Controlled production planning for Just-In-Time short-run suppliers

In the face of growing global competitiveness it is necessary for US manufa cturers to manage their limited resources in quite the opposite manner of t he way they have been managed in the past. Just-in-Time (JIT) is a practice which, by eliminating waste, improving quality, and increasing productivit y, has helped manufacturers meet the competition. The core requirement of J IT in practice, however, is the timely delivery of quality products. This r equirement has exerted significant economic pressure on short-run JIT suppl iers that provide low-volume, diversified products. This paper presents a m eans by which JIT methods and Statistical Process Control may be applied jo intly to short run production in an environment with demand uncertainties. The purpose of this study is threefold: (1) to examine the cost structure o f short-run production, (2) to propose the application of controlled produc tion planning, and (3) to discuss the effect of controlled production plann ing on the cost structure of JIT suppliers. This study examines the economi c impact of JIT demands on the cost structure of short-run production and p roposes Controlled Production Planning (CPP) for generating signals for del ivery failures or overproduction plans. Establishing CPP minimizes short-te rm production plan fluctuations, reduces inventory based on the market situ ation, and reduces the total cost of production. Using a computer simulatio n we demonstrate that CPP is a viable method for achieving these inventory and production goals. Based on this proposal, three inventory strategies ar e recommended to short-run suppliers in order to minimize their operating c osts under different business conditions. The first strategy uses CPP to de termine an inventory cap that requires the maintenance of an average level of stock as a lower control limit to cope with short-run demand fluctuation . This strategy is applicable to a business condition with high product qua lity and low flexibility to respond to fluctuating demands. The second stra tegy is zero inventory exercised by sole suppliers offering standard produc ts. The third strategy is a flexible production system combined with zero i nventory, which is applicable to suppliers facing strong competition withou t the market position to absorb their production surplus.