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 :

Basic concepts - Nature and scope of Management Control

Control environment ± Concept of goals and strategies. - Behavioral considerations.




The word control suggests the operations of checking, testing, regulation, verification, or adjustment. As a
management function, control is the process of taking the necessary preventive or corrective actions to
ensure that organization¶s mission and objectives are accomplished as effectively and efficiently as
possible. Objectives are yardsticks against which actual performance can be measured.

The management process is completed when effective controlling has been accomplished. Controlling is
concerned with

1) comparing events with plans and

2) making necessary corrections where events have deviated or are expected to deviate from plans.

But the word 'control' in an organizational context has traditionally been used interchangeably with
'financial control'.

It is very closely associated with terms such as 'budgets', 'variances', and 'audits', and in a broader sense,
with 'rigidity', 'bureaucracy', 'imposed by management', and 'preserving the status quoµ.

In short, Managerial control is a process directed toward ensuring that performance of operations and
personnel adheres to plans.

Managerial control is a process that evaluates performance and takes corrective action when
performance differs significance and takes corrective action when performance differs significantly
from plans. With managerial control, any deviations from forecasts, objectives, or plans can be
located early and corrected with minimum difficulty.

In this study, Management Control Systems, we take an integrated approach to performance and
compliance. We look at organizations as open systems where people in different functional areas use
resources to perform a variety of activities that result in outputs and outcomes that satisfy stakeholders
and realize the organization's objectives, while complying with the law and adhering to ethical principles.

Therefore, to ensure that the organization achieves its objectives, management control has to address all
its sub-systems. Management control thus has four broad objectives - effectiveness, efficiency, disclosure,
and compliance.

 



Batol and Martin´ Controlling is the management function aimed at regulating organizational
activities so that actual performance conforms to expected organizational standards or goals.´
In management parlance, 'control' traditionally refers to the activities of establishing standards of
performance, evaluating actual performance against these standards, and implementing corrective actions
to accomplish organizational objectives.

In the complex and extremely dynamic modern business environment, management control systems are
useful in fulfilling the needs of effectiveness, efficiency, and adaptive learning. Management control is
broadly concerned with the attainment of goals and implementation of strategies.

The basic control process based on the cybernetic approach comprises the following steps:

1. Determining areas to control,

2. Establishing standards,

3. Measuring performance,

4. Comparing performance against standards,

5. Rewarding good performance and/or taking corrective action when necessary,

6. Adjusting standards and measures when necessary.

According to Norbert Weiner, "cybernetics is the study of the entire field of control and communication
theory, whether in the machine or the animal."

Management by Objectives (MBO), a concept propounded by Peter F. Drucker in 1954, is a specific

application of the cybernetic process of management control. In MBO, goals/objectives (which should be
Specific, Measurable, Achievable, Realistic, and Time-Specific) are set jointly by the supervisor and the
subordinate.

The MBO process consists of six steps: developing overall organizational objectives in key result areas;
establishing specific goals for sub-units and individuals; formulating action plans while identifying
possible problem areas; implementing self-direction and self-control among managers and subordinates;
conducting a periodic review of plans; and appraising the performance of subordinates while allowing
them sufficient autonomy to implement plans.

Based on the object of control, management controls have been classified into action controls, results
controls, and personnel/cultural controls. Action controls are aimed directly at the actions which take
place at different levels of an organization.

Results controls focus on the consequences of actions taken rather than on the actions themselves.
Personnel/cultural controls influence the people and the organizational culture, with the expectation that
the right people in the right culture will perform the right actions that will ultimately yield the desired
results.


 


1. Managerial process
 2. Application of planning

3. Measurement of planning

4. Comparing planning

5. Measuring deviations of planning

6. Taking corrective actions

7. Continuity

8. All pervasiveness

9. Final step

10. Basis of planning.

 
:

The management function of controlling serves a number of purposes and these are:

Adapting to Environmental Change

Limiting the Accumulation of Error

Coping with Organizational Complexity

Minimizing Costs.



  


In today¶s and turbulent business environment, all organizations must contend with change. If
managers could establish goals and achieve them simultaneously, control would not be
needed. But between the time a goal is established and the time it is reached, many events in the
organization and its environment can disrupt movement toward the goal-or even to change the goal itself.
A properly designed control system can help managers anticipate, monitor, and respond to changing
circumstances.

