Modelling just in time purchasing in the ready mixed concrete industry 1

Hence, the existing EOQ-JIT cost indifference point models concluded that the JIT purchasing approach was always preferred to the EOQ approach, provided that the JIT purchasing approach

CHAPTER 1 INTRODUCTION

1.1 Background

The percentage of the inventory investment with respect to the total assets in a firm, although varies from industry to industry, can make up as much as 49 per cent in some firms (ROI, 2004) Among others, the stockpile of inventory gives a firm the flexibility to take an unexpected order (Wu and Low, 2005a) But redundant inventories tie up capitals Hence, inventories are important assets in many firms and inventory control is crucial (Axsater, 2000) With inventory control, there are two conflicting goals: minimizing the amount of money tied up in inventory and never be out of inventory when

an order is received (AAX, 2004) How much to order is, therefore, one of the problems that have to be addressed when purchasing raw materials (Silver, 1998)

The quantity of material within an order can be worked out through the Economic Order Quantity (EOQ) approach EOQ is the quantity of material within an order that minimizes the total costs that are required to order and hold inventory (Harris, 1915; Peterson and Silver, 1979; Fazel, 1997) EOQ, also called the optimum economic order quantity or optimum order quantity, is regarded as the conventional method for purchasing materials This approach leads to the placing of large-sized and infrequent orders (Schonberger, 1982a) The EOQ approach was originally conceptualized by Harris (1915) Ray and

Chaudhuri (1997) and Charabarty et al (1998) suggested that this approach had been a

fundamental technique for inventory management decisions and continued to be the starting point for the development of many subsequent inventory purchasing models

The quantity of material within an order can also be determined through the Just-In-Time (JIT) approach (Monden, 1983; Low and Chan, 1997), which advocates smaller-sized and more frequent orders This approach, originally explored by Kanzler as a method for reducing inventory levels at the Fordson Tractor Plant in the 1920s (Peterson, 2002), attracted much attention because of the excellent productivity and quality achieved in Toyota Motor Company (Monden, 1993) JIT purchasing is an important technique of the JIT philosophy, which is regarded as one of the most important productivity enhancement management innovations of the 20th century in the manufacturing industry (Schonberger, 1982a) The JIT approach provides the right materials, in the right quantities and quality, just in time for production (Vokurka and Davis, 1996) This approach, also widely referred to as the Toyota Production System (Monden 1998), has evolved into the Lean

Manufacturing System (Womack, et al., 1990; Watanabe, 1999; Feld, 2001; Askin and

Goldberg, 2002; Strategosinc, 2004)

Although it was originally introduced in the manufacturing industry, the implementation

of the JIT purchasing approach has been extended beyond that Its successful implementation in many industries prompted many companies that are still using the EOQ approach to ponder whether they should switch to the JIT purchasing approach for

of JIT construction processes (Tommelein and Li, 1999) Inspired by the success achieved through the implementation of the JIT philosophy in the manufacturing industry, Wu and Low (2003) and Low and Wu (2005a, b) investigated the implementation status of JIT purchasing in the RMC industries in Chongqing and Singapore through surveys The results of the surveys are presented in Chapter 2 The surveys found that both the EOQ approach and the JIT purchasing approach were adopted by companies to manage the procurement of raw materials in the RMC industry

The JIT purchasing approach results in an advantage of maintaining relatively smaller inventories and thereby reducing the plant space Hence, the existing EOQ-JIT cost indifference point models concluded that the JIT purchasing approach was always preferred to the EOQ approach, provided that the JIT purchasing approach could experience and capitalize on this physical plant space reduction (Schniederjans and Olsen, 1999; Schniederjans and Cao, 2000, 2001) The EOQ-JIT cost indifference point is the level of demand at which the costs of the two inventory management systems are the same However, this conclusion was not consistent with the industry practice, leading to a need to re-examine the presently available EOQ-JIT cost indifference point models In a closer examination of the existing EOQ-JIT cost indifference point models, it could be found that these models had two limitations First, these models did not either theoretically or empirically ascertain the capability of an inventory facility to hold the EOQ-JIT cost indifference point’s amount of inventory Second, these models also ignored some important cost components of the inventory purchasing systems These costs included, but not limited to, the impact of inventory purchasing policy on product

quality, production flexibility and out-of-stock costs These costs are the additional costs resulting from JIT purchasing Because of these two limitations, these models cannot clearly explain the inventory purchasing approaches adopted in the RMC industry The research problem is further explained in Section 3.2

1.3 Research aim and objectives

Based on the above background, the aim of this study is to develop JIT Purchasing Threshold Value (JPTV) models for a RMC supplier The study is based mainly on the information obtained from two RMC markets, namely, Chongqing in China and Singapore The reasons for investigating these two cities are presented in the first paragraph in Section 2.1

The objectives of this study are:

• To investigate the implementation status of JIT in the RMC industry in Chongqing and Singapore;

• To introduce two new concepts, namely, the annual carrying capacity of an inventory facility, and the break-even point between the annual carrying capacity of an inventory facility and the EOQ-JIT cost indifference point This is to examine the

facility to hold the EOQ-JIT cost indifference point’s amount of inventory under the EOQ with a price discount system; and

• To develop and test the JPTV models for the RMC industry This is to investigate the additional costs and benefits resulting from JIT purchasing in the RMC industry and examine how the additional costs and benefits resulting from JIT purchasing may impact on the EOQ-JIT cost indifference point

