MGT 322 SEU The First Reason for Adopting the Two Business Models Case Study


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‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 3
Deadline: 30/04/2022 @ 23:59
Course Name: Logistics Management
Student’s Name:
Course Code: MGT322
Student’s ID Number:
Semester: II
Academic Year: 1443/1444 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
Level of Marks:
● The Assignment must be submitted on Blackboard (WORD format only) via allocated
● Assignments submitted through email will not be accepted.
● Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
● Students must mention question number clearly in their answer.
● Late submission will NOT be accepted.
● Avoid plagiarism, the work should be in your own words, copying from students or
other resources without proper referencing will result in ZERO marks. No exceptions.
● All answered must be typed using Times New Roman (size 12, double-spaced) font.
No pictures containing text will be accepted and will be considered plagiarism).
● Submissions without this cover page will NOT be accepted.
Logistics Management
Submission Date by students: Before the end of Week- 13th
Place of Submission: Students Grade Centre
10 Marks
Learning Outcome:
1. Illustrate the concepts of logistic system operations used in logistic systems, time-based
management, and lean thinking.
2. Interpret the use advanced theory and methods to identify inefficiencies in supply chains
3. Demonstrate ability to work with others effectively as a team member in logistic management
projects, related to case studies or new themes
Assignment Workload:
This assignment is an individual assignment.
Critical Thinking
The purpose of this assignment is to identify and apply Logistics and Supply Chain Management
concepts/tools to suggest logistics performance priorities. To this purpose, you should review chapter
7 of textbook as well as secondary available information on internet.
The Toyota Production System (TPS) is an integrated socio-technical system, developed by
Toyota, which comprises its management philosophy and practices. The TPS organizes
manufacturing and logistics for the automobile manufacturer, including interaction with
suppliers and customers. The system is a major precursor of the more generic “Lean
Manufacturing”. Originally called “just-in-time production”, it builds on the approach created
by the founder of Toyota.
Using this concept of Lean Thinking and JIT you should answer the following questions by
taking any Saudi Manufacturing company.
1. Why Companies adopted Lean Thinking and JIT model? (3 Marks)
2. Discuss major types of Waste, companies must keep in mind during production. (3 Marks)
3. Assess the reasons for using lean thinking. What are the benefits from Suppliers to end users?
(3 Marks)
4. References (1 Marks)
The Answer must follow the outline points below:
● Lean Thinking and JIT Concept
● Their Main functions
● Any local example
● Reasons with suitable Examples
● Reference
● Every Answer should be 400 to 500 range of words in length.
Answer 1:
Answer 2:
Answer 3:
Just-in-time and the agile
supply chain
The intended objectives of this chapter are to:

explain how just-in-time can be used to avoid the build-up of waste within
and between supply chain processes;

introduce the concept of the agile supply chain as a broad-based
approach to developing responsiveness advantages;

explore the challenges of coping with volatile demand situations;

explain how capabilities can be developed and specifically targeted at
thriving in conditions of market turbulence.
By the end of this chapter you should be able to:

understand how lean thinking can be used to improve performance of the
supply chain in meeting end-customer demand by cutting out waste;

recognise enemies of flow in the supply chain;

understand the distinctions between lean and agile strategies, and how
the two can work together;