 
 
  

Small mistakes and errors do not often inflict serious damage to the financial health of an
organization. Over time, however, small errors may accumulate and become very serious. For
example, Whistler Corporation, a large radar manufacturer once faced with such rapidly
escalating demand that it is essentially stopped worrying about quality. The defect rate rose from 4
percent to 9 percent to 15 percent, and eventually reached 25 percent. One day, a manager realized that
one hundred of the firm¶s 250 employees were spending all their time fixing defective units and that $ 2
million worth of inventory was awaiting repair.

Had the company adequately controlled quality as it responded to increased demand, the
problem would have never reached such proportion.

 
! "
 #


When a firm purchases only one raw material, produces one product, has a simple
organization design, and enjoys constant demand for its product, its managers can maintain
control with a very basic and simple system. But a business that produces many products from
myriad raw materials and has a large market area, a complicated organization design, and many
competitors needs a sophisticated system to maintain adequate control.

 "


When it is practiced effectively, control can also help reduce costs and boost output. For
example, Georgia-Pacific Corporation, a large wood products company, learned of a new
technology that could be used to make thinner blades for its saws. The firm¶s control system was used to
calculate the amount of wood that could be saved from each cut made by the thinner blades relative to
the costs used to replace the existing blades. the results have been impressive- the wood that is saved by
the new blades each year fills eight hundred railcars.



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. For organization members who have been
assigned specific responsibilities to be held accountable, they must know exactly what their
responsibilities are how their performance will be evaluated, and the standards of effective
performance it be used as criteria in the evaluation process. 
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 $


 

 %And without the ability to require accountability,
managers face significant problems in delegating authority to subordinates.

&
: A second factor in increasing the importance of controlling is the rapidity
of change. 

   

 
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 "
(



. Controlling
systems must be established to assist managers in directing changes that have significant impact
on organization activities.

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( "
. Large, multi-product, geographically dispersed organizations require
consistent and appropriately applied control systems to measure effectiveness. The movement
toward decentralized organization structures in many firms also calls for effective methods of
controlling performance.


) Another important reason for the development and implementation of controlling
systems is that people make mistakes. In some instances, the mistake is a significant one.
Effectively designed control systems should be capable of identifying a wrong decision, forecast, or order
so that corrective action can be taken to minimize the damage. Control systems should not be viewed as
blame allocator or as device for finger pointing but as early warning systems to spot deviations from
organization objectives.

Its fundamental purpose is to ensure that the achievement of organization objectives. The
terms ³reconciliation´, ³integration´, and ³balance´, are as descriptive of the controlling
process as are, ³error-free´, ³Zero-defects, ³ ³preventive, ³ and ³corrective.´




 Management can implement controls before an activity commences, while the activity is going
on, or after the activity has been completed. The three respective types of control based on timing are
feedforward, concurrent, and feedback.

To get things done in an efficient manner the system requires constant monitoring and
adjustment to control for deviations from standards. Managers can implement controls before the activity
begins, during the time the activity is going on, and after the activity has been completed. The first
type is called feed forward control, the second is concurrent control, and the last is feedback
control. Diagram


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The most desirable type of control ±feedf orward control-prevents anticipated problems since
it takes place in advance of the actual activity.

Feedforward control focuses on the regulation of inputs (human, material, and financial resources
that flow into the organization) to ensure that they meet the standards necessary for the transformation
process.

McDonald¶s opened its first restaurant in Moscow, it sent company quality experts to help
Russian farmers learn techniques for growing high quality potatoes and bakers to teach .

Airlines companies frequently use this type of control process for the maintenance of their
aircraft.

Therefore it can be said that It¶s future directed or preventive in a manner.Carpenters have
their own instructive version of feedforward control: ³  
.
/% Indeed, an ounce of
prevention is better than a pound of cure.The key to feedforward controls, therefore, is taking managerial
action before a problem occurs. Feedforward controls are desirable because they allow managers to
prevent problems rather then having to correct them later after the damage (such as poor-quality
products, lost customers, lost revenue, and so forth) has already been done. Unfortunately,
these controls require timely and accurate information that is often difficult to get.

Feedforward control also is sometimes called

    

,  
,  

, or 
 
.

 



 Concurrent control takes place while an activity is in progress. It involves the regulation of
ongoing activities that are part of transformation process to ensure that they conform to organizational
standards.This type of control is normally
  *
 
 because it deals with the present
rather than the future or past. Concurrent control involves monitoring and adjusting ongoing
activities and processes to ensure compliance with standards. Concurrent controls, as its name implies,
takes place while an activity is in progress.When control is enacted while the work is being performed,
management can correct problems before they become costly.

