The Future of JIT
The Wall Street Journal recently ran an article (which you can read here) indicating that manufacturers, at least in the US, had retreated from 50 years of “just-in-time” (JIT) inventory management and were now “abandoning JIT” and increasing inventory holdings as a buffer. This created some robust debate within the consultant’s community I belong to: two of us felt the journalist did not understand the domain and was wrong. Others, who aren’t specifically in supply chain but do undertake corporate advisory work, argued JIT was dead and that companies should abandon it and that the journalist got it right.
Our premise was based on understanding the following about the Toyota Production System and, more specifically, JIT as a subset of it.
- JIT was never about no/low inventory – it has always been about the flow of material and obtaining the “the Goldilocks position”. That is, having the right amount of inventory in the right place at the right time to best serve the customer.
- The concept of buffer stock has always been in the JIT framework – they call it ‘supermarkets’. In fact Taiichi Ohno, the father of the Toyota Product System, got the idea from USA supermarkets during one of his visits.
- A key principle of the Toyota Production System is to have supply close at hand to better enable JIT. That is why when you visit Toyota’s plants, which I have, you will see suppliers have a presence, as in a space containing inventory manned by their own staff, actually within the Toyota plant’s precinct. Meaning JIT was never designed for the global supply chains that extend across continents, as they do today.
As most of us know, the longer the supply chain the more uncertainty there is, the harder it is to manage material flow leading to the need for a bigger buffer to manage the variability in demand. What the article should have said is that many companies had not applied JIT correctly and were not using the system as it was designed. That premise I agree with.
All of this has come to light, of course, because of COVID-19 and the impact it has had on everyone’s ability to operate and ship goods, and more importantly the fear and uncertainty it generated within board rooms and executive offices. Toyota in fact again demonstrated leadership in this field when it came to its strategy on computer chips. These are clearly a key component of any vehicle today. Toyota, by actively monitoring their demand and supply constraints, saw the shortage coming and bought up on chips. Some would say a non-JIT action, but I contend anyone who says that doesn’t understand the system or the framework or how to work it for the best outcome.
Toyota did not stop there. They then innovated – another key concept, I believe, that is key to managing a resilient supply chain. They redesigned the housing within which the chips sat, so that the housing worked with a number of different chips from different suppliers. They did not sit back and rely on their current supplier. They took steps which gave them options should that source be disrupted further than they expected.
Key steps to managing a resilient supply chain.
If you’re an executive or owner of a mid-sized or large company and want to discuss ideas on how you can use systems and technology to dramatically improve efficiency, decrease costs, and increase profits and enhance scalability, give me a call.