Why We Think The Just In Time Supply Chain Isn't Broken

As governments and hospitals work to stamp out Covid-19, manufacturers are also struggling to manage the virus’ impact on their supply chains. Many are quick to blame just in time supply chains for their lack of components and raw materials. Is the lean system and the broader just in time supply chain system at fault, or is it something deeper? We’ll take a closer look at:

• Pull inventory systems
• The just in time supply chain system and its underlying principles
• Why just in time systems are getting a bad rap during the pandemic
• What’s next for businesses

Pull inventory systems

A pull inventory system is a Lean approach to reducing waste in any production process. In pull systems, work only starts when there is a demand for it. This minimises wasteful activities in the production process, reduces overheads, optimises storage costs, reduces the possibility of overstocking and boosts manufacturing productivity. A great example of a pull system in your daily life is at a cafe. The barista doesn’t start making your coffee until you order it. You generate a signal when you purchase a cup of coffee, effectively pulling materials through the coffee-making process. It wouldn’t make sense to stock up on cups of coffees if there were no orders — that would be impractical and costly for the cafe.

What is just in time?

Pull systems help a business deliver work just in time. Just in time (JIT) is a lean management strategy that minimises the inventory held in order to reduce costs and increase efficiency. Just in time is also known as the Toyota Production System (TPS) because Toyota adopted and pioneered it in the 1970s. It quickly grew in popularity and not just for car manufacturers. Today, businesses like Dell, Apple and Harley Davidson use just in time systems.

Businesses like Dell, Apple and Harley Davidson use JIT systems.

In practice, businesses use a just in time strategy when they use a certain event as a cue for production or order more inventory. The trigger is a “green light” – inventory does not move until the signal is given. JIT manufacturing isn't just limited to car manufacturers

The Toyota way of managing inventory

Toyota published The Toyota Way, a guidebook that covers principles in two key areas: continuous improvement and respect for people. Lean Blitz summarised the 14 principles that guide Toyota’s managerial approach and production system:

1. Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals. People need a purpose and establish goals
2. Create a continuous process flow to bring problems to the surface. Work processes are redesigned to eliminate seven types of waste through the process of kaizen — continuous improvement
3. Use ‘pull’ systems to avoid overproduction
4. Level out the workload. This minimises waste, doesn’t overburden staff or the equipment, and doesn’t create uneven production levels
5. Build a culture of stopping to fix problems, to get quality right the first time. Toyota uses the concept of jidoka — if an abnormal situation arises any employee has; the machine stops and the worker will stop the production line
6. Standardised tasks and processes are the foundation for continuous improvement and employee empowerment. You can only find out what is or isn’t working when you have predictable, repeatable processes to compare against
7. Use visual controls so no problems are hidden. Take steps to make all workspaces efficient and productive, help people share work stations, reduce time looking for tools and improve the work environment
8. Use only reliable, thoroughly tested technology that serves your people and process
9. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others. Employees should be educated, trained and have the principles ingrained to maintain a learning organisation
10. Develop exceptional people and teams who follow your company’s philosophy. Success is based on the team, not the individual
11. Respect your extended network of partners and suppliers by challenging them and helping them improve. Treat your suppliers like you treat your staff, challenge them to do better and help them achieve it. Toyota provides cross-functional teams to help suppliers discover and fix problems so that they can become a stronger, better supplier
12. Go and see for yourself to thoroughly understand the situation. Toyota uses the concept Genchi Genbutsu to encourage managers to physically go to operations so they have a better understanding of how to improve processes
13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly. This principle encourages the company to thoroughly consider possible solutions through a consensus process, and quickly implement those decisions
14. Become a learning organisation through relentless reflection and continuous improvement. This means critiquing every aspect of what you do and striving for improvement

Has over-reliance on just in time supply chains failed us during Covid-19?

Covid-19, which originated in China, has led to global lockdowns and government-mandated factory closures. Many suppliers temporarily ceased production and logistics providers struggled with transporting goods, particularly across borders. Supply shocks like pandemics highlight how interconnected the supply chain structure is. Your supplier might not be in the affected areas but if their raw material is in that region, then you will be affected too. In the wake of the virus-induced supply chain disruptions, some experts have been quick to blame just-in-time manufacturing, citing modern manufacturers’ obsession with lean supply chains as the culprit. Is that really the case?

Claim: "Manufacturers are too focused on cutting costs and keeping things lean"

The view that global just in time manufacturers are overly reliant on low-cost Chinese suppliers, which saw them suffer when China went into lockdown, appears to be a common sentiment. This argument blames the just-in-time system for pressuring businesses to keep costs low. However, the fault cannot be totally attributed to just in time manufacturing. First, we should make a distinction between cost-cutting and being lean. Although cutting costs is an objective of being lean, lean manufacturing — and by extension just in time — prioritises using the least amount of time, effort, and resources by maintaining smooth and balanced flow. What this looks like in practice is not ordering from a supplier halfway across the globe even though it might be cheaper, but rather ordering more frequently from nearby suppliers in order to reduce wasted time in transportation. More importantly, businesses practising just in time should not forget the first principle of the TPS: make management decisions based on a long-term philosophy, even at the cost of short term financial goals. Businesses that take advantage of cheap suppliers in China, regardless of the risk, misunderstand the purpose of just-in-time manufacturing.

