I normally love the public radio program “Marketplace” and have listened to it (on radio or as a podcast) for 15 years or so.
But, I was very disappointed with this recent piece, which you can read here:
“Just-in-time” manufacturing model challenged by COVID-19
Listen:
Yes, many factories have been shut down in China, which disrupts global supply chains. However, if you're a company that decided to move all of your production to China (to then ship out to customers around the world), that wasn't a “Lean” strategy.
It's really difficult to support “just in time” delivery over such long distances. If it were a “Lean” approach to move all of your production to China, then Toyota would have done that. But, Toyota didn't.
Toyota has increasingly built assembly capacity around the world to be CLOSER to their customers.
When Toyota built a factory in Texas (to build pick up trucks… close to a large number of customers), they didn't have suppliers in Texas. So, to support “just in time,” Toyota has many suppliers right on site there in San Antonio. If we're copying or emulating Toyota, we'd do things like that instead of shipping production off to China.
But Marketplace gets their headline wrong. It should read something like:
China offshoring manufacturing model challenged by COVID-19
The article also unfairly piles on:
“At issue here is a global manufacturing model that focuses on low costs and lean inventory at every step in the chain, a model where all the parts arrive at the plant just in time.“
“Lean” inventory levels require frequent deliveries from nearby suppliers. Again, not shipments from halfway around the world.
“The just-in-time model comes from Toyota, which in the '70s started having car parts arrive at the plant at the moment of assembly.”
But again, the problems that Marketplace is reporting on are NOT driven by a Toyota model. The problems are driven by a lowest-piece-price strategy that leads to LONG distances. That's not JIT.
An economist said:
“Purchasing managers are intensely measured on how low their costs are. So that doesn't leave a lot of room to spend extra money because there might be some contingency in which everything falls apart,” Helper said.”
You can't blame purchasing managers. They are part of a system and it's a systemic problem if senior executive policies are driving them to make decisions that don't take risks into account. Going for the lowest piece price, no matter what, seems like a suboptimizing and short-term-focused strategy.
Remember Point #1 of “The Toyota Way“:
“Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.“
Consolidating all production in a single plant, in any country, introduces all sorts of risks, ranging from the geopolitical to things like tornadoes and earthquakes. And, if you want to hold a lot of inventory in an attempt to buffer against said risk, there's also a risk that the warehouse full of parts gets hit by a natural disaster as well.
The economist again says:
“This time around, she thinks the pain of overreliance on Chinese suppliers could speed up change to make supply chains more visible and bring back some redundancies and slack that the just-in-time model shaved away a generation ago.”
The pain being felt now is NOT the fault of just-in-time — the cause is more accurately described as “overreliance on Chinese suppliers.”
If you're going to blame “just-in-time,” it again might be more accurate to blame the misguided combination of attempted JIT with an overreliance on a single supplier that's half a world away.
Will companies learn from that? Or will they learn that JIT is bad and they should have more “slack” (meaning inventory) in the future???
Jamie Flinchbaugh and I will discuss this issue in Episode #14 of our “Lean Whiskey” podcast, recorded last night and to be released later this week. Here it is:
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While I’ve shared some of my thoughts on the forthcoming podcast, I think the first takeaway for me is that we shouldn’t be copying solutions from people. We need to purpose build our systems of work for our objectives, conditions, and problems. That includes just-in-time, onshoring or offshoring, inventory management systems, and so on. There are plenty of companies that got worse by applying “best practices” to the wrong situation.
Second, in dealing with major challenges like COVID-19, is it re-architecting your supply chain to deal with the next virus? Some will certainly do that, even though the next crisis is likely to be something else. Political instability, trade practices and tariffs, IP…there are so many different areas that you can design around, and they can’t all be dealt with equally. That’s why I think the organizational agility should be a core capability. How fast can you organize, set direction, define roles, and take action to deal with a crisis? The more you share a common language and lens, with common ways of working, you can quickly act in a coordinated way. I call this the speed of collaboration and coordination (a blog post on this is forthcoming).
Thanks for adding your comments, Jamie — and thanks for discussing it in the podcast.
You make a great point that designing some sort of optimal supply chain is not a one-time “set it and forget it” approach. In an ever quickly changing world, agility becomes more important.
True just-in-time would mean they could quickly ramp up to meet increased demand in a supply crisis like this. Zero inventory is only one aspect of JIT because you need the systems in place to adjust to the market’s need. I think you are right that low inventories are a result of cost cutting instead of systemic improvements.
Here’s another article that incorrectly blames “just in time.” What’s to blame is offshoring and long, complex supply chains. Long and complex supply chains require MORE inventory, not less, and if a company has drained inventory to be lower than the supply chain can support… the company’s manufacturing and supply chain strategy is to blame, not “Lean.”
It May Not Be the Virus That Kills Me
https://www.wsj.com/articles/it-may-not-be-the-virus-that-kills-me-11584048964
Here is our podcast episode where we discussed this more:
https://www.leanblog.org/2020/03/episode-14-of-lean-whiskey-did-coronavirus-make-your-supply-chain-sick-did-you-add-water-to-that-whiskey/
Modern automotive assembly plants are probably the paragon of “just in time.”
I haven’t read of any American or European auto plants being shut down due to parts shortages. If anything, they might be shut down (or have been shut down) due to health concerns for workers. Of course, if a key “Tier 1” supplier in Ohio were to be shut down due to a worker testing positive, then that indeed might cause a supply chain disruption.
https://www.wardsauto.com/industry/covid-19-prompts-calls-plant-closures