Inventory facility is defined as a physical plant space where raw materials, goods or merchandise are stored In the RMC industry, an inventory facility can be a storehouse, a warehouse, an aggregates depot, a sand yard or a cement terminal The annual carrying capacity of an inventory facility is defined as the amount of inventory that can be held by the inventory facility in a year, assuming each unit of inventory takes up a fixed amount

of area of the inventory facility and the inventory is ordered at its optimal economic order quantity

1.4 Significance of this study

The JPTV models are revised EOQ-JIT cost indifference point models derived by the author in which the additional costs and benefits resulting from JIT purchasing, including reduced inventory physical storage cost, have been considered These JPTV models would be able to overcome the two limitations of the presently available EOQ-JIT cost indifference models The JPTV models can help the RMC supplier to decide whether the company should switch to the JIT purchasing approach if the RMC supplier is still adopting the EOQ approach to manage the procurement of his raw materials

1.5 Research hypothesis

The research hypothesis for this study is that the EOQ approach is preferred to the JIT purchasing approach in managing material’s procurement when the additional costs resulting from the JIT purchasing approach is high and when the annual demand is extremely low or high This is evident even when the JIT operation can experience and capitalize on physical plant space reduction

1.6 Research strategy and assumptions in this study

The research strategy of this study is to expand upon only one of the assumptions of the

platform created by Fazel (1997), Fazel et al (1998) and Schniederjans and Cao (2000,

2001) to develop the JPTV models for the RMC industry This study is based mainly on the platform created by these researchers This is to demonstrate that the reasonable extension of only one assumption can lead to substantially different conclusions than those reached by the previous researchers Based on the research strategy, the study consists of three phases, as shown in Figure 1.1

Phase 1 of this study identifies the research problem through literature review and field study The EOQ-JIT cost indifference point models of previous researchers cannot

Figure 1.1 The research strategy

Theoretically examine the

capability of the inventory

to hold the EOQ-JIT cost

indifference point’s amount

of inventory under the EOQ

system

Empirically examine the capability of the

inventory to hold the EOQ-JIT cost

indifference point’s amount of inventory

Phase 1

Theoretically examine the capability of the inventory to hold the EOQ-JIT cost indifference point’s amount of inventory under the EOQ with

a price discount system

Development of the JPTV models for the

Survey of JIT implementation status in RMC industry in Singapore

EOQ and JIT purchasing are concurrently adopted in the RMC industry

JIT purchasing is virtually

always preferred to EOQ

purchasing when JIT

purchasing can capitalize on

physical plant space reduction

Identification of research problem

Testing of the JPTV models in the RMC

industry

without a price discount systems The JPTV models for the RMC industry developed in Phase 3 also cover these systems The detailed work of each phase is presented in Section 1.7

This study is based on nine assumptions shown in Table 1.1 The first eight assumptions made up the platform created by Schniederjans and Cao (2000, 2001), which was

developed from the studies of Harris (1915), Fazel (1997) and Fazel et al (1998)

Table 1.1 Assumptions made in the study

Assumptions made by previous researchers

1 Ordering cost under the EOQ system is fixed per order (Harris, 1915)

2 Carrying cost under the EOQ system for the inventory item is constant on a per unit basis (Harris, 1915)

3 The inventory physical storage costs, for example, rental, utilities and personnel salaries should be treated as variable costs (Schniederjans and Cao, 2000, 2001)

4 Annual demand for the item is known and constant (Harris, 1915)

5 The unit price per item under the EOQ or JIT purchasing system remain constant

(Fazel, 1997; Fazel et al., 1998)

6 Orders under the EOQ system are arranged in such a way that the succeeding delivery arrives at the time that the quantity from the previous delivery has just been depleted (Harris, 1915); or “safety stock costs required in an EOQ model are balanced out by other costs incurred in the use of a JIT model”(Schniederjans and Cao, 2001, p.112) Hence, safety stocks under the inventory systems are not considered

7 The order under the EOQ system are raised at the optimal economic order

quantity (Fazel, 1997; Fazel et al., 1998)

8 The materials suppliers of the JIT companies produce and store their products in large batches and respond to the JIT challenge by delivering them in small quantities The carrying and ordering costs (e.g storage, inspection, transportation, preparation of purchasing orders for each delivery, etc ) of the JIT

Assumption No 9 states the author’s own position It assumes that the inventory physical storage costs under the EOQ system, for example, rental, utilities and personnel salaries are linearly related to the average inventory level Assumption No 9 was expanded from assumption No 3 This is to expand the “total carrying costs” in the classical EOQ model

to include the inventory physical storage costs This assumption is possible when selecting an inventory purchasing approach either for a new entrant or for an existing company which is considering switching from the EOQ approach to the JIT purchasing approach The rationale for Assumption No 9 is presented in Section 3.3.1

In this study, the scenario, in which the assumptions No 1 to No 8 are satisfied concurrently, is defined as boundary condition 1 The scenario, in which the assumptions

No 1 to No 2 and assumptions No 4 to No 9 are satisfied concurrently, is defined as boundary condition 2 Boundary condition 2 is a sub-set of boundary condition 1 (see Figure 1.2)

Figure 1.2 Boundary condition 1 versus boundary condition 2

Boundary condition 1 (Assumptions 1, 2, 3, 4, 5, 6, 7, 8)

Boundary condition 2 (Assumptions 1, 2, 4, 5, 6, 7, 8, 9)