Claim: "The just in time supply chain lacks visibility"

Supply chain experts have stressed the importance of transparent supply chains. What this means is that the business should know who their suppliers are and who supplies them. Businesses can do this by running a supply chain mapping exercise to understand which companies make up their supply chain and where the sub-tier suppliers are located. Lack of supply chain visibility isn’t exclusively a just in time system issue. It can also plague those running the just-in-case system. The problem lies with overzealous just in time businesses who romanticise the system as a method for cost-cutting — even at the expense of neglecting their suppliers. This goes against the TPS principle of respecting your suppliers as well as you do your employees.

Neglecting suppliers goes against the TPS principle of respecting your extended network of partners and suppliers

With this principle, the just in time system takes into account supplier relationships and supply chain transparency. However, it must be put into practice — just as Toyota and Apple did.

• Read more: 4 Best Practices for Addressing Underperforming Suppliers

Toyota’s strong supplier network

Even though they pioneered the just in time system, Toyota is fully embracing kaizen and continually learning from their weaknesses. In 1997, a fire started at Aisin Seiki’s factory in Japan. This factory made 99% of Toyota’s P-valves. The valves were complicated and required specialised tools. The factory was also making different types of P-valves at the time. Most Toyota plants kept only a four-hour supply of the valves. Without it, Toyota had to shut down its 20 auto plants in Japan, which built 14,000 cars a day. With the factory inaccessible, experts thought Toyota wouldn't recover for weeks. To resolve this issue, Toyota managed to get many of its suppliers to bring in additional engineers and work overtime to help build machines to produce P-valves, as well as increase production of the components. 36 suppliers and more than 150 other subcontractors had nearly 50 separate lines producing small batches of the brake valve. Toyota managed to get the first usable P-valves five days after the fire, meaning car production could resume. This fire and production crisis taught Toyota and their suppliers a few lessons:

• Toyota needed to reduce the number of variations in its parts to make production easier, cut costs and reduce risk
• Toyota could quickly rely on trustworthy suppliers who worked closely with them from the start of a car's design
• Toyota’s suppliers found that during the crisis they could increase production efficiency 30% by speeding up production
• Toyota’s sole-source suppliers, like Somic, reflected on the incident and moved quickly to build fail-safe mechanisms in their own business

As production picked up throughout the week, Aisin would pay the suppliers for everything from overtime pay to lost revenue and depreciation. Toyota too promised a bonus totalling $100 million for their suppliers as a token of appreciation.

Apple’s supply chains are prepared

Tim Cook, known for calling inventory “fundamentally evil”, reduced the amount of time inventory was on the company balance sheet from months to days. Apple’s ability to launch, make and ship millions of iPhones around the world with little stock on hand is a great example of globalised just in time manufacturing. With its manufacturing in China, Apple has not been spared the effects of Covid-19. Despite this, Cook has called the supply chain problems a “temporary condition,” and has said Apple won’t move production out of China. Apple prepares for extreme scenarios such as the coronavirus by mandating that major components be dual-sourced, both in terms of vendors and geography. These plans were a result of the 2011 earthquake and tsunami that hit Japan and led to component sourcing challenges for the iPad 2 that the company launched that year.

It’s not the end of the just in time supply chain

It’s undeniable — pull systems are very effective in disciplining production to meet demand. In certain environments, they can even be more effective than push systems, especially as just in time promises to minimise the waste associated with storing materials. In doing so, it saves the money that would otherwise go into indirect labour for storing and moving work-in-process inventory, and storing and handling buffer stock. No pull system can produce for a future event — because pull systems do not recognise future events; they only meet current demand needs. Pull systems like just in time are responsive, not predictive. To make a more resilient system, businesses may have to rethink how they approach just in time manufacturing to make sure they are fully embracing and practising the 14 principles of TPS, not just chasing low costs. Here’s our view on how to begin that process:

Start planning for a resilient supply chain

In light of a potential pandemic-fuelled recession, we’ve shared some tips on how you can make your supply chain resilient and agile.

Leverage your data

While it is wise to focus your efforts around efficiency and identifying weak spots, don’t neglect your data. Events like the pandemic highlight the opportunity to use data as a means to manage risk and identify opportunities. Look to BI to get you out of a crisis.

Podcast: Prepare for black swan events

Listen to our CEO Gareth Berry and Content Manager Greg Roughan discuss preparing for Black Swan events, the benefits and risks of radical transparency in your company, and how manufacturers are pivoting in response to Covid-19.