Don’t Blame Lean for Part Shortages

Part Shortages Mean Even Longer Delays

First, as a refresher course, here's my take on why Dell is not a Toyota Production System company. The article I linked to above blames “Lean” for part shortages in the laptop industry, this includes Dell.

Some experts are blaming the parts shortages on the unexpected growth of demand for notebook computers around the world. Others are blaming manufacturers such as Dell for keeping only 1-2 weeks of parts inventory on hand … the “lean” manufacturing policies such as only ordering parts as you need them may indeed have contributed to the delays we're seeing now.

I think the experts who are blaming “Lean” are flat wrong. “Just In Time” inventory is just a part of the Lean methodology. JIT is also *not* built upon the premise of having suppliers half way around the world. With all of their suppliers in Asia, especially compared to ten years ago, Dell can't be expected to get by with such low inventories (and really, this inventory is at their “supplier logistic centers,” where inventory is cleverly kept off the books). As supply chains get longer, you're bound to have more variability in your lead times, meaning you have to react by keeping higher “safety stock” levels if you want the same service levels and parts availability. Even though the inventory is off the books, Dell does make certain purchase commitments to their suppliers, meaning that excess safety stock will eventually lead to excess inventory that has to be bled off by offering discounts to customers (hey, we'll give you this 21″ monitor instead of the 19″ for just a few bucks more).

If this was a true “TPS” system, what would Toyota do if they built PC's in the United States? Would they have done more to keep suppliers nearby in the U.S.? Even going back a decade, we had more parts like motherboards, RAM, and hard drives made here in the country, if I remember right. Would Toyota have done less to push suppliers overseas to cheap labor? Ten years ago, Dell system cases were still produced in Texas, a relatively short supply chain. I believe that's no longer the case. Would Toyota build and ship PC's from Asia to the U.S.? The “final leg” of the supply chain would be longer, but maybe you would have less waste from shorter supply chain legs with the suppliers? Laptops are already built and shipped from Asia (since they're small), but Dell still builds desktop PC's and servers in the U.S. because they're bigger and heavier to ship (and therefore, more costly to ship). Maybe they're suboptimizing that final leg because it's easier to measure the shipping cost to customers than it is to calculate total end-to-end supply chain costs. I hate to think I'm advocating moving PC production overseas, since I helped start up a Dell factory in Austin in 2000…

One other thing that hurts the PC industry site lack of “heijunka” or level loading. To have “just in time” inventory or kanban, every Lean guru will teach you that you first need level production. This helps prevent the “beer game effect” that hurts the suppliers (and makes it harder for them to deliver) given that sales/demand variations are amplified as you go back in the supply chain. Dell traditionally has a huge “hockey stick” effect at the end of each quarter, where sales skyrocket — not necessarily because of pure customer demand but because sales incentives (for the company, meeting quarter targets, and for individual salespeople) drive demand to be non level. Would Toyota do things to drive sales to be more level so that production could be level and the supply chain wouldn't struggle so much? I'd think so.

So, long story short — is Lean hurting the PC industry? No. I'd argue its the long supply chains and the lack of level loading that's hurting them. Neither of those things are “Lean” practices at all. To figure out, why do we have part shortages, it requires a few more “whys” than a single why that blames “just in time.” Why would you expect “just in time” to work in the PC industry given their other practices?

Final side note, you might remember this post about how Dell had EXCESS inventories reported last year. How is this possible if it's true “just in time?”

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