It may be argued that the inventory physical storage costs under the EOQ system is not necessarily linearly related to the average inventory level However, it can be argued that assumption No 9 has a bias against the EOQ system This study shows that it is still possible for the EOQ system to be more cost effective than the JIT purchasing system even when a) the JIT operation can experience physical plant space reduction; and b) an unfavorable assumption is made against the EOQ system

It should also be noted that assumptions No 1 to No 8 are seldom met exactly in real life situations However, they can help develop models to select an appropriate inventory purchasing approach In addition, these assumptions are the components of the platform created by previous researchers For these reasons, they are also adopted in this study

1.7 Structure of the thesis

Following the research strategy, the study is presented in eight chapters Figure 1.3 shows the relationship between the chapters and the three phases of the research strategy Figure 1.3 should be read together with Figure 1.1, as Figure 1.3 was developed from Figure 1.1 The content of the chapters are as follows:

materials could be purchased by the JIT approach or the traditional EOQ approach Based

on these observations, this chapter identifies the research problem of the study

Figure 1.3 Relationships between the chapters and the phases of the research strategy

Chapter 1 Introduction

Chapter 2 JIT management in the RMC industries of

Chongqing and Singapore

Chapter 5 Testing the ultimate

EOQ-JIT cost indifference point

Chapter 6 JIT purchasing threshold

value models for the RMC industry

Chapter 7 Testing the JPTV models

Chapter 8 Conclusions and

areas for future research

Phase 1

Phase 2

Phase 3

Chapters 3, 4 and 5 make up phase 2 of the study Chapter 3 introduces two new concepts, namely, the annual carrying capacity of an inventory facility, and the break-even point between the annual carrying capacity of an inventory facility and the EOQ-JIT cost indifference point It aims to theoretically study the capability of an inventory facility to hold the EOQ-JIT cost indifference point’s amount of inventory under the EOQ without price discount system Chapter 4 extends the two concepts from the EOQ without price discount system to the EOQ with a price discount system Chapter 4 aims to theoretically study the capability of an inventory facility to hold the EOQ-JIT cost indifference point’s amount of inventory under the EOQ with a price discount system The models in these chapters are supported by the industry practices of RMC suppliers in Singapore Chapter

5 presents a case study of cement procurement in the RMC industry in Singapore It aims

to empirically study the capability of an inventory to hold the EOQ-JIT cost indifference point’s amount of inventory under the EOQ systems

Phase 3 of this study is presented in Chapters 6 and 7 Chapter 6 develops the JPTV models for the RMC industry The models are developed based on the features of the RMC industry Chapter 7 presents three case studies in the RMC industry in San Francisco, Chongqing and Singapore and tests the JPTV models developed in Chapter 6

1.8 Scope of the study

EOQ-JIT cost comparison can be general to all industries However, this study has a specific focus on the RMC industry The models developed can have implications on material procurement in other industries as well Nevertheless, the focus is still on the purchase of cement, sand and aggregates in the RMC industry

The basic materials for mixing RMC are cement, aggregates, sand and concrete admixtures The technologies of concrete admixtures are often beyond the control of a RMC supplier For example, the American Society of Testing Materials C494 (Grace Construction Products, 2003) specified that there are at least seven types of widely used concrete admixtures The procurement methods of concrete admixtures are thus mainly determined by the technical capability of a RMC supplier Hence, the models developed

in this study are only applicable for explaining the purchase of cement, aggregates and sand but not suitable for explaining the procurement of concrete admixtures

1.9 Limitations of the study

The study is based mainly on information obtained from the RMC industries in Singapore and Chongqing Although the models are intended to be general for the RMC industry, there are specific observations in some areas In fact, there can be differences in other RMC markets due to climate, social, economic and political conditions This study does not account for all of them, given the author’s limited resources The possible limitations

of this study are further discussed in Chapter 8

CHAPTER 2 JIT MANAGEMENT IN THE RMC INDUSTRIES OF

CHONGQQING AND SINGAPORE

2.1 Introduction

The application of the Just-In-Time (JIT) management in the Ready Mixed Concrete (RMC) industry seems viable In previous work (Tommelein and Li, 1999), it was observed that the current practices for managing the concrete supply chain upstream in terms of raw materials acquisition or prerequisite work on site were not geared toward JIT production Chongqing is developing rapidly and can produce all the raw materials locally Singapore is a well-developed city and is importing most of the raw materials of RMC from overseas Given the fact that the physical conditions in Chongqing and Singapore are different from those in San Francisco, Tommelein and Li’s (1999) observations in the United States needed to be reviewed in the context of Chongqing and Singapore In addition, the author grew up in Chongqing and is familiar with practices of the industry in this city Since this research was conducted in Singapore, it is thus logical for the author to select both cities for a comparative study The contrasting economic and natural conditions between both cities provided a useful point of departure for a comparative study of this nature Hence, the purpose of this chapter is to investigate the implementation status of JIT in the RMC industries in Chongqing and Singapore This is

intensive site studies conducted by the author This section also presents the findings from the field work Sections 2.4 and 2.5 analyze the production capacity and the implementation status of the JIT techniques in the RMC industries in Chongqing and Singapore Section 2.6 highlights the raw materials procurement approaches adopted by the RMC suppliers in the two cities

