Just-in-time and disasters

 

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Every time a natural or human-made disaster occurs, there are journalists and bloggers to see in the resulting supply chain disruption evidence that just-in-time (JIT) is wrong and should be abandoned as an objective.

This is based primarily on the perception that JIT means zero inventories. Since zero inventories means zero production, it is obvious that not all inventory is waste. What is waste is unnecessary inventory, which is a bit more subtle because it requires you to tell what is necessary from what is not. There are telltale signs, like thickness of dust or the inability of anyone to tell you what materials are for, but that is the easy part. Beyond that, you have to figure out experimentally what you really need.

What JIT really is about is protecting yourself against shortages by vigilance rather than inventory. This means keeping accurate inventory data, monitoring the in- and out-flows, monitoring the disruptions that can be anticipated, and responding quickly to events. The reason to pursue this strategy is that , while protecting yourself against shortages by inventories works with crude oil, it does not when you are dealing with thousands of items. If you try, you end up with full warehouses that happen not to contain the item you need today.

When a disaster hits your supply chain, the quick response cannot be yours alone. You need your suppliers’ help, and that is why you cannot be in adversarial relationships with them. Long-term, single-source agreements, the regular exchange of business and technical information, and collaborative problem-solving are all necessary to cement the relationships that make a joint emergency response possible.

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18 comments on “Just-in-time and disasters

  1. Comment in the Operational Excellence discussion group on LinkedIn:

    JIT – to manufacture good when needed or time to be sold. This only benefits the factory but not it suppliers. In order to ensure rhythmatic flow of materials, suppliers are making to keep buffer stock and safety stock to ensure no breakdown in supply chain. Seem the easy way to drive JIT is to constantly adjusting it buffer and safety stock of suppliers.

    • @Lai Heng – This is what the letters stand for but not what Just-In-Time as a business practice really is. The point is not to force the suppliers to hold stocks but to cascade the approach up the supply chain until the stocks are kept as ores in the ground. Take Just-In-Sequence, for example. The supplier delivers, say, seats to a car assembly line directly to the station where they are mounted into the cars, and in sets sequenced exactly like the car assembly line itself. This is not accomplished by requiring the supplier to keep stocks of different types of car seats to pick kits from. Instead, the manufacturing of the seats starts when the car bodies are loaded onto the final assembly line, and they are made and delivered by the time the car arrives at the assembly station where they are needed.

      It sounds like something that requires so much coordination that it couldnèt work, but companies like Johnson Controls or Faurecia make it work.

      • Another element to the JIT and SPD process is the end user’s inventory policies. I say policies because the process requires engineering the solution with all participants within each supply chain. We used to call this the “Bull’s Eye” chart which targeted higher (in hours not days) of inventory the further away a supplier’s ship location was in relationship to the assembly plant. A back-up plan for inclement weather or other unforeseen emergencies were included for each supplier ship location as a contingency. Inventory policies were reviewed as least once per quarter and adjusted as data, such as premium freight costs, were reviewed.

      • Hello Mr. Baudin. Example you offered of the car seat manufacturer … if car manufacturer implemented true JIT process, the responsibility of carrying inventory falls entirely on to supplier. Any event that may cause delay in production or while product is in transit will inadvertently cause unscheduled delay in manufacturing process/assembly. To avoid this, OEM would have to carry limited number of inventory on site or off site but with in close proximity to cover any type of unscheduled delays.

      • No! The customer carries no inventory of seats and neither does the supplier. Based on the actual final assembly sequence of the car maker, the seats are assembled, delivered and mounted without ever between stored. It is not easy to set up, but a wonder to behold once it works.

  2. Comment in the Operational Excellence discussion group on LinkedIn:

    @ Michel,

    In your article, you mention:
    * long-term, single-source agreements,
    * the regular exchange of business and technical information,
    * and collaborative problem-solving.
    as the basics to cement the proper relations with your suppliers when using JIT.
    Is this correct?

    If so, is it really necessary to have single sourcing in JIT?