0


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*)   

 
 %When a manager
directly oversee the actions of employees, the manager can concurrently monitor their actions and
correct problems as they occur. Although. Obviously, there¶s some delay between the activity and
the manager¶s corrective response, the delay is minimum.  $ $ 
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  $%

Since concurrent control involves rgulating ongoing tasks, it requires a through understanding of
the specific tasks involved and their relationship to the desired and product. Concurrent control
sometimes is called   or *
, because it often involves checkpoints at which
determinations are made about whether to continue progress, take corrective action, or stop work
altogether on products or services. + # . 
 
 
 
 





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+$)


The most popular type of control $). The control takes place after the activity is
done. For instance, the audited balance sheet of a company shows the financial scenario of the
corporation for the last year.

This type of control focuses on the outputs of the organization after transformation is complete.
Sometimes called 

 or 


, fulfils a number of important functions. + 
.


    

 
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Sometimes, feedback is the only viable type of control available. Moreover, feedback has two advantages
over feedforward and concurrent control.  
, feedback provides managers with meaningful information
on how effective its planning effort was. If feedback indicates little variance between standard and actual
performance, this is evidence that planning was generally on target. If the deviation is great, a manager
can use this information when formulating new plans to make them more effective.  , feedback
control can enhance employees motivation. The major drawback of this type of control is that, the time
the manager has the information and if there is significant problem the damage is already done. But for
many activities, feedback control fulfils a number important functions.





 Feedforward, concurrent, and feedback control methods are not mutually exclusive. Rather, they
usually are combined into an multiple control systems. Managers design control systems to define
standards of performance and acquire information feedback at strategic control points.

 



 are those activities that are especially important for achieving strategic
objectives. When organizations do not have multiple control systems that focus on strategic control
points, they often can experience difficulties that cause managers to reevaluate their control processes.

Regardless of whether the organization focuses control on inputs, production, or outputs, another choice
must be made between different approaches tor control. There are three control approaches regarding the
mechanisms managers will use to implement controls:  )

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%

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Market control involves the use of price competition to evaluate output. Managers compare profits
and prices to determine the efficiency of their organization. In order to use market control, there must be a
reasonable level of competition in the goods or service area and it must be possible to specify
requirements clearly.

Market control is non appropriate in controlling functional departments, unless the price for services is set
through competition and its representative of the true value of provided services.

  



Bureaucratic control is the use of rules, policies, hierarchy of authority, written documentation,
reward systems, and other formal mechanisms to influence employee behavior and assess performance.
Bureaucratic control can be used when behavior can be controlled with market or price mechanisms.




Clan control represents cultural values almost the opposite of bureaucratic control. Clan control
relies on values, beliefs, corporate culture, shared norms, and informal relationships to regulate employee
behaviors and facilitate the reaching of organizational goals.

Organization that use clan control require trust among their employees. Given minimal direction and
standards, employees are assumed to perform well - indeed, they participate in setting standards and
designing the control systems.

 
 



 :
Control systems vary from one organization to the next.

Different types of controls are used to address the specific needs of different departments, activities, or
organizations. To be effective, however, they all should possess a number of common characteristics:

Understandability

Match the activity under consideration

Capable of registering deviations quickly

Flexibility

Economical

Indicate corrective action

Difficult to manipulate

Timeliness




 



 
1



As a part of a planning for management control, followings are the steps to be taken viz..

1. Setting Performance standard

2. Compare actual with planned standards

3. Evaluate results, give feed back and coach

4. Take corrective actions

During the control process one has to consider behavioral response of employees to control system.
The above schematic shows the important interrelationships between planning and control. As you can
see, the control process does not begin after the entire planning process ends, as most managers believe.

 
 
 

The global economy has caused managers throughout industry


))at their often
disappointing accomplishment, as well as the declining performance, of their employees. In consequence,
they have placed great stress on improving productivity usually by cutting costs and increasing controls.

The short-term benefits of such crisis management have improved productivity and profits, but unless the
human side of control is carefully considered, it is quite likely that productivity and profits will decline
again to even lower levels in the long term.

2  


 

A control system is necessary in any organization in which the activities of different divisions,
departments, sections, and so on need to be coordinated and controlled. Most control systems are past-
action-oriented and consequently are inefficient or fail. For example, there is little an employee can do
today to correct the results of actions completed two weeks ago.