2.2 Literature review

2.2.1 JIT in the construction industries

The JIT production philosophy, originally explored by Kanzler as a method for reducing inventory levels at the Fordson Tractor Plant in the 1920s (Peterson, 2002), was further developed and promoted by Taiichi Ohno in Toyota Motor Corporation in the 1950s (Ansari and Modarress, 1990; Peterson, 1990; Low and Chan, 1997) This philosophy has attracted much attention as a mean for making operations faster, eliminating waste (Zhu

et al., 1994), achieving continuous improvement (Low and Chan, 1997), improving

customer service, and building organizational competitiveness (Cheng and Podolsky, 1996) Schonberger (1982a) suggested that this philosophy was the most important productivity enhancement management innovation of the 20th century In its simplest form, JIT is to provide the right materials, in the right quantities and quality, just in time for production (Vokurka and Davis, 1996) Because of the excellent productivity and quality achieved by Toyota Motor Company, JIT production is also widely known as the Toyota Production System (Monden, 1983, 1993, 1998) JIT production has evolved into

the Lean Production System (Womack, et al., 1990; Askin and Goldberg, 2002) The

term “lean” was coined by the research team working on international auto production to

reflect both the waste reduction nature of the Toyota Production System and to contrast it

with craft and mass forms of production (Womack et al., 1990) Lean production is, in its

most basic form, the systematic elimination of waste – overproduction, waiting, transportation, inventory, motion, over-processing, defective units – and the implementation of the concepts of continuous flow and customer pull (Watanabe, 1999; Feld, 2001; BEC, 2004) When lean production management principles were applied to construction project delivery, a new project delivery system, i.e., “lean construction”, emerged Lean construction is particularly suited for complex, uncertain, and quick projects (Howell, 1999) Because of the peculiarity of the “physics” of construction, the concept of lean construction and its principles are still under evolving (Howell, 1999; Low and Choong, 2001d)

Inspired by the success achieved through the implementation of the JIT philosophy in the manufacturing industry, Fan and Chong (1999) investigated the applicability of the JIT philosophy to the process of delivering reinforced steel bars to construction sites Reinforced steel bars are used in almost every new construction project In addition, the delivery process is repetitive and similar to the manufacturing process Fan and Chong (1999) concluded that the application of the JIT philosophy to the delivery of reinforced

sites in Singapore They observed that there appeared to be a lack of mutual confidence between the precasters and contractors to effect the JIT philosophy for delivering precast concrete components Nevertheless, they concluded that it appeared feasible for the precasters and contractors to implement the JIT philosophy to manage the delivery of precast concrete components in Singapore

RMC is a perishable commodity, batched to specifications upon the demand of the contractors (Tommelein and Li, 1999) Tommelein and Li (1999) thus argued that the RMC industry was a prototypical example of a JIT construction process Two practices in the United States relating to RMC batching and delivery were investigated by Tommelein and Li (1999) However, their study investigated only the batching and the delivery, which are only two parts of the entire RMC production system They observed that in San Francisco, the current practices for managing the concrete supply chain upstream in terms

of raw materials acquisition or prerequisite work on site were not geared toward JIT production

RMC is an important building material in the construction industries in many cities

(Anson et al., 2002; Wang et al., 2001a, b; Wang and Anson, 2000; Anson et al., 1996;

Wang, 1995) This building material is increasingly being used in the construction industry in Chongqing, the largest metropolis in China Because of rapid urbanization, together with the laws of environmental protection and quality enhancement, it is now a mandatory requirement of the Chinese government in Chongqing that “… concrete required on site by projects in urban areas with construction areas larger than 1,000 m2

or with demand volumes greater than 500 m3 must be supplied with ready mixed concrete from an off-site batching plant The application for quality audit by the contractor will be rejected unless the contractor can submit his application form, together with a contract with an eligible RMC supplier …” (Chongqing Construction Committee,

2000, p.1) RMC is widely used also in Singapore, where 90 per cent of the concrete

required on site are supplied ready mixed from off site batching plants (Wang et al.,

2001a, b) This is because there is simply no space for site mixing of concrete in Singapore Chongqing is a rapidly developing city and it can produce all the raw materials locally In contrast, Singapore is a developed city and is importing most of the raw materials of RMC from overseas

Hence, this chapter, supported through two surveys of all the registered RMC suppliers of the Chongqing Concrete Association (CCA) in China and all the registered RMC suppliers of the Ready Mixed Concrete Association of Singapore (RMCAS), aims to investigate the implementation status and compare the management practices of JIT in the RMC industries in Chongqing and Singapore

2.2.2 JIT elements

2.2.2.1 JIT customer strategy

The JIT customer strategy has a group of elements that are directly related to the process

of delivering RMC from RMC batching plants to contractors The elements of this strategy are the long-term relationships and communication with contractors

2.2.2.2 JIT vendor strategy

The JIT vendor strategy has a group of elements that are directly related to the procurement of aggregates, cement and sand These elements include small lot sizes, reducing vendor lead time, sole sourcing vendor, quality certificates from vendor, vendor training and communication with vendors (Heard, 1985, 1986) The essential features of some of the more pertinent elements are described below

• Small lot size is an approach where quality raw materials are purchased when needed,

in small, specified quantities, and in the specific period required (Andrew, 1984; Crosby, 1984) To facilitate small lot size purchasing, the relationships between buyers and suppliers usually have to be mutually beneficial and long term

• Vendor lead time is a key consideration when selecting a vendor to establish a

long-term co-producer relationship JIT emphasizes quality starting from the source of supply and views inspection of incoming lots as a waste as it does not add value to the product (Chase and Aquilano, 1992)

Table 2.1 JIT factors and elements revealed by previous studies

Long-term relationships with contractors Low and Chan (1997)

1 JIT customer strategy

Communication with contractors Low and Chan (1997) Small lot sizes Andrew, 1984; Crosby, 1984; Finch, 1986; Heard,

