Just-in-Time’s Skewering Is Undeserved
Just-in-Time’s Skewering Is Undeserved
Industry Week June 2021
By Phil Ledbetter
The recent pandemic affected Americans and businesses in many ways. In business, the most revealing issues that were exposed were the problems with Just-In-Time (JIT, or the pull method) supply chains. Lean took a lot of blame for many of the resulting shortages. But the problems weren’t attributable to JIT systems.
Wendover Productions is a Youtube channel that “is all about explaining how our world works.” Within the past month (June 2021) Wendover posted an interesting video on YouTube. As of early June 2021, it had been viewed over 3 million times. The title is “Why There Are So Many Shortages (It’s Not COVID)”. You should watch it. It ought to be of interest to the business world because it explains, in detail, why the shortages that occurred during the pandemic were not caused by Just-In-Time (JIT) supply chains. This is not really surprising for many of us who worked in the Toyota Production System (TPS). But it’s encouraging to hear it understood and explained by someone who, presumably, did not have that experience.
The irony is that the video has identified many causal problems with the way JIT systems have been implemented, but this analysis has escaped the lean world as a whole. Instead, we blame the lack of leadership and corporate culture while embracing failed processes and methods that do not lead to Just-In-Time systems. The narrator puts it this way: Companies have“created a system that’s less effective and less resilient but can impress shareholders through short-term savings. How Toyota has effectively implemented this system fills books but many are just reading the covers.”Ouch!
He points out that Toyota was the only major vehicle manufacturer not affected by the semi-conductor shortage because “Toyota followed its own principals. It did not stray from them and it did not reinvent them. It’s no surprise that Toyota excels at implementing its own system but it is a surprise that the entire manufacturing world has so wholeheartedly embraced flawed implementation of the system.”
Working with many companies over the years, I’ve witnessed this flawed implementation problem up close. Let me give some personal examples:
One company had vendor-supplied products that they labeled “JIT parts.” When customer orders were received, they were sent immediately to the suppliers, with the idea that receiving the orders quickly would give the supplier the max lead time to make these items. The supplier would then proceed to make the items and send them to the company’s warehouse.
Sounds like a good idea, but there are many problems in this scenario. For one thing, there was no sequence provided to the supplier, so they made parts in their order, at their convenience. Next, they shipped them as soon as they were made. In other words, these “JIT parts” were pushed to the warehouse when they were complete. This was done because it seemed like good customer service and the supplier could then bill their customer. Then this happened.
When production slowed down at the company, their backlog of orders grew to over 50 days (target was about 10-15 days). Since the warehouse was accustomed to holding 10-15 days of inventory, they had a problem with having more than three times the inventory. From a cash flow angle, products were paid for well before the company collected the cash from the sale. Additionally, these products were sensitive to weather changes, which created quality problems.
Had the company known what they were doing, they would have provided a build sequence to the supplier. The supplier would then build the products in sequence and store them. The company’s warehouse would pull them sequentially from the supplier as requirements dictated and store them. The factory would then pull what they needed. Lack of understanding of JIT created a lot of waste in the name of lean.
Here’s another example of the waste associated with not implementing a JIT system. I’m familiar with a very large company that made a pricey product at one of their plants. They utilized the push method driven by schedules. When I inquired about implementing the pull method, senior leaders told me that they weren’t ready for it. That they needed to have 85% – 90% inventory accuracy before implementing (Of course, the push method is what was causing poor inventory accuracy). All of the typical push problems were present—problems including no synchronization, no paced production, excess labor, and, of course, excess inventory.
Let’s quantify, in money, the waste associated with the excess inventory. The last inventory I witnessed was not good. The inventory in the plant came to about $52 million. The plant was down for three days to count. This company shipped $2 million/day. So it cost $6 million in lost revenue to count in addition to holding 26 days of revenue on the floor. If they’d been in the pull method, the conditions would have been much different. If we guess that the inventory value and the time to count would have been reduced by just half, they would have had $26 million more in the bank (in reduced inventory) and $3 million more in revenue (less time to count). That’s $29 million!
Here’s one more. I once visited the headquarters plant of a large manufacturer. They are somewhat well-known for their lean history (If I mentioned a product, many would know their history). They have a good size lean group with a manager. They made a lengthy presentation about their lean program. When it was over, I asked “Are you pushing or pulling?” There was silence. Neither the head of the plant nor the lean manager knew what I was talking about. Later, they bragged that their upstream equipment could be down for seven days before they would feel the impact in assembly. In fact they had two rooms of almost 20,000 square feet chock full of inventory with people managing it.
Remember, Ohno believed that Toyota’s JIT system was a competitive advantage. So much so that, for many years, he refused to allow anything to be written about it. And as lean guru Yasuhiro Monden has said, “I think the most important feature of the TPS is the “Just-In-Time” (JIT) concept … Many books just emphasize kaizen but JIT is the central part of the TPS.”
As Toyota Chairman Fujio Cho said, “Many good companies have respect for individuals, and practice kaizen and other TPS tool … But what is important is having all the elements together as a system. It must be practiced every day in a very consistent manner.” This system is a Just-In-Time system.
The pandemic has glaringly exposed the major problem with lean today: the inability to understand and properly implement a Just-In-Time system. It’s widespread. Companies serious about gaining a competitive advantage over their competition will do the work required to properly implement a Just-In-Time system.