Steering controls, on the other hand, are future-oriented and allow adjustments to be made to get back on
course before the control period ends. They therefore establish a more motivating climate for the
employee

What's more, although many standards or controls are simply estimates of what should occur if certain
assumptions are correct, they take on a precision in today's control systems that leaves little or no margin
for error. Managers would be better off establishing a range rather than a precise number and changing
standards as time passes and assumptions prove erroneous. This would be fairer and would positively
motivate employees. There are three fundamental beliefs underlying most successful control systems.

ù First, planning and control are the two most closely interrelated management functions.
 ù Second, the human side of the control process needs to be stressed as much as, if not more than,
the tasks or 'numbers crunching' side.

ù Finally, evaluating, coaching, and rewarding are more effective in the long term than measuring,
comparing, and pressuring or penalizing

3
 
4 5
 )
In  5
  
, the term scope has two distinct uses: Project Scope and Product Scope.

Project Scope "The work that needs to be accomplished to deliver a product, service, or result with the
specified features and functions."

Product Scope "The features and functions that characterize a product, service, or result."

Notice that Project Scope is more work-oriented, (the hows,) while Product Scope is more oriented
toward functional requirements. (the what.)

If requirements are not completely defined and described and if there is no effective change control in a
project, scope or requirement creep may ensue.


 

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Much of the work at that time is directed at agreeing


  

 5
*$


 
 $
  
  
%This scope definition will form the
baseline against which potential changes are assessed and against which the project's performance is
measured.

In defining how the project will operate, the Project Manager should try to influence those factors that
could lead to subsequent scope change. The importance of a sound Project Definition should be
emphasized. ) 
 


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All participants should understand that the later in the project that a change is addressed, the greater the
likely impact in terms of costs, risks, and timescale.

 
 

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The scope control process has two key pans. First, it controls changes to a project¶s scope. Secondly it
assure that all scope changes are process by the described Change Control Process. A scope change is any
alteration affecting the agreed upon project scope detailed within the Work Breakdown Structure. Scope
Control is is a part of the monitoring and controlling process group.

Project Manager need to evaluate the effect a proposed change can have on a project . Before beginning
to analyze the proposed change. the following inputs are needed.
 5


 


The Project Scope Statement is the document capturing the project scope including the major deliverables

2 ) ) 


 

The WBS details the scope of the project and the project scope baseline. The WEB is used to determine
which work packages could be affected by the change

2
 

The WBS Dictionary defines the statement of work, milestones, and a unique identifier for each
component. The WBS dictionary also helps to define the project¶s scope baseline is analyzed to
determine how a proposed Change affects deliverables.

 5
 


The Project Scope Management Plan describes how the scope will be controlled and how changes to the
project scope will be managed. The Scope stability section indicates the anticipated variation to scope.

   


Performance reports provide information on project status, completed deliverables, and work progress.
Unsatisfactory project performance can lead to requests to reduce scope or to perform corrective actions.

  '



Approved change requests are requests used within the Scope Control process to expand or reduce the
project scope. Only changes processed according to the agreed procedures are authorized and
implemented. These changes often impact cost, time, and quality.

2 )   


Work performance information provides information on the status of changes to the project scope
including the status of deliverables and implementation status for change requests, corrective actions,
preventive actions, and defect repairs. Since the need for change is going to occur, there are some tools
and techniques that can be utilized to control scope changes. The tools and techniques used in the Scope
Control process are:

 
  



The configuration management system is a subsystem of the project management information system. It
is a collection of documented procedures used to identify and document any changes to the characteristics
of a product, and to record and report each change and its implementation status. This system also
includes a method for validating approved changes.




The change control system is critical because it contains formal procedures that outline how project
deliverables and documentation should be managed and changed. The system contains the formal process
for submitting, reviewing, tracking, and authorizing proposed changes. The change control system is
integrated with the systems in place that control project scope. Often, a change control system is the
subset of a configuration management system.

7 

To control your project, you need measurements that help you identify whether your project is on the
right track. Variance analysis uses information from the project performance reports to assess any
possible variations. This technique involves identifying variance- specifically, the difference between
what is expected and what is created, and why those differences occurred. Project managers then use this
information to decide whether any corrective actions are required.

&*

Re-planning must be performed when the proposed scope changes are significant enough to affect
existing project documents. A changes is considered significant if documents remain unrevised
becomes useless as the project progress.