1985, 1986; Howser, 1984; Jordan, 1985; Kelleher, 1986; McGuire, 1984; Powell and Weddell, 1984; Raia, 1986; Spurgeon, 1984; Stickler, 1986; Stork,

1984; Tommelein and Li, 1999; Fazel, 1997; Fazel et

al., 1998; Schniederjans and Cao, 2000, 2001

Sole sourcing vendor Dane et al., 1981; Williams and Tice, 1984

Reducing vendor lead time Everdell, 1984; Finch, 1986; Harrison, 1984;

Howser, 1984; O’ Conner, 1984 Quality certificate from

vendor Andrew, 1984; Kim, 1984; Kolodiejski, 1984; Loebel, 1984; Lotenschtein, 1986; McGuire, 1984;

Schonberger, 1982a, 1982b, 1984, 1986 Vendor training Ramarapu et al., 1994

2 JIT vendor strategy

Communication with vendors Ramarapu et al., 1994 Reduction in machine set-up

time Andrew, 1984; Crosby, 1984; Everdell, 1984; Finch, 1986; Heard, 1985, 1986; Kelleher, 1986; Kim,

1984; Levin, 1984; Lotenschtein, 1986; McGuire, 1984; Nakane and Hall, 1983; Novitsky, 1984; Raia, 1986; Stickler, 1986; Williams and Tice, 1984; Youngkin, 1984

Automation Monden, 1998 Reduce in-house lot size Andrew, 1984; Crosby, 1984; Finch, 1986; Heard,

1985, 1986; Howser, 1984; Kelleher, 1986; Jordan, 1985; McGuire, 1984; Powell and Weddell, 1984; Raia, 1986; Spurgeon, 1984; Stickler, 1986; Stork,

1984 Group technology Monden, 1983, 1993, 1998; Norris, 1992 Cross training Crosby, 1984; Everdell, 1984; Finch, 1986;

McGuire, 1984; Schonberger, 1982a, 1982b, 1984,

1986 Preventive maintenance Finch, 1986; Heard, 1985, 1986; Schonberger,

1982a, 1982b, 1984, 1986; Williams and Tice, 1984; Youngkin, 1984

3 JIT production

strategy

Schedule stability Ramarapu et al., 1994

• The use of a Single source vendor is an approach where a raw material is purchased only from one supplier rather than from a pool of suppliers (Dane et al., 1981; and

Williams and Tice, 1984) The single source supplier approach is beneficial to both suppliers and buyers Too many suppliers will cause the management staff to have less time with each supplier for liaising, expediting orders, feedback and coordination efforts On the other hand, the single supplier, with assured businesses over the long term, will then be more willing to invest in automation and machinery to improve productivity and reduce costs

• Quality certificates from vendor allow parts to be sent directly from vendors’ to

buyers’ production lines, by-passing receiving and inspection procedures

2.2.2.3 JIT production strategy

The JIT production strategy has a group of elements that are directly related to the RMC production process These elements are reduction in machine set-up time, automation, reduce in-house lot size, group technology, cross training, preventive maintenance and

schedule stability (Ramarapu et al., 1994) Some of the more pertinent elements are

• The characteristic, Reduce in-house lot size, enables the JIT system to operate

effectively to achieve less work-in-process inventories, a less space requirement and increased flexibility (Stevenson, 1990)

• The characteristic, Group technology, is to group machines based on the production

process, rather than based on the machine function (Cheng and Podolsky, 1996) so that tasks can be performed without moving large work-in-process inventories between machines This technique can also eliminate operators’ idle time and increase operators’ responsibility for product quality

• Cross-training is necessary when group technology is adopted and workers are

encouraged to operate multiple machines This technique also brings in more responsibility to a person who is producing the goods The result of this technique is that production efficiency can be improved as a worker becomes more involved in the production process

• JIT allows for very little work-in-process and calls for smooth production To provide

for a smooth production flow, preventive maintenance is needed Maintenance and

minor repairs are considered as parts of line workers’ job and responsibilities in JIT production plants

• Schedule stability may be achieved through the careful planning of master production

2.2.2.4 Quality control strategy

Quality control strategy has the group of elements that are directly related to the issue of RMC quality improvement These elements are quality circles, statistical process control and Jidoka

• The quality circle is a group of employees who work in the same working cell and

meet on a regular basis to discuss problems related to the quality The possible solutions are also discussed and proposed to the management (Chase and Aquilano, 1992)

• Statistical process control: Shewhart (1931) suggested that the control of the quality

of manufactured product required the application of statistical methods Goetsch and Davis (1994, p.488) believed that the genesis of quality control was “a statistical method of separating variation resulting from special causes from natural variation in order to eliminate the special causes, and to establish and maintain consistency in the process, enabling process improvement”

• Jidoka, a term from the Japanese language, means to stop a working process when

something goes wrong Jidoka suggests that every individual is responsible for the quality of the product he or she produces The other workers will do machine maintenance or housekeeping when the entire production line is stopped

2.2.2.5 Management commitment and employee involvement

Likewise, management commitment and employee involvement strategy has the group of elements that are directly related to the management issues in JIT implementation These

elements are the suggestion system, co-worker relation, JIT team, JIT education, JIT champion and the outside consultant

• Suggestion system is a formal approach for receiving employees’ suggestions to

ensure the successful implementation of JIT JIT implementation involves a significant organizational change; employee involvement is, thus, crucial for its success

