. Many people in Toyota confidently predicted that the initiative would be abandoned for this reason. In the first week, line stops occurred almost hourly. However, by the end of a month, the rate had fallen to a few line stops each day. In six months, line stops had so little economic effect that Toyota had an overhead pull-line, similar to a bus bell-pull, that permitted any worker on the production line to order a line stop for a process or quality problem. Even with this, line stops fell to a few per week.
The result was a factory that became the envy of the industrialized world, and which has since been widely emulated.