The quickest way to loose control of a project is the occurrence of arbitrary changes. By controlling
changes, project manager can get everyone working towards the same goal delivering project on time and
within budget.

After reviewing the changes, the scope control process has resulting output. The out put are :

c


 5


 

Once changes have been approved, the Project Scope Statement needs to be updated. The Project Scope
Statement is used to assess any future changes in scope.

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2 ) ) 

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The Work Breakdown Structure and WBS dictionary need to be in alignment with all other planning
documents, reflecting any approved changes in scope. This is because they are used to verify the work
results as part of the project. 

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The scope baseline needs to be updated because it is used in all aspects of project management, including
cost estimates and scheduling.

&'

Part of the Scope Control process involves dealing with changes. The Integrated Change Control process
specifies how these should be handled. After changes have been processed, the approved changes will
need to be implemented.

&  



Some changes occur because of project performance issues. When these types of problems have been
identified, corrective actions must be taken to ensure that project work aligns with the project plan.

! "
 



To learn from variances that occur and hOW they are handled, the project manager should document the
reasons behind the variances and corrective actions, and then update the database so that similar problems
can be avoided in future projects

 5
 



When changes affect baseline documents, the Project Management Plan needs to be revised. Changes to
the Project Management Plan and related documents should follow the Integrated change control process.
The affected documents can include cost base line and schedules.

# 

 

Any participant or other concerned party may raise Change Requests. The Project Office team and Project
Manager will ensure they are captured and proactively manage them to conclusion.
An initial review should be made to examine the need for the change, how it could be achieved and what
the consequences would be. The most appropriate member of the Project Team would normally perform
this review. Based on those conclusions, the recommended action would be proposed. In this example,
there are three possible courses for the approval of the change:

Minor changes within scope can be approved by the Project Manager.

Any change affecting an external sub-contractor would need to be reviewed with that contractor who
would agree any necessary contract revisions or payments etc.

Changes of scope and contract revisions would require the approval of the Steering Committee (or it
might have been a Change Control Board).

In making the decision, the Project Manager, Change Control Board or Steering Committee would be
guided by the pre-established principles for making change decisions.

After the action is agreed the work is assigned for action by the Project Team and/or the external sub-
contractor. When complete, the action would be reviewed and the Change Request closed. It is possible
that the agreed action could have more than one stage. For example, it might be better to introduce a
temporary solution so that the overall benefit from the project can be delivered, and then build a
permanent solution after the system is live.

&'

 
 5

Not all changes follow the approved process. Often team members will be persuaded to make a change
without using the approved procedure where it seems necessary but minor. Although this can seem
practical to those concerned, it represents a risk to the project. The Project Manager and Project Office
team should be alert for uncontrolled changes. Where necessary, changes should be painlessly re-directed
into the correct procedure.

The Change Control process will run continuously during the project, and potentially beyond that into
live running.  5
!
 
 5
   
 


 %

The status of the Change Request and its approval level should be tracked. In addition to the database of
Change Requests, there would be logs and various management reports to allow the project leadership to
track and control the changes. The Technical and administrative tracking of the actual changes would
normally be made using the Configuration Management process.






The Change Control process continues throughout the project, so no specific action is necessarily required
at the end of each phase. Nevertheless, phase end is a good time to review the status of Change Requests,
ensuring requests have been auctioned in a timely fashion within the phase, and, in particular, allowing
for their impact in the detailed planning for the following phase.




 5

Some Change Requests may have been deferred for processing after the project is complete. This can be
an easier option than disrupting the interrelated development and testing during the initial project. It might
also be non-beneficial to delay the entire project to accommodate a change that could wait until benefit
from the main functionality has been generated. At the end of the project, it is important that any
outstanding actions are reviewed and the appropriate procedure is initiated to get them addressed. (It is
easy to forget those promises after the project has finished.)

The Project Office should ensure all changes have been properly finalized. All Change Requests should
either have been completed or passed onwards for subsequent processing. The permanent documentation
and other deliverables (eg training) should have been updated to reflect the changes.

Change Requests may often reflect lessons to be learned for future projects. It is always worthwhile
reviewing what can be learned and submitting any new knowledge or wisdom into the various knowledge
repositories. Note, in particular, any situations where existing approaches or sample plans should be
updated.

2 5
 



8
In particular, there are four strong reasons why scope management must be a top priority for the
successful project manager:

1.
Scope change can affect work that has been already performed. This means rework costs for work
that has already started or worse, been completed.