• A congenial co-worker relation is emphasized in a JIT environment, as group

technology and Jidoka require employees to work together

• A JIT team is usually employed during the JIT implementation process (Zhu et al.,

1994) JIT team is a group of experts who specialize in different functional departments within one company and work together to provide advice and suggestions to solve problems encountered during JIT implementation

• JIT education is more effective when it is initiated from the top and with the full support of all managerial levels (Evans, et al., 1990) JIT implementation may require

people to think and view things in a totally different way Training on basic understanding of the JIT technical aspects and the impact of JIT techniques should thus be delivered Adair-Heeley and Garwood (1989) suggested that ignoring interpersonal skills, education and training are probably the biggest mistake a

• JIT implementation processes are not programmable; thus, small companies usually

seek an outside consultant as a primary source of advice for JIT implementation (Zhu

et al., 1994)

2.3 Field study

The field study consisted of two phases

Phase 1 of the field study was a survey of the RMC industry in Singapore All the fifteen registered members of the Ready mixed Concrete Association of Singapore (RMCAS) (see item 1 in Appendix 1 for a list of their names) were surveyed through telephone interviews The survey was conducted through telephone interviews rather than face-to-face interviews because the author was not allowed to visit some of the RMC suppliers, particularly some of the private companies, for reason of confidentiality The fifteen RMC suppliers of RMCAS were the major players in the RMC market in Singapore The respondents included directors, business managers, plant managers and production engineers They usually had practiced for about five to ten years in the RMC industry A list of the questions that was asked is shown in Appendix 2 The objectives of the telephone survey were three-fold The first was to find out the number of batching plants, their batching capacities and the transportation capacities of each of the RMC suppliers The second was to find out what JIT elements were practiced by each of the RMC suppliers in the entire RMC production system The last was to identify the procurement systems adopted by RMC suppliers for purchasing their raw materials for mixing RMC

A few RMC suppliers, however, were reluctant to divulge the detailed production

information needed for this study Because of the severe competition among local RMC suppliers, they did not want pertinent information to be divulged to their competitors Nevertheless, some RMC suppliers were quite co-operative This was because they were public listed companies or the author had a friend who worked there To collect the production information for those non co-operative RMC suppliers, the author had to visit their sites to carry out distant observations The author also spent time in the batching plants in those co-operative RMC suppliers (see item 3 in Appendix 1 for a list of their names) and consult their marketing staffs and production staffs to indirectly collect the production information for those non co-operative RMC suppliers The structured interview questions are shown in Appendix 3 The structured interview questionnaire also aims to collect data for the case studies for Chapters 5 and 7 Phase 1 of the field study was conducted from April 2002 to June 2002 and November 2003 to December 2003

Phase 2 of the field study was a survey of the RMC industry in Chongqing For this purpose, the author took a trip to Chongqing Phase 2 of the field study was also conducted in two steps Step 1 was a survey of all the twenty registered members of the Chongqing Concrete Association (CCA) in Chongqing, China (see item 2 in Appendix 1 for a list of their names) through telephone interviews The twenty RMC suppliers of

the co-operative RMC suppliers’ batching plants (see item 3 in Appendix 1 for a list of their names) to indirectly collect the production information for those non co-operative RMC suppliers The structured interview questions for the RMC suppliers in Chongqing was the same as those for the RMC suppliers in Singapore (see Appendix 3 for the structured interview questions) Phase 2 of the field study was conducted from September

2003 to October 2003 and December 2003 to January 2004, while the author was in Chongqing

With the help from the production and marketing staffs of the RMC suppliers in item 3 in Appendix 1, the required information for those non co-operative RMC suppliers was eventually obtained The results of the survey and site studies are summarized in Tables 2.2 to 2.5 for the RMC industry in Chongqing and Singapore and discussed below For reasons of confidentiality, no actual names of RMC suppliers are revealed in the following analysis

The RMC markets in both Chongqing and Singapore are changing rapidly Hence, two things must be kept in mind when reading the analysis below The first is that the data in Tables 2.2 and 2.4 were captured in 2003, and the data in Tables 2.3 and 2.5 were captured in 2002 The second is that the plant capacities, in Tables 2.2 and 2.3, were the actual production capabilities estimated by the marketing staff rather than the designed capacities of each of the batching plants

Table 2.2 Capacities* of RMC suppliers in Chongqing, Year 2003

(taken from questions 1 to 3 in Section A of Appendix 2)

SUPPLIERS PLANT LOCATIONS PLANT

CAPACITY (m /3 h

)

TOTAL NUMBER

OF PLANTS

TRUCKS BATCHING

CAPACITY (m /3 h

)