    • @Eric Schmitz – The issue of single sourcing came up with the Aisin Seiki fire of February, 1997. Aisin Seiki was the single source for proportioning valves to Toyota in Japan, and the fire brought all Toyota plants in Japan to a standstill in four hours, with recovery taking six weeks.
      Toyota’s long-term response was not to develop another supplier as a second source but to ask Aisin Seiki to make these parts in more than one plant. The effect in terms of protecting the supply chain is the same, but it does not weaken the bond between customer and supplier.
      But that is in the car industry. In the semiconductor production equipment industry, demand is much more unstable, and a machine shop producing parts may be faced with a sudden doubling of the demand, or massive cancellations. I know of one such machine shop that made an second-sourcing agreement with a competitor to have surge capacity without over-investing. The customer ended up with dual sourcing, but it should be noted that the arrangement was initiated by the supplier, not the customer.

      To answer your question precisely, as far as I know, committed, single-sourcing relationships are part of the TPS approach to supply chain management. When you apply Lean in other industries, single-sourcing may not always be feasible, but involving a second-source should not be a unilateral decision by the customer, as such a decision would destroy the confidence required for a collaborative relationship.

      • Comment in the Operational Excellence discussion group on LinkedIn:

        Thank you for your clear explanation.

        There is also another aspect of single sourcing, namely follow the customer wherever he goes.

        I see sometimes that a supplier is pushed very hard to start production in an area or country because the customer is planning to start a new site. Sometimes the customer is big enough to be successful in such a country; the supplier however is – organizationwise, financewise … not ready or prepared to follow. Does that mean that the customer will have single souricing by country or continent? Or will he search for a global supplier?

        Coming back on the issue of disasters: it seems sometimes to be wise to have multi-sourcing to split the risk and to have optimal local sourcing.

        Is there a clear JIT-answer (?) or is it depending on the situation?

      • You single-source in order to have the closest, most open partnership with your suppliers but, regarding international plants, there are also other considerations, including the need to be perceived as a good corporate citizen and to defuse the social tension that a foreign-owned plant can create.
        In the US, Toyota and Honda brag about building cars with a higher domestic content than Ford or GM. And training local suppliers in their production systems also enhances their image. Sometimes they adopt different approaches than in their domestic market. In the US, for example, Toyota trained Transfreight in Lean logistics and uses it as a third-party logistics provider (3PL). In Japan, Toyota does not use 3PL.
        Rather than saying “this is the JIT answer” and make it a dogma, I think it is more useful to consider what companies are doing and ask why. Then you can make up your mind about whether you want to do the same.

  3. Comment in the Operational Excellence discussion group on LinkedIn:

    JIT is good and easy to practice in a well organised or developed environment. However, implementation of JIT where basic infrastructures are inadequate could be accompanied with some unprecedented undesireable effects (or even a disaster). For example, in developing countries where good road network and good communication system e.t.c are lacking, indiscriminate use of buffer and safety stock is inevitable. Therefore, the actual objective and benefit of JIT may not be realised.

    • @Frederick Popoola – JIT is not a rigid set of practices but an approach to managing your logistics and your supply chain, and you have to adapt what you do to the infrastructure you have.

      Where roads and communication systems are inadequate, chances are your supplier base is as well, and there are many different possible responses. One is a higher level of vertical integration than in more advanced economies. If you can’t buy it and get it delivered from a reliable supplier, you make it yourself.

      These are issues you need to consider before you build the plant. Wages should not be the only consideration.

  4. Comment in the SME Society of Manufacturing Engineers discussion group on LinkedIn:

    Seems to me that most of the recent disaster-induced supply chain disruption was the result of single sourcing rather than JIT. Perhaps now the affected manufacturers will implement the corollary to JIT: JIC (Just In Case)!

  5. Comment in the PEX Network & IQPC – Lean Six Sigma & Process Excellence for… discussion group on LinkedIn:

    I like your last words best “make a joint emergency response possible.” If the supply is critical (like raw material, steady flow), for each you should be asking do we have a documented emergency response should that source be cut off. It is true everyone blogs about JIT when the supply chain is interrupted in major way. Just you your blog and mine. :>)

  6. Comment in the IndustryWeek manufacturing network discussion group on LinkedIn:

    You said: “What JIT really is about is protecting yourself against shortages by vigilance rather than inventory. This means keeping accurate inventory data, monitoring the in- and out-flows, monitoring the disruptions that can be anticipated, and responding quickly to events.”

