Agriculture Reference
In-Depth Information
level of sub-assemblies. These sub-assemblies receive further operations and are “pushed”
to the next step of the manufacturing sequence to form larger sub-assemblies. The process of
completing operations and pushing to the next operation continues until the fi nished product
is completed. The entire production system is based on producing components and pushing
them to their next stage of production.
JIT production operation systems
Another type of production operations systems is
just-in-time (JIT)
. The goal of a JIT
system is to produce or deliver goods just as they are needed, in effect, attempting to com-
pletely eliminate inventories. JIT is more of a philosophy than a production operations
system. The goals here are to eliminate waste, ineffi ciencies, and unproductive time. In fact,
JIT almost always requires changes in process design, scheduling, and inventory. When used
effectively, JIT reduces inventory levels, reduces costs, improves quality, reduces setup
times, and smoothes the fl ow of production. Suppliers also play a critical role in JIT systems.
In JIT systems, suppliers make smaller deliveries on a frequent basis (sometimes several
times each day), which has encouraged some suppliers to locate close to the agribusiness.
Inventory
Beginning with suppliers and moving through the production process to the end customer,
some form and level of inventories are maintained. Furthermore, the activities of purchasing
and inventory control are closely related. Operations managers keep their inventory counts
current and accurate, so that they can alert the purchasing department when more product is
needed and so that they can track inventory turnover.
Inventory
is important to an agribusiness fi rm from a fi nancial and operations standpoint.
Recall that inventory is an asset and for the average company, it represents 35 to 50 percent
of the current assets. Although inventories are an asset from an accounting perspective, they
are really a cost of doing business. The dollar value of goods held in inventories could be
invested in a bank note generating interest or in a productive piece of equipment. Thus, the
interest or
opportunity costs
of inventory can be high. Storage and handling costs for hold-
ing inventory can also be high. Large physical storage spaces are often required to store
inventory, preventing such space from being used for more productive purposes.
So why have inventories? One principal reason for maintaining inventories is to provide
customer service
because products are available immediately for consumption. Another
reason is to minimize the effects of varying demand for fi nished goods—especially in agri-
cultural products. For example, it may be forecasted that 10,000 units of a short-season
popcorn variety will be demanded for the spring planting season in Indiana. A late spring that
delays planting forces producers to switch to this short-season variety, doubling demand to
over 20,000 units. A shortage of the popcorn seed may force customers to wait for shipment
from another location or to purchase seed from a competitor. Lost sales opportunities now or
in the future may be the result (i.e., customers may switch to a more reliable supplier).
be minimized because larger quantities can be purchased less often. Costs to set up equip-
ment and run a second batch of product can sometimes make holding extra inventory advan-
tageous. Transportation costs per unit can be reduced if a truck is fi lled with product and
delivered full versus a partial shipment. Finally, inventories are sometimes held to maximize
equipment utilization.