identify the type of market conditions under which agile strategies are
appropriate, and how they can be operationalised.
In Chapter 9 we consider another key aspect of the agile supply chain – the virtual
In Chapter 5, we reviewed the importance of time in supply chain thinking. Time
is one of the ‘hard objectives’ (section 1.3.1), and some supply chains compete on
time by delivering products to the end-customer faster than competition. Here,
the focus is on reducing the time taken for each process. But time can also be used
to alter the trade-offs between competitive priorities – for example, costs do not
have to rise proportionately as lead times are reduced (section 5.1.1). This can be
achieved by squeezing non-value-adding activities (delays, transport, storage and
inspection) from the supply chain by time-based process mapping (section 5.3).
Such activities are referred to generically as waste, the Japanese word for which is
222 Chapter 7 • Just-in-time and the agile supply chain
muda (the concept of waste was introduced in Chapter 5 and is explored further
in section 7.1.2). Such thinking has been developed into a philosophy and accompanying tools and techniques under the banner of ‘just-in-time’ (JIT). The
aim of JIT (Harrison, 1992) is:
To meet demand instantaneously with perfect quality and no waste.
All three targets (demand – quality – waste) are ideals which can never be fully
achieved. But we can get closer to them over time through continuous improvement. The elimination of waste has been promoted under the banner of ‘lean
thinking’ (Womack and Jones, 2003), who advise:
To hell with your competitors; compete against perfection by identifying all activities that are muda and eliminating them. This is an absolute rather than a relative
standard which can provide the essential North Star for any organization.
JIT and lean thinking share the same roots, and originate from competitive
strategies developed by the Japanese. Toyota Motor Company is held up as the
role model and, although the Toyota brand has been severely damaged in recent
years by widespread quality problems (section 1.3.1), this focal firm’s operational
excellence has had a major influence on logistics thinking today.
A common view is that lean thinking works best where demand is relatively
stable – and hence predictable – and where variety is low. But in situations where
demand is volatile and customer requirement for variety is high, the elimination
of waste in itself becomes a lower priority than the need to respond rapidly to a
turbulent marketplace. So the second part of this chapter reviews developments
under the banner of the ‘agile supply chain’.
In Chapter 6, we reviewed quick response and other time-based approaches to
developing the capabilities needed to support the speed advantage. While such
logistics capabilities are important enablers to lean and responsive supply chains,
the ‘agile supply chain’ takes the argument a significant step further. Marketplaces of the 21st century are often characterised by proliferation of products and
services, shorter product lifecycles and increased rates of product innovation.
Simply responding quickly and at the right time are not enough to meet the
needs of such marketplaces.
The mission of modern logistics is to ensure that it is the right product – to
meet exact end customer needs – that gets delivered in the right place at the right
time. Such a mission means that the end-customer comes first. This chapter proposes the agile supply chain as an approach that elevates speed capabilities in a
given supply chain to much higher levels than would be possible using the tools
and techniques discussed so far.
Key issues
This chapter addresses two key issues:
1 Just-in-time and lean thinking: the impact of just-in-time on supply chain
thinking. Cutting out waste in business processes. Simple, paperless systems v
central control. Use and misuse in planning and control.
2 The agile supply chain: the dimensions of the agile supply chain, and the
environments that favour agility. Agile practices: addressing the challenges of
market turbulence, rapid response logistics and managing low volume products.
Just-in-time and lean thinking 223
7.1 Just-in-time and lean thinking
Key issue: What are the implications of just-in-time and lean thinking for logistics?
How can just-in-time principles be applied to other forms of material control
such as material requirements planning?
Just-in-time is actually a broad philosophy of management that seeks to eliminate waste and improve quality in all business processes. JIT is put into practice
by means of a set of tools and techniques that provide the cutting edge in the
‘war on waste’. In this chapter, we focus on the application of JIT to logistics. This
partial view of JIT has been called little JIT (Chase et al., 2005): there is far more to
this wide-ranging approach to management than we present here (see, for example, Harrison, 1992). Nevertheless, little JIT has enormous implications for logistics, and has spawned several logistics versions of JIT concepts.
The partial view of JIT is an approach to material control based on the view
that a process should operate only when a customer signals a need for more parts
from that process. When a process is operated in the JIT way, goods are produced
and delivered just-in-time to be sold. This principle cascades upstream through
the supply network, with subassemblies produced and delivered just-in-time to
be assembled, parts fabricated and delivered just-in-time to be built into subassemblies, and materials bought and delivered just-in-time to be made into fabricated parts. Throughout the supply network, the trigger to start work is
governed by demand from the customer – the next process (Schonberger, 1991).
A supply network can be conceived of as a chain of customers, with each link coordinated with its neighbours by JIT signals. The whole network is triggered by demand from the end-customer. Only the end-customer is free to place demand
whenever he or she wants; after that the system takes over.
The above description of the flow of goods in a supply chain is characteristic of
a pull system. Parts are pulled through the chain in response to demand from the
end-customer. This contrasts with a push system, in which products are made
whenever resources (people, material and machines) become available in response to a central plan or schedule. The two systems of controlling materials can
be distinguished as follows:

Pull scheduling: a system of controlling materials whereby the user signals to
the maker or provider that more material is needed. Material is sent only in
response to such a signal.

