In many ways, manufacturing businesses are the backbone of our economy. After all, they buy raw supplies that make the products that someone else then sells and someone else buys, and then the process starts again. They play a crucial part in the continuation of the systems we know today, and partly as a result of this, many manufacturing businesses are leading the way in innovative business practices.
We can see this in two clear examples: a practice known as JIT and enterprise resource planning. This article discusses JIT and how this has been utilised in the automotive industry in particular, before moving on to take a look at how ERP provides manufacturers with even more scope for development and the potential to reduce their costs.
The concept of JIT
JIT is a concept that has been around since the 1950s, but it is really only since the 1980s that it has started to be used more widely. It stands for just-in-time
, and it refers to a type of business practice that was first started in Japan. More recently, it has been used in the car industry by companies such as Ford, suggesting that it has many benefits and is a useful tool that can be adopted by manufacturing companies.
One of the reasons it took a while for the innovation of JIT to really take off is that it can be quite complicated to explain. Essentially though, it is all about eliminating non-essential processes and reducing waste wherever possible. It also has strong links to inventory; according to JIT philosophy, inventory is waste as it requires expenditure. This runs in contradiction to traditional business models where inventory is seen as a form of value, which helps to demonstrate why this concept is such an innovation.
Therefore, businesses need to get rid of all non-essential inventories and constantly reform and improve their processes so that they can reduce their inventory – and therefore their waste – even further. The system focuses on a range of factors in order to improve performance, including employee involvement, the quality of the results and how well the process flows.
JIT is sometimes also known as the Toyota Production System to reflect its origins in the automotive industry. In a way, it makes sense that this sort of innovation would occur in the automotive industry as it is so competitive, always requiring manufacturers to become better at what they do, reduce costs and improve their output.
However, arguably the system of JIT for all its uses cannot solve all a manufacturing company’s issues by itself. This is because it relies on several assumptions, such as that prices will stay stable, eliminating the need to stock up on parts prior to a jump in price. It also assumes that the quality of those parts will stay stable for a long period of time, again eliminating the need to hold stock in advance, as well as assuming supply and demand will hold steady.
Enterprise resource planning
As we can see from above, manufacturing has found something of an innovation in JIT, but this is not the only innovation for which it is responsible. Enterprise resource planning was also developed for manufacturing companies, and one of the reasons for this was to monitor the inventories and supply chains of companies – we can see how this relates to the JIT philosophy.
One of the benefits of ERP
is that it helps to integrate a wide range of manufacturing systems, including production planning, inventory, supply chain management, purchasing, finance, sales and more. When we consider that one of the aims of JIT is to try and eliminate waste, we can see how streamlining systems through an integrated ERP solution can benefit this and how the two innovations make sense when taken together as a whole.
Today, ERP is an innovation that has been adopted by all sorts of companies all over the world, and leading vendors such as SAP, Oracle and Sage
are highly experienced at providing tailored products to a wide range of companies. However, even though lots of different businesses now make use of this sort of solution, its manufacturing roots are still important and many ERP solutions come with manufacturing module – reflecting the fact that manufacturing is still so important to this sort of software.
Overall, it is possible to argue that the manufacturing industry has been responsible for some of the biggest innovations in business practice in recent times, and so it will be interesting to watch and see where the next innovation comes from – particularly if it is then able to translate to other sorts of business as we have already seen with ERP.