2.With each scope change, precious project resources are diverted to activities that were not
identified in the original project scope, leading to pressure on the project schedule. The project manager
must also consider impact on the project¶s critical path.

3.0
When not analyzed thoroughly, scope changes lead to quick fixes that can affect product
quality.

4.  Scope changes can cause a loss of control of the team¶s planned work. Changing focus or
direction to meet the change requests adversely impacts team morale.

2 

What can happen when scope is not managed? These real-world examples illustrate the necessity of scope
change management.

9: Requirements documents are written and a project plan is created to produce a large Web-based
product around core specifications. As the specifications are written and then reviewed, new faces are
added to the committees and innocent statements emerge: ³You know it will need to«´, ³Now, come to
think of it, «´ and ³By the way, «´. The specifications, written by several team members, begin
undergoing rapid change. As a result of poor scope change management, the specifications contain
conflicting and ambiguous statements. Integration issues arise, quality suffers and the cost rises. Ê 





 


 
 
 
 


 






 


 

 



 










 
 
 
 

  



 

 
 

 
 
:

A product selection project is undertaken based on an identified plan. In the initial project phase, the
scope of user involvement is increased significantly and additional deliverables are identified. It is
important to keep the project moving; therefore, the project schedule and budget are never revised,
leading to significant delivery issues.

 


 


 
 

  




 

 


 

 



 

 


  

 









 

 

3

A project manager identifies a set of scope points during the initial conversations with the stakeholders.
At the project kickoff meeting attended by the stakeholders and the project team, the project manager
identifies these scope points and achieves a consensus. Each project review meeting includes scope
review as an agenda item.
‰






 


 



 


 



 


 
  


 

 
 

 
  



 
 

'
Here are helpful tips and techniques for keeping scope change on track:

1. 



Scope changes are waiting to happen, so the project manager should
take an active role in identifying these changes with stakeholders. By being proactive, the project
manager can incorporate the vital few changes that account for 80% of the stakeholders¶ issues and
concerns.

2.  Always get the sponsor¶s approval and buy-in for the change request before
authorizing any related work. If it is difficult to have the sponsor review every change, ask him/her to
review a set of change requests. Alternatively, the change can be classified as routine or in need of further
analysis.

3. 


It¶s easy to conduct a superficial change impact analysis, however the
repercussions are not very pleasant. An impact analysis needs to consider all the configuration items that
will be affected by the change and associated costs.

4. 
In a large project team, changes can be overlooked if they are not
communicated in a timely way. People like to know what they are working on and to be kept informed of
project decisions. Proper team communications are essential to understanding and overcoming resistance
to change.

5. Scope creep occurs when changes are allowed without proper impact analysis, and
without reviewing schedule and cost implications. This is common with repetitive minor incremental
adjustments, where the project budget and schedule are not kept in sync with the effort involved for the
changes. In this scenario, there is no way to avoid a runaway project syndrome. Scope creep is a symptom
of a process problem; the solution is to implement a process to track each change and control its
implementation


 9;<
** 
 
= 


An example of the use of JIT in General Motors is given below.

General Motors (GM) in the USA has (approximately) 1700 suppliers who ship to 31 assembly plants
scattered throughout the continental USA. These shipments total about 30 million metric tons per day
and GM spends about l,OOO million dollars a year in transport costs on these shipments (1990 figures).

JIT implies frequent, small, shipments. When GM moved to JIT there were simply too many (lightly
loaded) trucks attempting to deliver to each assembly plant. GM's solution to this problem was to
introduce consolidation centers at which full truckloads were consolidated from supplier deliveries.

This obviously involved deciding how many consolidation centers to have, where they should be, their
size (capacity) and which suppliers should ship to which consolidation centers (suppliers can also still
ship direct to assembly plants).

As of 1990 some 20% by weight of shipments go through consolidation centers and about 98% of
suppliers ship at least one item through a consolidation centre. All this has been achieved without
sacrificing the benefits of JIT.

 


 

1. Reduce inventory cost

2. Right production at right time

There are two ways..