Push scheduling: a system of controlling materials whereby makers and
providers make or send material in response to a pre-set schedule, regardless of
whether the next process needs them at the time.
The push approach is a common way for processes to be managed, and often
seems a sensible option. If some of the people in a factory or an office are idle, it
seems a good idea to give them work to do. The assumption is that those products can be sold at some point in the future. A similar assumption is that building
up a stock of finished goods will quickly help to satisfy the customer. This argument seems particularly attractive where manufacturing lead times are long, if
quality is a problem or if machines often break down. It is better and safer to
224 Chapter 7 • Just-in-time and the agile supply chain
make product, just in case there’s a problem in the future. Unfortunately, this
argument has severe limitations. Push scheduling and its associated inventories
do not always help companies to be more responsive. All too often, the very products the organisation wants to sell are unavailable, while there is too much stock
of products that are not selling. And building up stock certainly does not help to
make more productive use of spare capacity. Instead it can easily lead to excess
costs, and hide opportunities to improve processes.
7.1.1 The just-in-time system
Companies achieve the ability to produce and deliver just-in-time to satisfy actual demand because they develop a production system that is capable of working in this way. Such a system can be envisaged as a number of ‘factors’ that
interact with each other, as shown in Figure 7.1. This shows JIT capability as
founded on layers of factors that interact together to form a system that is designed for flow. Excellence in each of the six factors determines the effectiveness
with which JIT capability can be achieved: that is, how easy it is to get to the top
of the pyramid.
Level 1
Level 2
Level 3
down time
Simplicity and
Figure 7.1 The pyramid of key factors that underpin JIT
Factor 1
The top of the pyramid is full capability for just-in-time supply. This is the level
at which a focal firm can produce and deliver according to the demand that is
placed on it. The relationships operating within and between levels 2 and 3 form
the system that ultimately underpins the achievement of JIT. They are complex,
and in some cases there is a long time delay between taking actions and seeing
the effects.
Factor 2
The two factors delay and inventory interact with each other in a system of positive amplification; that is, they go up together and they go down together. This
Just-in-time and lean thinking 225
interrelationship results in either a virtuous cycle, where things keep getting better, or a vicious cycle, where they keep getting worse. For example, extra delay in
a process will result in extra inventory being held to compensate for the delay.
Adding more inventory causes further delays as products take longer to flow
through the process, which leads to the need for more inventory. Conversely if
delays are reduced then less inventory is needed, which results in fewer delays,
meaning that inventory can be further reduced. Making sure this relationship
operates as a virtuous cycle of reducing delay and inventory instead of a vicious
one where they increase depends on the underpinning factors in level 3.
Factor 3
Defects lead to delays, either through requiring rework or necessitating increased
production to compensate for scrap. The likelihood of defects leads to safety
stocks being held as a buffer against potential problems. This thinking amplifies
quality problems by increasing the time between a defect occurring and its discovery. Not only is the cause harder to identify, but more production will be
affected. The attitude that holding inventory can mitigate the effect of quality
problems is fundamentally flawed. It stands in opposition to the only successful
approach to defect minimisation, where problems are quickly identified, their
causes are traced, and permanent solutions are devised and applied.
Factor 4
Machine downtime relates to a number of issues:

unplanned downtime – that is, breakdowns;

planned maintenance;