BATCHING CAPACITY/ NUMBERS OF TRUCKS

A Yuzhong District Huang Gou 60x4 4 21 60x4=240 240/21=11.4

B Jiangbei District Wu Li Dian 90x2 2 17 90x2=180 180/17=10.6

C Yuzhong District 90x2 2 15 90x2=180 180/15=12

D Jiangbei District Wu Li Dian 60 1 6 60x1=60 60/6=10

E Jiangbei District Wu Li Dian 60 1 5 60x1=60 60/5=12

F Jiangbei Bai Bu Xin Chen 120x3 3 20 120x3=360 360/20=18

G Dadukou District 60x3 3 16 60x3=180 180/16=11.25

H Shapingba District Sha Ping Ba 60 1 8 60x1=60 60/8=7.5

I Jiulongpuo District Jiu Long Puo 60x2 2 12 60x2=120 120/12=10

J Jiangbei District Miao Kou 60, 90 2 15 60+90=150 150/15=10

K Jiulongpuo District Jiu Long Puo 60x2 2 11 60x2=120 120/11=10.9

L Yu Zhong District 60 1 5 60x1=60 60/5=12

M Jiulongpuo District Jiu Long Puo 60x2 2 14 60x2=120 120/14=8.6

N Jiangbei Bai Bu Xin Chen 60, 90 2 16 60+90=150 150/16=9.4

O Jiangbei Bai Bu Xin Chen 120x2 2 20 120x2=240 240/20=12

P Shapingba District Sha Ping Ba 60x2 2 5 60x2=120 120/5=24

Q Yubei District Liang Lu 120x2 2 17 120x2=240 240/17=14.1

R Jiangbei District Wu Li Dian 120x2 2 19 120x2=240 240/19=12.6

Table 2.3 Capacities* of RMC suppliers in Singapore, Year 2002

(taken from questions 1 to 3 in Section A of Appendix 2)

OF PLANTS

TRUCKS BATCHING

CAPACITY (m /3 h)

BATCHING CAPACITY/ NUMBERS OF TRUCKS

2 Sungei Kadut 90 each

2 Kaki Bukit 90 each

2 Kaki Bukit 90 each

2 Kranji Loop 90 each

Table 2.3 Capacities of RMC suppliers in Singapore, Year 2002 (continued)

(taken from questions 1 to 3 in Section A of Appendix 2)

OF PLANTS

TRUCKS BATCHING

CAPACITY (m /3 h)

BATCHING CAPACITY/ NUMBERS OF TRUCKS

2 Sungei Kadut 60 each

2 Kaki Bukit 60 each

Table 2.4 JIT status of RMC suppliers in Chongqing, Year 2003

(taken from questions 1 to 24 in Section B of Appendix 2)

SUPPLIERS JIT TECHNIQUES

A B C D E F G H I J K L M N O P Q R S T Long term relationship

with contractors

Communication with

contractors

Vendor small lot size

Sole sourcing vendor

Reduce vendor lead time

Quality certificates from

Legend: - denotes a JIT element was not implemented at all

- denotes a JIT element was partially implemented

- denotes a JIT element was fully implemented

Table 2.5 JIT status of RMC suppliers in Singapore, Year 2002

(taken from questions 1 to 24 in Section B of Appendix 2)

SUPPLIERS JIT TECHNIQUES

Vendor small lot size

Sole sourcing vendor

Reduce vendor lead time

2.4 Production capacity of RMC suppliers

2.4.1 Production capacity of RMC suppliers in Chongqing

The implications of Table 2.2 are four-fold Firstly, the batching plants in Chongqing were mainly set up in the urban area Chongqing occupies 82,400 km2 of land and governs 21 counties, 4 cities and 15 districts (CGW, 2003) 94 per cent of the total production capacities in the RMC industry are located in the urban area, which is only 10 per cent of the total land area of Chongqing Jiangbei District, Yubei District, Yuzhong District, Shapingba District, Jiulongpuo District and Dadukou District form the components of the urban area This is shown in Figure 2.1, where the larger area represents the rural area and the star represents the urban area

Figure 2.1 The urban area of Chongqing

Secondly, within the urban area, batching plants were largely set up in the north and west side of the downtown district (Yuzhong District) The east side of the downtown district consists of a number of great mountains The south side of the downtown district is the famous Yangtze River Hence, the west and the north were the only spaces available for further development Consequently, the strategic urban planning policy of Chongqing has been “developing toward the north and the west sides of the downtown district” (CUPB,

1997, p.2) The Jiangbei District and Yubei district are located on the north side of the downtown district The Jiulongpuo District and Shapingba District are on the west side of the downtown district Because of the strategic urban planning policy, most construction projects are in these areas Setting up batching plants in the Jiangbei District, Yubei district, Jiulongpuo District or Shapingba District enabled the RMC suppliers to supply RMC for construction projects in these areas in a timely fashion The Jiangbei District and Yubei District provide approximately 55 per cent of the total production capacity The Jiulongpuo District and Shapingba District provide approximately 14 per cent of the total production capacity of the RMC industry The Jiangbei District, where 15 batching plants were set up, was the largest RMC market in Chongqing The combined production capacity of the Jiangbei District was estimated to be 1440 m /3 h The locations of the batching plants in relation to the strategic urban planning policy are shown in Figure 2.2

Figure 2.2 RMC markets in Chongqing

Thirdly, in terms of the batching capacity and transportation capacity (numbers of trucks), Company F was the largest RMC supplier, followed by Companies A, O and R Company F, O and R set up their batching plants in the largest market Fourthly, based on the ratio of batching capacity / numbers of trucks, Company P, with a ratio of 24, was ranked the highest among all the RMC suppliers Assuming that all the RMC suppliers were working at their full capacities and that they did not hire any revolving drum trucks from outside their companies to deliver their RMC, it seems that Company P may have a higher efficiency than all the other suppliers The ratio of batching capacity / numbers of trucks is a good indicator to measure the efficiency in the use of trucks for delivering RMC by a RMC supplier Company G, with a ratio of 7.5, appears to have the lowest efficiency in using its trucks to deliver RMC

2.4.2 Production capacity of RMC suppliers in Singapore

Table 2.3 shows that Kaki Bukit was the largest RMC market in Singapore 19 batching plants were set up in Kaki Bukit and these batching plants had a combined capacity of

