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

In the face of growing global competitiveness it is necessary for US manufacturers to manage their limited resources in quite the opposite manner of the way they have been managed in the past. Just-In-Time (JIT) is a practice which, by eliminating waste, improving quality, and increasing productivity has helped manufacturers meet the competition. The core requirement of JIT in practrice, however, is the timely delivery of quality products. This requirement has exerted significant economic pressure on short-run JIT suppliers that provide low-volume, diversified products. This paper presents a means by which JIT methods and Statistical Process Control may be applied jointly to short run production in an environment with demand uncertainties. The purpose of this study is threefold: (1) to examine the cost structure of short-run production, (2) to propose the application of controlled production planning, and (3) to discuss the effect of controlled production planning on the cost structure of JIT suppliers. This study examines the economic impact of JIT demands on the cost structure of short-run production and proposes Controlled Production Planning (CPP) for generating signals for delivery failures or overproduction plans. Establishing CPP minimizes short-term production plan fluctuations, reduces inventory based on the market situation, and reduces the total cost of production. Using a computer simulation we demonstrate that CPP is a viable method for achieving these inventory and production goals. Based on this proposal, three inventory strategies are recommended to short-run suppliers in order to minimize their operating costs under different business conditions. The first strategy uses CPP to determine 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 quality and low flexibility to respond to fluctuating demands. The second strategy is zero inventory exercised by sole suppliers offering standard products. The third strategy is a flexible production system combined with zero inventory, which is applicable to suppliers facing strong competition without the market position to absorb their production surplus.