changeover times.
Downtime, and particularly the risk of unplanned downtime, is a key cause of
the need for safety stocks in a process. Other JIT tools and techniques can help to
minimise the problems here. For example, total productive maintenance (TPM;
Nakajima, 1989) seeks to answer the question ‘What can everyone do to help prevent breakdowns?’ Regular planned preventive maintenance, closer cooperation
between production and maintenance personnel, and equipment sourcing for
ease of maintenance are some of the actions that can be taken in response. In
other words, increasing planned maintenance costs often results in reduced overall costs of machine downtime. Minimising changeover time is a JIT tool that can
be used not only to reduce lost production time but also improve production
flexibility. Inflexible facilities delay the rapid production of customer orders.
Factor 5
Where the flow through a process is easily seen, people in the process will have a
better understanding of their colleagues’ work and how they themselves affect
others. A simple process results from having first focused operations around a
family of compatible products. Layout is then organised to bring together all the
226 Chapter 7 • Just-in-time and the agile supply chain
people and equipment needed to undertake the process. These are arranged so
that there is a logical flow between the process steps. Arranging the process so
that the stations for undertaking the steps are close together not only helps to reduce inventory but also will itself be made easier when inventory is low. A simple
process will be more visible, allowing it to be better maintained. Not only should
there be fewer things to go wrong, they will be more obvious when they do, and
will be easier to fix. This attribute helps to minimise both machine downtime
and product defects.
Maintenance of the process is underpinned by housekeeping and cleanliness.
This starts with designing processes and facilities to create order. There is a place
for everything, and everything has its place. Orderliness depends on a thinking
workforce that has accepted ownership and responsibility for organising the
work place. Attention to detail in terms of ‘respect for human’ issues is an essential part of JIT philosophy (Harrison and Storey, 2000).
Factor 6
The levels of work in progress and other types of inventory have a significant
impact upon the visibility of a process. It becomes increasingly difficult to see the
flow of a process as inventory increases. This may be literally true on a shop floor
or in a warehouse, where piles and stacks of goods can isolate workers. The same
is true in offices when the process flow becomes lost in assorted piles of work on
people’s desks.
In order to highlight the limitations of push production we next consider the
case of how a focal firm took a rather traditional approach to responding to new
demands being placed on the production process.
Smog Co.
The Smog Co. production system
This is the case of Smog Co., a small supplier of well-engineered components. Smog
produces a range of products grouped into families. Production of one of the highervolume product families has been organised into a flow process made up of four steps,
which follow one after the other in sequence. Changeover from one product to another
is relatively simple, but takes around ten minutes per machine. To minimise delays
caused by changeovers, products tend to be made in batches. These batches move
from one step to the next, where they queue on a first in, first out basis to be worked
on, after which they move to the next step. This process is shown in Figure 7.2.
Step 1
Step 2
Figure 7.2 The Smog production process
Step 3
Step 4
Just-in-time and lean thinking 227
Key measures of the performance of this process are the utilisation of people and of
machines. The objective is to keep utilisation of both as high as possible. In this situation,
if people or machines are idle – and material is available – they are used to make something. Naturally it wouldn’t make sense to make anything. Instead the production manager has a feel for what is needed, and uses a forecast from the sales department to make
an early start on products that it is considered will be required in the near future.
Fred Hollis, the Smog production manager, felt pleased with performance as he
looked out across the factory. He was pleased because his machines and people were
busy, there were plenty of finished goods on hand, which the sales team could use to
supply customers, and there was stock to call upon if product demand increased. Everything seemed to be under control.
Changes to customer requirements
The motivation to change from the current system has been low in the past, as the
process at Smog Co. is a reliable one, which has worked well for the company. The ‘big
three’ customers, who take three-quarters of sales, tend to order the same things in similar quantities one week in advance of delivery. With a production lead time of three
weeks, Smog Co. uses a forecast to schedule production and make sure that finished
goods stocks will be available to meet predicted demand. Consistent demand means
that forecasts are often close to real demand, so stockouts are rare. In fact the only time
this occurred was an incident a couple of years ago, when a key machine went down
and a spare part took a long time to source. Current inventory levels now include safety
stock to provide cover against a similar problem in the future.
When the company found that certain finished goods were selling slowly, the sales
team was particularly good at finding a way to move them. Sometimes prices were cut;
at other times sales used special promotions. If production was too high, or the forecast
was a bit optimistic, then there were ways of selling surplus stock, and the sales team
seemed to enjoy the challenge.
Recently, however, this well-understood position has begun to change. The main customers have started to use a number of new strategies to compete with each other. First
one and now a second of them has announced that it will be reducing the call-off time
for its products from one week to two working days. At the same time they are all looking for a 5 per cent cost reduction, and are demanding quality improvements.
A ‘traditional’ reaction to customer demands for better service
The combination of demands for better services caused Smog management some concern. The obvious response to the changes in ordering patterns was to increase stock
levels to cater for unexpected variations in demand. This approach had worked before,
when it was used to justify the safety stocks that covered production problems. It
seemed worth trying again, so stocks were increased.
Things went well over the first few months, during which time delivery performance
remained good, while the customers went ahead with their plan to reduce the order
lead time. Keeping up with these orders provided the production manager with a few
headaches. Preventing stockouts led to an increase in the number of batches being
expedited through the factory. This disrupted the production plan, increased the number of machine changeovers and lowered productivity. As a result, overtime increased in
order to maintain output.
228 Chapter 7 • Just-in-time and the agile supply chain
The higher level of inventory meant that quality problems were harder to detect. In
one case a new operator missed a drilling operation. By the time the first customer discovered the error, nearly two weeks’ worth of production had to be recalled and
The higher inventory levels were also taking up more space. Fred Hollis had submitted a requisition to the finance director to pay for more storage racking. The extra racks
were necessary because existing ones were full, and parts stored on the floor were suffering occasional damage in an increasingly cramped factory. Some parts were recently
returned by a customer, who felt that damaged packaging indicated damaged products. Naturally, Fred was concerned when his request for more storage space was
turned down owing to spending reductions imposed in response to price cuts imposed
by customers.
Reflecting on what had happened at Smog, the increase in stock levels had badly
affected competitiveness. Smog Co. was experiencing the consequences of trying to
forecast demand and using the forecast to determine what to make. Their ‘make to
stock’ approach was responsible for:

removing the company’s ability to be responsive to changes in either quantities or
product mix;
increasing costs and making quality problems worse;
burying underlying production problems under inventory, and thereby preventing
efforts to uncover and resolve them.
In conclusion, while the company had been motivated to change by its customers,
the direction it took seemed to have caused many problems.
(Source: After an original by Paul Chapman)
1 List the actions that Smog Co. took to respond to the new demands being placed
on it by customers. Group your responses under the headings of stock levels, level
of expediting and storage space. Briefly describe the effects that these actions had
on production performance.
2 Use the ‘pyramid of key factors that underpin JIT’ to describe the factors that caused
these actions to affect the company’s ability to respond to the demands being placed
on it by customers.
7.1.2 The seven wastes
In Chapter 5 we saw how any activity that does not add value is a form of waste. By
mapping processes through the supply chain, it is possible to sort value-adding and
non-value-adding activities (transport, store, inspect and delay). JIT goes further by
adding three more types of ‘waste’ to make seven in all. They are as follows:

The waste of overproduction: making or delivering too much, too early or ‘just in
case’. Instead, the aim should be to make ‘just-in-time’ – neither too early nor
too late. Overproduction creates unevenness or lumpiness of material flow,
which is bad for quality and productivity. It is often the biggest source of waste.
Just-in-time and lean thinking 229

The waste of waiting: takes place whenever time is not being used effectively. It
shows up as waiting by operators, by parts or by customers.

The waste of transporting: moving parts around from one process to the next
adds no value. Double handling, conveyors and movements by fork-lift truck
are all examples of this waste. Placing processes as close as possible to each
other not only minimises the waste of transport but also improves communications between them.

The waste of inappropriate processing: using a large, central process that is shared
between several lines (e.g. a heat treatment plant) is an example of this type of
waste. Another example is a process that is incapable of meeting quality standards demanded by the customer – so it cannot help making defects.

The waste of unnecessary inventory: inventory is a sign that flow has been disrupted, and that there are inherent problems in the process. Inventory not
only hides problems, it also increases lead times and increases space requirements.

The waste of unnecessary motions: if operators have to bend, stretch or extend
themselves unduly, then these are unnecessary motions. Other examples are
walking between processes, taking a stores requisition for signature, and decanting parts from one container into another.