1410 m /3 h Sungei Kadut was the second largest RMC market with 14 batching plants having a combined capacity of 1170 m /3 h Changi, ranked third, had a combined capacity of 930 m /3 h Tuas, ranked fourth, had a combined capacity of 540 m /3 h The production capacities in Kaki Bukit, Sungei Kadut, Changi and Tuas accounted for approximately 54 per cent of the total production capability owned by all members of the RMCAS More than 50 per cent of the fifteen listed RMC suppliers had at least two batching plants set up in two of the four RMC markets Kaki Bukit, Sungei Kadut, Changi and Tuas were located in the south, north, east and west of Singapore respectively, as shown in Figure 2.3 Setting up batching plants in these four markets would enable the RMC suppliers to strategically supply RMC for construction sites throughout the whole island, while still satisfying the degree of concrete workability specified by contractors

Figure 2.3 Top four RMC markets in Singapore

Company A was the largest RMC supplier, followed by Companies S G and S E S

Company A set up batching plants in four of the largest markets In terms of the S

supplier batching capacity or transportation capacity, namely, the numbers of trucks, Company A was the largest RMC supplier In terms of the ratio of batching capacity / S

numbers of trucks, Company A , with a ratio of 8.2 (1470/180=8.2) also ranked at the S

highest among all the RMC suppliers It seems that Company A could have a higher S

efficiency than all the other suppliers after assuming that all the RMC suppliers were working at their full capacities and they did not hire any revolving drum trucks from outside their companies to deliver their RMC As mentioned earlier, the ratio of batching capacity / numbers of trucks was a good indicator to measure the efficiency in using the

truck to deliver RMC by a RMC supplier Company M , with a ratio of 2.5, appears to S

have the lowest efficiency in using his trucks to deliver RMC

2.4.3 A comparison between Chongqing and Singapore

When comparing the RMC markets in Chongqing and Singapore, three essential conclusions can be made Firstly, regardless of the distribution pattern of the batching plants, the RMC industry as a whole must be set up near construction projects This is to ensure the workability of concrete As stated earlier, Chongqing was rapidly developing Because of the strategic urban planning policy, most of the construction projects in Chongqing were located in the north side and west side of the downtown district Hence, approximately 55 per cent of the total production capacities of the RMC industry in Chongqing were set up in the Jiangbei and Yubei Districts, 14 per cent of the total production capacity of the RMC industry were set up in the Jiulongpuo District and Shapingba District The Jiangbei District and Yubei District are in the north side of the downtown district The Jiulongpuo and Shapingba Districts are in the west side of the downtown district On the other hand, Singapore is a relatively small island It is possible

to satisfy the workability of concrete specified by any contractors, provided that the RMC industry covers the north, south, east and west sides of the island Therefore most of the

Secondly, Table 2.2 and Table 2.3 suggest that the production capacity in Chongqing could not satisfactorily meet the demand volume in Chongqing, and the production capacity in Singapore could well meet the demand volume in Singapore Table 2.2 shows that the RMC production capacity in Chongqing was 3,060 m /3 hr in 2003 Table 2.3 shows that the RMC production capacity in Singapore was 7,500 m /3 hr in 2002 The demand volume of RMC in Chongqing during Chongqing was 10 million m3 (CTL Concrete Ltd, 2003) The demand volume of RMC in Singapore was 7.8 million m3in the same year (BCA, 2004) Assuming 261 working days in a year (i.e., 365-104 weekend days) a RMC supplier in Chongqing had to operate 12.52 hours a day (i.e., 10,000,000/3,060/261), while a RMC supplier in Singapore only worked 3.98 hours a day (i.e., 7,800,000/7,500/261) The designed working hours for a RMC batching plant was approximately 8 hours per day Hence, the production capacity of the RMC industry in Chongqing was not sufficient to meet its demand volume, while the production capacity

of the RMC industry in Singapore exceeded its demand volume Thus, the production workers in supplier L had to work two shifts The batching plants of RMC suppliers A, H and L in Chongqing had to operate up to 16 hours a day at the peak period The general manager of RMC supplier L decided to set up his own company, CTL Concrete Ltd This new RMC supplier has two 90 m3/ hr plants During the time of this study, CTL Concrete Ltd received planning permission, from the local construction authority, to set

up the batching plant The total amount of investment was RMB 25,128,900 (Note: RMB

is the Chinese currency, Renminbi The amount is equivalent to about US$ 3.04 million

or £ 1.67 million) Besides CTL Concrete Ltd, another five RMC companies were also applying for permissions from the local government Once their applications were

approved, additional batching plants would be set up These five new RMC suppliers would have a combined capacity of 1530 m /3 hr

On the other hand, as the RMC production capacity in Singapore exceeded the demand volume of the construction market in Singapore, a few RMC suppliers in Singapore had gone into liquidation RMC supplier O was bought over by supplier S I in January 2003 S

RMC supplier K went into liquidation in August 2003 The quality engineer of RMC S

supplier K divulged that the RMC revolving drum trucks of RMC supplier S K , which S

were bought at about S$ 100,000 per unit were sold at only S$10,000 per unit His 90

I divulged that RMC supplier B was established through the purchase of the then PN S

Ready Mixed Concrete Pte Ltd at S$ 35 million and the then RT Ready Mixed Concrete Pte Ltd at S$ 14 million in 1999 The batching plants of Supplier B were sold at only S

S$ 4 million in November, 2003 The selling price of the batching plants of RMC supplier B was less than 10 per cent of its initial purchase price RMC supplier S B was S