    Maybe for your practice, but certainly not in the preachments and practice of our customers- the Major OEMS.

    ‘Monitoring the disruptions that can be anticipated’ (what about those that can’t)and ‘responding quickly to events’ sound exactly like the soothing nothings we told our kids while huddled in the basement during a tornado siren; like the promises of politicians before the election. They try to make us feel good but are neither real actions nor evident on the business plan or ledger.

    The Sole Sourcing /Just in Time Business model that is so unthinkingly accepted throughout the automotive industry is perfect- for a world in which accidents don’t happen, chemical plants don’t explode, and tsunamis and nuclear plants don’t lay waste to entire districts of manufacturing.

    How many of these do we have to live through before the High Pay Grade Folks With Corner Offices figure out that the real world does have unanticpatable events and actually do some contingency planning? And considering the risks of their flawed implementation and adversarial supply chain relations, your ‘the regular exchange of business and technical information, and collaborative problem-solving are all necessary to cement the relationships that make a joint emergency response possible’ seems little more than an idealistic, perversely utopian fantasy of a far more chthonian, VUCA reality

    • I don’t speak for your customers.
      When writing about disruptions that can be anticipated and responding quickly, I was thinking of specifics:

      1. How the Toyota logistics people in the Chicago consolidation center anticipated the Mississippi flood of 1993 and how it would disrupt rail shipments to NUMMI in California. They reserved all the trucks available four days in advance and were able to reroute the parts around the flood zone and avoid any shortage at NUMMI.
      2. How Toyota and its suppliers in Japan rallied quickly after the Aisin Seiki fire of 2/1997 obliterated the supply of proportioning valves in Japan and were able to recover in six weeks. It was a quick, improvised response to an emergency that has not been anticipated, and was written up both in the Wall Street Journal and the Sloan Management Review.

      Just because contingency planning in a Lean supply chain does not involve keeping two months of everything on a shelf does not mean it doesn’t exist. For example, having a Logistics group in Chicago monitoring, among other things, the weather and making the decision to reserve the trucks IS contingency planning. It is the sort of thing I mean by vigilance.
      So far, very few companies are capable of having anything other than adversarial supply chain relations. Collaborative relations are difficult to establish and easy to break. Few managements understand what it takes to make them work and that what is at stake is the best protection they can get against VUCA.
      By the way, I didn’t know VUCA and had to look it up. It stands for: “Volatility, Uncertainty, Complexity and Ambiguity.”

      • Comment in the IndustryWeek manufacturing network discussion group on LinkedIn:

        Your follow up comments explain to me the misunderstanding. Your original piece subject line was focussed on natural or human created ‘disasters.’ I’m thinking Fukushima to open…Your follow up to my comment explains the scale you are describing ‘monitoring weather and reserving trucks’ to be less dramatic and in fact manageable. This is a far cry from the scale and scope of what i thought was meant by disasters in your original post.

        We agree that two months of safety stock of finished items is undesireable, yet we see some raw materials available in “quarterly rolling cycles” and if by chance their were a Natural or human disaster at that sole supplier…

        We have not seen the kind of vigilance that you describe, other than having their VP call our VP to move heaven and earth because something happened that they HAD NOT anticipated.

        Getting past adversarial relations is the real key to making any kind of supply arrangement work, and the better those relations the more likely the more lean success will be able to be achieved. We are in agreement on the need for planning. http://pmpaspeakingofprecision.com/2012/04/18/nylon-12-tsunamis-and-lean-supply-chains/
        Thanks for the thoughtful response.

  7. Paul Novak, CEO of the thirty-eight thousand member Institute of Supply Management, speaking to Patricia E. Moody of Blue Heron Journal, sees big changes ahead for the profession, and for manufacturing as well. Looking back on supply management’s last few years, Novak summed up the changes, “”Our world got bigger – supply management will own manufacturing.”

  8. Pingback: Another article that confuses Lean with reckless | Michel Baudin's Blog

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