The waste of defects: producing defects costs time and money. The longer a defect remains undetected (e.g. if it gets into the hands of the end-customer), the
more cost is added. Defects are counteracted by the concepts of ‘quality at
source’ and ‘prevention, not detection’.
JIT invites us to analyse business processes systematically to establish the baseline of value-adding processes and identify the incidence of these seven wastes.
The aim is to get parts and data to flow through business processes evenly and
synchronously. The more detailed analysis prompted by the concept of seven
wastes encourages a greater analysis and understanding of processes and their relationships than is made by supply chain mapping. This analysis should first start
with key business processes such as the supply pipeline.
7.1.3 JIT and material requirements planning
As we saw in section 6.1, material requirements planning (MRP) was conceived in
order to answer the questions how many? and when? in ordering parts that are
directly used to manufacture end products. MRP is a logical and systematic way
of planning materials. It links downstream demand with manufacture and with
upstream supply. It can handle detailed parts requirements, even for products
that are made infrequently and in low volumes.
On the other hand, MRP is based on a centrally controlled, bureaucratic approach to material planning. Although it is based on a pull scheduling logic, it
instructs processes to make more parts whether or not the customer (the next
process) is capable of accepting them. Typically, MRP adopts push scheduling
characteristics. It remains insensitive to day-to-day issues at shop floor level, and
continues to assume that its plans are being carried out to the letter. In other
words, MRP is good at planning but weak at control.
230 Chapter 7 • Just-in-time and the agile supply chain
Meanwhile, JIT pull scheduling is good at handling relatively stable demand
for parts that are made regularly. It is sensitive to problems at shop floor level,
and is designed not to flood the next process with parts that it cannot work on.
On the other hand, JIT pull scheduling is not good at predicting requirements for
the future, especially for parts and products that are in irregular or sporadic demand. JIT is good at control but weak at planning. There are clear opportunities
for putting together the strengths of both systems, so that the weaknesses of one
are covered by the strengths of the other. For example, even in systems with great
variety, many of the parts are common. So JIT can be used to control those parts,
while a much downsized MRP plans what is left.
JIT has become associated with the Japanese way of cutting out waste, doing
the simple things well and getting better every day. The foundations of Toyota
Production System (TPS) are JIT and jidoka. Jidoka means humanising the manmachine interface so that it is the man who runs the machine, not vice versa.
MRP has become associated with the Western way of automating our way out of
trouble, and by investing in bigger and better systems that competitors cannot
afford to match. Let us next review how these two different approaches apply in
motor manufacture by comparing Ford (which has developed its own version of
TPS called Ford Production System, FPS) and Toyota.
Ford and Toyota
A car assembly plant is built around a simple sequence of tasks that starts in the press
shop and ends as a car rolls off the final assembly line. Figure 7.3 shows these basic tasks
in summary form:
Body in white
Painted body
Trim and final
Pressed parts
Parts supply
Press shop
Parts ordering
Figure 7.3 Basic tasks in a car assembly plant
While these basic tasks are the same for both Ford and Toyota, the way they are managed by the two firms is quite different. We compare policies and practices in relation to
small cars such as the Ford Fiesta and the Toyota Yaris:

Ford is driven by a long-term strategy in Europe. It has invested heavily in fixed
assets, and does not seek an early return on them. Currently, it is struggling with a
capacity that was designed for a 15 per cent market share when current loading is
Just-in-time and lean thinking 231

only 9 per cent. It seeks to make a step change in the production process through
high capital investment. Its investment policy has therefore been technically oriented, seeking the ‘best’ technical solution for each task. For example, Ford’s body
shop is almost fully automated with robots that are flexible across different parts.
When production is changed between one part and another, the robots must be
re-programmed. This places high emphasis on technical support for the software,
and makes Ford dependent on given equipment suppiers. The layout is designed
around the robots and for fixed volumes.
Toyota has expanded cautiously in Europe. Its investment policy has been step-bystep, and it has sought to make early returns. Key to the Toyota Production System
(TPS) are process and quality disciplines through JIT and jidoka. Toyota’s philosophy
is more people-oriented: shop floor people are heavily involved in improvement
activities as well as in production work. Toyota’s body shop has maybe one third the
number of press shop robots as Ford, and tends to use simple multi-welders at low
initial cost. It is relatively easy to swap suppliers. Tooling must be changed when
production is changed between one batch and another, but people are trained to
go for fast set-ups and to improve the process. The layout is designed around people and volume flexibility.
Having learned much from its stake in Mazda, Ford launched its own version of justin-time called Ford Production System (FPS) a few years ago. Ford has done much to
reduce product complexity. This is basically measured by the number of different body
styles that are possible. Both Ford and Toyota have three basic body styles, but Ford limits variation to left-hand/right-


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