June 13, 2021
Top national business papers as well as business and manufacturing industry journals are blaming current supply shortages on the concept of JIT (“Just in Time”), most notably The Wall Street Journal, New York Times and Forbes. Each recently published articles referencing business leaders declaring that most manufacturers have discovered that JIT blew up in their faces. The lesson learned will be increasing inventory levels throughout the supply chain.
That would be the entirely wrong lesson to learn from current conditions.
First and foremost, for those who have a reasonable understanding of the Toyota Production System (TPS), the alleged forebearer of lean, JIT is a goal, not an inventory strategy. All too many who jumped on the JIT bandwagon, and now clammer to jump off, have no understanding of that critical distinction.
Anyone who blared devotion to JIT, requiring that suppliers hold inventory whenever they think necessary to ensure responsive deliveries, was choosing to step in front of a gun not checking to find if it held bullets. For them, it most certainly did.
Understanding the intention behind the phrase Just in Time is time well spent. The concept, when becoming part of company vision, is a driver to discover what obstacles exist to immediately providing value to the market. To those, it has not been confused with an inventory management technique. JIT refers to the goal of providing product and services with no lead time. Toyota initially described this goal as “the three-day car,” meaning an elapsed time of three days between the customer decision to buy and receiving the vehicle made just for them. It’s an ongoing effort.
If you’re wondering why Toyota is not suffering a chip shortage while most automotive companies are, look back slightly over 10 years.
The earthquake and tsunami most famous because of the damaged Fukushima nuclear power plant dramatically impacted manufacturing in Japan. Toyota didn’t learn the lesson to carry increased inventories, because that would not have helped. They did learn to prioritize understanding the full supply chain and identifying risk. They also understood that power to the plant and equipment was part of that full supply chain. That thinking can help. Consider the 2021 Texas outages.
By beginning to create a type of digital twin of their full supply chain all the way to original material sources, Toyota began the process of identifying where risk is unacceptably high. The company’s risk management processes, which include supply chain experts, continuously monitor conditions to recognize likely future problems. Last fall, they decided to acquire a several month supply of chips, a critical component to automobiles that is relatively inexpensive and requires little storage space with no chance of a shelf-life challenge. Earlier they had redesigned the way chips are placed in vehicles to enable a few sizes to fit, should that be required. These actions don’t mean they won’t run short of chips; it means they took what they deemed reasonable precaution to address a highly probable challenge.
Think about that. By focusing on impediments, current and future, to immediate delivery of value to the market, the process helps manage risk. JIT is not about minimizing inventory. It is about reducing the order-to-deliver lead time of your value.
Many consider lean the same as TPS. I wish we could do that, but the fact is that the term “lean” has no standard meaning or implication in North America. It is rarely a thinking system. It is, for most, a temporary effort to copy/paste tools that have good press. Now that JIT has bad press, it will be eliminated.
The good news is that the JIT that is being tossed out should be. It had and has NO relationship to the Toyota intent and of itself has been a very detrimental tool. Abdication is not strategic.
My intent here is to clarify why the distinctions between lean and TPS, and between JIT as inventory system and as improvement system, reflect important differences.
I encourage you to verify what those terms mean inside your business and inside your supply chain. After all, both are distinctions with a very big difference.
Morgan is president of Fulcrum ConsultingWorks Inc. in Cleveland.