Lean Production: Just-in-Time, Kaizen and Time-Based Management
Lean production is an approach to operations that aims to cut waste, anything that adds cost without adding value for the customer, while keeping or improving quality. Just-in-time (JIT) production orders and produces components only as they are needed, rather than holding large stocks, cutting the cost of storing and financing inventory but increasing reliance on dependable suppliers and accurate demand forecasting. Kaizen means continuous improvement: small, incremental changes suggested by the employees actually doing the work, rather than one large top-down overhaul, built into the culture of the business through regular team review. Time-based management is the broader aim of cutting the total time a product takes to move from order to delivery, since a faster process usually also means lower cost and less waste, giving the business a competitive edge on both speed and price.
Before you start
Make sure you're comfortable with these topics first:
Method
- Separate the three ideas clearly: JIT is a stock-control method, Kaizen is a culture and process of continuous, employee-led improvement, and time-based management is the wider objective of cutting total process time, which JIT and Kaizen both help to achieve.
- Learn the main benefit of JIT (lower stock-holding costs: storage space, insurance, obsolescence, and capital tied up in inventory) against its main risk (a single supplier delay or demand spike can halt production, since there is no buffer stock).
- Learn how Kaizen actually works in practice: regular small-group review meetings where employees closest to a process suggest small changes, which are trialled, and if successful, kept and rolled out, building continuous improvement into daily routine rather than treating it as a one-off project.
- Learn how time-based management links speed to competitiveness: cutting the time between order and delivery (or between raw material and finished product) usually cuts holding costs and waiting time simultaneously, letting a business compete on rapid delivery as well as price.
- When a case gives numbers on stock levels, holding cost per unit, or lead time, calculate the saving from cutting stock or time (e.g. change in stock level multiplied by holding cost per unit) to support an analytical point rather than only describing the benefit in words.
- For an evaluate question, weigh the cost and efficiency benefits of lean methods against the risk they introduce, for example a JIT business is more exposed to supply chain disruption, so the judgement should depend on how reliable the case's suppliers or demand forecasting actually are.
Worked example
A furniture manufacturer currently holds an average of 8,000 units of raw material stock, at a holding cost of 3 pounds per unit per year (storage, insurance and the opportunity cost of capital tied up). Switching to a JIT system with a reliable supplier would cut average stock to 500 units. Calculate the annual saving in holding costs from switching to JIT, and identify one risk this creates.
- Calculate current annual holding cost: 8,000 units x 3 pounds = 24,000 pounds per year.
- Calculate the new annual holding cost under JIT: 500 units x 3 pounds = 1,500 pounds per year.
- Calculate the annual saving: 24,000 - 1,500 = 22,500 pounds per year.
- Identify the risk: with only 500 units of buffer stock, any late delivery from the supplier, or an unexpected spike in customer orders, could stop production, since there is very little raw material stock to fall back on.
- Conclude: the 22,500-pound saving is only fully realised if the supplier proves reliable enough that the extra risk of a stoppage does not itself create costs, for example lost sales or expedited shipping, that offset the saving.
Practice questions
Try each question, then tap to reveal the answer.
Q1Define just-in-time (JIT) production.Show answer
Answer: A stock-control method where components and materials are ordered and produced only as they are needed for production, rather than being held in large stocks in advance.
Q2Define Kaizen.Show answer
Answer: A Japanese term for continuous improvement: an ongoing process of making small, incremental improvements to working practices, typically suggested by the employees who carry out the process.
Q3State one benefit to a business of adopting JIT.Show answer
Answer: Lower stock-holding costs, since less capital, storage space and insurance is tied up in unused inventory.
Q4State one risk of relying on JIT production.Show answer
Answer: With little or no buffer stock, a late supplier delivery or an unexpected surge in demand can halt production.
Q5Explain why Kaizen relies on input from employees on the production line rather than only from managers.Show answer
Answer: Employees who carry out a process daily are often best placed to spot small inefficiencies and practical improvements that managers, who are more removed from the day-to-day process, might not notice.
Q6A business cuts its average stock from 5,000 to 1,000 units, saving 2 pounds per unit per year in holding costs. Calculate the total annual saving.Show answer
Answer: (5,000 - 1,000) x 2 = 4,000 x 2 = 8,000 pounds per year.
Q7State what is meant by time-based management.Show answer
Answer: An approach that aims to reduce the total time a product takes to move through the production and delivery process, since cutting time usually also cuts cost and waste.
Exam-style questions
Written in the style of a A Level Business exam paper, with a full mark scheme.
A bakery switches from ordering flour once a month to ordering small batches daily from a local supplier, matching production more closely to actual customer orders. Analyse the likely impact of this change on the bakery's costs and its exposure to risk.
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Okafor Components supplies parts to a car manufacturer and is considering moving from batch production, with an average raw material stock of 20,000 pounds and a holding cost of 15% of stock value per year, to a JIT system that would cut average stock to 3,000 pounds. The car manufacturer has said late deliveries would result in a 5,000-pound penalty charge per incident, and Okafor's main supplier has missed delivery deadlines twice in the past year. Evaluate whether Okafor Components should switch to JIT production.
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See real A Level Business past-paper questions, with official mark schemes →
Free printable worksheet
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