CHAPTER 16 HANDOUT: Just-in-Time (JIT) and Theory of Constraints (TOC)
Reference: Operations Management by Mark A. Vonderembse and Gregory P. White.
At this time, there appear to be enough companies using JIT in other countries
to argue that it can work outside Japan. For example, many U.S. companies, such
as Harley-Davidson, have been successful with JIT. In addition, quite a few
Japanese companies, such as Toyota, Nissan, and Kawasaki, now use JIT methods
to operate plants very successfully in the United States.
Obviously, some changes must be made to accommodate cultural differences.
For example, much has been said about Japanese workers who do calisthenics and
sing the company song before work each day. In the United States, such programs
have not been successful. On the other hand, U.S. workers have developed their
own unique ways to show company pride, such as T-shirts and hats with company
slogans. Thus, the basic principles of JIT appear to be applicable anywhere even
though particular details may need modification based on cultural differences.
THEORY OF CONSTRAINTS
In the first edition of this book, we included a section about an interesting new
software package called OPT� (Optimized Production Technology), which had
been used by about 100 large companies to schedule production. However, aside
from a set of OPT� Rules, not much was known about the inner workings of that
software. Since then, the developer of OPT�, Dr. Eliyahu Goldratt, has expanded
his OPT� Rules into what he calls the Theory of Constraints (TOC). This theory
leads to an overall operating philosophy that is similar in some respects to JIT.
The Goal of Operations
Theory of Constraints begins by stating that the goal of a business organization is
to make money. To measure how well a company is doing in achieving that goal we
focus on three factors:
• Throughput: The rate at which the system generates money through sales.
• Inventory: The money the system invests in purchasing things the system
intends to sell.
• Operating expenses: The money the system spends in turning inventory into
Using these three measures, the way to increase profits is to increase throughput
while decreasing both inventory and operating expenses. These relationships are
shown in Exhibit 17.9. Any action that does not move these measures in the
desired directions will not move an organization toward its goal.
, AND PROFITS
EXHIBIT 17.10 A CONSTRAINED PRODUCTION PROCESS
To see how these concepts are put into practice, consider the process indicated
in Exhibit 17.10. As shown, products A and B are produced using the same
process. The profit for product A is $80 per unit and 100 units can be sold per
week. For product B,...