LEAN Manufacturing Hits Road Bump: Supply Chain “Just In Time” (JIT)

This article has important implications for any business happily running LEAN Supply-Chain Operations. Not that there is anything fundamentally wrong about the Just In Time (JIT) principle per se; in fact, it is an excellent method of running production operations AS LONG AS everything goes according to plan. However, the immensity of the aftermath impact of the recent earthquake upon Japan’s infrastructure and business is very far reaching, not the least because there appears to have been no proactive “Black Swan Event” potentiality planning thus now leaving a huge gap in the ability for industry there, and elsewhere around the world that depends upon materials supplied through Japanese business, to keep running where that business is now structured around LEAN manufacturing principles.

LEAN Manufacturing Hits Road Bump: The DailyMailUK_KantoHwyAfterQuake“Just In Time” (JIT) Supply Chain – both in Japan and related deliveries from Japan following upon the earthquake and tsunami – hit a major stumbling block. The aftermath provides an opportunity to discuss an item excerpted from the (03/24/11) New York Times Business Section under the “REUTERS BREAKINGVIEWS” (page B2) sub-section – ROB COX and WAYNE ARNOLD.

This has been excerpted here because it was run together with a separate leading piece about banking reforms that has no direct relevance to the specific topic here and thus could not otherwise be discretely handled.

This NYT article has important implications for any business happily running LEAN Supply-Chain Operations. Not that there is anything fundamentally wrong about the Just In Time (JIT) principle per se; in fact, it is an excellent method of running production operations AS LONG AS everything goes according to plan. However, the immensity of the aftermath impact of the recent earthquake upon Japan‘s infrastructure and business is very far reaching, not the least because there appears to have been no proactive “Black Swan Event” potentiality planning by a large number of key businesses thus now leaving a huge gap in the ability for industry there, and elsewhere around the world that depend upon materials supplied through Japanese business, to keep running where that business is now structured around JIT LEAN manufacturing principles. Many COO’s in fact are now scrambling to resolve this unexpected, unplanned hiatus in their supply chain operations.

Here is what Cox and Arnold had to say about this:

“Demands of Supply

Japan’s natural disasters have revealed that a leaner global supply chain doesn’t necessarily make a stronger one. A string of major automakers, including Toyota and Honda, has delayed production after damage, not to assembly lines, but to parts suppliers. The country’s car industry pioneered more efficient, low-cost supply chains. Their success means events in one place resonate globally.

Hiccups in production have emerged only slowly, but have taken their toll. Toyota’s and Honda’s shares have fallen more than 9 percent since the quake, while Nissan’s have tumbled nearly 14 percent. That may seem strange considering that the prefectures at the center of the damage account for less than 5 percent of Japanese manufacturing and that most cars are built in western Japan or overseas.

But even where production lines haven’t been destroyed, aftershocks make it harder to recalibrate precision equipment. Power shortages will be a problem for months. And a handful of materials and components factories have an outsize importance to global supply chains.

Thank Nissan. For decades, Japan’s automakers relied on legions of small, captive suppliers. Vertical integration made just-in-time delivery possible, paring inventories. When Carlos Ghosn took control in 2000, he broke Nissan’s exclusive ties with suppliers and started sourcing globally. Competitors followed suit, forcing many parts makers to merge and seek additional customers.

That has forced consolidation in the supply chain. Yet as parts have become more sophisticated, Japan has retained control over production. The country still makes 72 percent of the world’s silicon wafers, according to Credit Suisse. It makes nearly a third of the world’s cars, but about three-quarters of the navigation systems in them.

Flatter chains are supposed to reduce a customer’s exposure to a single supplier or location. Instead, the opposite has occurred, and some suppliers at the high end of the market have grown. Small suppliers once relied on by a single large buyer have been supplanted by big ones used by companies all over the world. Japan’s innovation may become everyone’s problem.

Cover of the book "The Black Swan" by Nassim Nicholas Taleb
Cover via Amazon

Clearly we can learn from this situation that we always need to keep in mind that things in this world do not always go as we expect and “Black Swans”, a term coined by Nassim Nicholas Taleb as title for his book “The Black Swan” on the disruptive nature of radically unforeseen events, rare though they may be, nonetheless do occur and, when they do, they most often have incredibly far reaching consequences. Planning for level 9+ earthquakes and Tsunamis may not be feasible but planning for unforeseen disruption in a vital supply-chains surely should always be done as part of any disaster planning preparedness to ensure minimal disruption to production and customer retention and development. Yes; we still have much to learn in implementing LEAN Manufacturing “Just In Time” (JIT) Supply Chain processes that require high reliability yet depend upon quite distant, potentially indeterminate and, in the absolute, potentially uncontrollable, resources.

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