Produce ± Advertise ± Create Market and sale

Advertise ± Create Market ± Produce ± Deliver



 
 

È JIT

È EOQ (Economic Order Quantity)

È anban ( Material Requirement Planning)

JIT

Originated in Japan

È Often said Japanese industry works ² just·in-time,

 È Western industry works ² just-in²case

JIT is also known as stockless production or lean production

È JIT philosophy means getting the right quantity of goods at the right place and the right time

È JIT exceeds the concept of inventory reduction

È JIT is an all-encompassing philosophy found on eliminating waste

È Waste is anything that does not add value

È A broad JIT view is one that encompasses the entire organization

Just-in-time or JIT. means producing goods and services exactly when they are needed. The underlying
principle of JIT is one of continuous waste elimination and hence it is universally applicable. Obviously,
the manner in which JIT principles are applied across different industries will vary  
 


 
 

  


  
  
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JIT is key element in leading to  

 
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 The push method is applicable when the production of the item begins in advance of customer
needs.In push system, the emphasis shifts to using the information about customers, suppliers and
production to mange materials flows. Batches of raw materials are planned to arrive at a factory about
when needed to make batches or parts and sub-assemblies. These assemblies are made and delivered to
final assembly about when needed and finished products are assembled and shipped about when needed
by customers.

JIT system   

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of the responsibility of every worker and not just quality control
inspectors, reduce scrap and rework, reduce cycle times, lower setup times, smoothen production flow,
decrease inventory of raw materials, work-in-progress and finished goods, incur cost savings, force higher
productivity, increase worker participation, attracts a more skilled workforce, makes organization and
employees able and wiling to switch roles, reduces space requirements, and improves relationships with
suppliers.

JIT is a   


  
  
 . It relies on
tightly scheduled and frequent deliveries of supplies to reduce inventory needs and costs. The main thrust
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(to a swiftly changing market through organizational flexibility.
JIT thus advocates the organizational ability to deliver high quality products, respond rapidly to changes
in demand and be more cost-competitive.
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È JIT originated in Japan, post WWII

È Driven by a need survive after the devastation caused by the war

È JIT gained worldwide prominence in the 1970s

È Toyota Motor Co. developed JIT

È Often termed ³Lean Systems´

È All waste must be eliminated- non value items

È Broad view that entire organization must focus on the same goal - serving customers

È JIT is built on simplicity- the simpler the better

È Focuses on improving every operation- Continuous improvement - aizen

È Visibility ± all problems must be visible to be identified and solved

È Flexibility to produce different models/features

Three Elements of JIT

Three Elements of JIT ± continued

È JIT manufacturing focuses on production system to achieve value-added manufacturing

È TQM is an integrated effort designed to improve quality performance at every level

È Respect for people rests on the philosophy that human resources are an essential part of JIT
philosophy

È JIT Manufacturing is a philosophy of value-added manufacturing

È Achieved by
 à Inventory reduction - exposes problems
à anbans & pull production systems
à Small lots & quick setups
à Uniform plant loading
à Flexible resources
à Efficient facility layouts

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È Build quality into all processes

È Focus on continuous improvement - aizen

 È Quality at the source- sequential inspection

È Jidoka (authority to stop line)

È Poka-yoke (fail-safe all processes)

È Preventive maintenance- scheduled

È Work environment- everything in its place, a place for everything

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È Genuine and meaningful respect for associates

È Willingness to develop cross-functional skills

È JIT uses bottom-round management ± consensus management by committees or teams

È Actively engage in problem-solving (quality circles)

È Everyone is empowered

È Everyone is responsible for quality: understand both internal and external customer needs

È Associates gather performance data

È Team approaches used for problem-solving

È Decisions made from bottom-up

È Everyone is responsible for preventive maintenance

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È Use single-source suppliers when possible

È Build long-term relationships

È Work together to certify processes

È Co-locate facilities to reduce transport if possible

È Stabilize delivery schedules

È Share cost & other information

È Early involvement during new product designs



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È Reduction in inventories

È Improved quality

È Shorter lead times

È Lower production costs

È Increased productivity

È Increased machine utilization

È Greater flexibility

 
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È Starts with a company shared vision of where it is and where it wants to go

È Management needs to create the right atmosphere

È Implementation needs a designated ³Champion´

È Implement the sequence of following steps

È Make quality improvements

È Reorganize workplace

È Reduce setup times

È Reduce lot sizes & lead times

È Implement layout changes

È Cellular manufacturing & close proximity

È Switch to pull production

È Develop relationship with suppliers

 
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È Reduce lot sizes & lead times

È Implement layout changes

È Cellular manufacturing & close proximity

È Switch to pull production

 È Develop relationsship with suppliers

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È Most of the JIT concepts apply equally to Service companies

È Improved quality such as timeliness, service consistency, and courtesy

È Uniform facility loading to provide better service responsiveness

È Use of multifunction workers

È Reduction in cycle time

È Minimizing setup times and parallel processing

È Workplace organization

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(hcijunka in Japanese):  

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(establish freeze windows to
prevent changes in the production plan for some period of time) and mixed model assembly (produce
roughly the same mix of products each day, using a repeating sequence if several are produced on the
same line), 
 


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 rather than through fluctuations in
production level.

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  aim for single digit setup times (less than l0 minutes) Or µone
touch µsetup this can be done through better planning, process redesign, and product redesign.

A good example of the potential for improved setup times can be found in auto racing, where a
NASCAR pit crew can change all four tires and put gas in the tank in under 20 seconds. (How long would
it take you to change just one tire on your car'?). The pit crew¶s efficiency is the result of a team effort
using specialized equipment and a coordinated, well²rehearsed process.

3%&
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  -@ reducing setup times allows economical
production of smaller lots; close cooperation with suppliers is necessary to achieve reductions in order lot
sizes for purchased items, since this will require more frequent deliveries.

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 , 
 -production lead times can be reduced by moving work
stations closer together, applying group technology and cellular manufacturing concepts, reducing queue
length (reducing the number of jobs waiting to be processed at a given machine), and improving the
coordination and cooperation between successive processes; delivery lead times can be reduced through
close cooperation with suppliers, possibly by inducing suppliers to locate closer to the factory.

A% 
 
: use machine and worker idle time to maintain equipment and

prevent breakdowns.
D%+#$  ) : Workers are trained to operate several machines, to perform maintenance task,
and to perform quality inspection. In general, JIT requires teams of competent, empowered employees
who have more responsibility for their own work. The Toyota Production System concept of ³respect for
people" contributes to a good relationship between workers and management

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   ; error lending
to defective item must be eliminated, since there are no buffers of excess parts. A Quality at the source
program must be Implemented to give Workers the personal responsibility for the quality of the work
they do, and the authority to Stop production when something goes wrong. Techniques Such as "JIT
lights ³ ( to indicate line slowdowns or stoppages) and "tally boards" (to record and analyze causes of
production stoppages and slowdowns to facilitate correcting them later) may be used.

B% *
%,
-: use a control system such as a kanban (card) system (or other
signaling system) to convey parts between work stations in small quantities (ideally, one unit at a time).
In its largest sense, JIT is not the same thing as a kanban system and kanban system is not required to
implement JIT , JIT is required to implement a kanban system and the two concepts are frequently
equated with one another.

4 

Meaning : ANBAN is signal or communication system used to control the flow of items through the
production process . It is said that Material Requirements Planning (MRP) = a PUSH system

The application of Just in Time (JIT) techniques to any process requires a concept that governs
the receipt of required items so that production and other processes are not interrupted. anban is
explained as a concept that allows the JIT materials process to be implemented and controlled.

anban is a concept which relates to obtaining materials or required items just in time for their
introduction into the assembly or process only when they are required

The system of JIT or the just in time process was initiated by the Japanese firm Toyota in the
1940¶s. anban is a system to signal a need for action. This can be done by cards (which is the traditional
way) or by other devices that are used as markers, indicating the need to take action. Taiichi Ohno the
man who conceptualized the JIT system says anban is the means to achieve JIT.

Toyota felt the need in the 1940¶s to reduce costs by introducing proper inventory stocking techniques of
required assembly parts. First, they studied supermarkets to understand how supermarkets ensure their
shelves are always stocked with the materials that the customers want and in the required amount. Further
analysis of anban explained that customers could always be assured of a constant supply of product and
only pick up the number of items that they immediately required. Supermarket customers knew a future
supply of wanted product would be available whenever desired. Toyota reasoned that if they could ensure
this same supermarket guarantee of required parts for their assembly lines, there would be less of a need
to maintain high inventories which in turn, drive up costs and storage requirements.
anban controls the rate of production by passing the demand for raw materials through a system of
customer-store processes, which ensures that materials are received only when required. Toyota also
maintained strict controls on defective products, which in turn, were disapproved to enter the process.
With anban, each process identifies only those products that are required for that exact process until that
process is complete. Each subsequent process continues by only using products that are required for the
next step of processing, and so on. Thus, production is equalized in all processes and stabilizes the
production by fine tuning inventory demand and requirement processes.