Supply Chain Digest Says...
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| After the Fukushima earthquake and tsunami, the inventor of JIT itself Toyota identified 500 critical parts whose lead times were very long and, therefore, vulnerable to disruptions. |
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Decades ago, Toyota Motor Company invented the concept of just-in-time inventory (JIT), a strategy eventually adopted by just about every company in the automotive sector, and many more in electronics, appliance, even the food industry and more.
When Toyota implemented the system, it was more local in nature, meaning supplier facilities were close by its factories. The concept was extended to more global supply chains, but with the same guiding principle: operate with the least level of inventory you can.
It was made possible on a global level due to mostly stable trade conditions and advanced logistics capabilities worldwide, which made the delivery of items highly dependable and predictable.
So say ManMohan Sodhi, a professor of operations and supply chain management at Bayes Business School in London, and Thomas Choi, professor of supply chain management at Arizona State University’s W. P. Carey School of Business, in recent column for Harvard Business Review on-line.
But since the pandemic, a variety of factors has led great uncertainty and widespread disruptions in global supply chains, with the on-going shortage of semiconductor chips that cost automakers alone billions of dollars in lost sales and profits the marquee example.
As a result, many “have called into question the wisdom of continuing to operate factories on a just-in-time basis that are dependent on global supply chains,” Sodhi and Choi write.
They add that many firm are tempted “to throw out JIT and revert to “just-in-case” systems that maintain lots of inventory at various locations in the global supply chain to ensure business continuity.”
That, Sodhi and Choi say, would be a big mistake.
A better option, they say, is to embrace a modified form of JIT — something they say that companies such as Toyota and Volkswagen are already doing. Sodhi and Choi says this involves creating stockpiles or manufacturing capacity in strategic places to protect an operation from supply chain disruptions.
(See More Below)
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After the Fukushima earthquake and tsunami, for example, the inventor of JIT itself Toyota identified 500 critical parts whose lead times were very long and, therefore, vulnerable to disruptions. It then built a business-continuity plan requiring its suppliers to stockpile anywhere from two to six months’ of parts, depending on the lead time. Though that seems a lot like plain old inventory build up to SCDigest.
Sodhi and Choi, however, put it this way: “Companies can revamp their JIT supply chains by identifying their contiguous parts that can be run on a just-in-time basis and then connecting these “JIT supply chain segments” via buffers.”
 As a result, a company’s supply chain becomes a network of linked JIT segments connected by these buffer points.
To get there, Sodhi and Choi say, companies need to take four steps:
1. Map your supply chain: the key is getting beyond tier 1 suppliers to tiers 2 and 3. Many of these indirect suppliers pose substantial supply chain risks of which companies are unaware.
2. Identify the segments that can be run on a JIT basis: the key attributes for a JIT segment, Sodhi and Choi say, include minimum fluctuations in demand, matching manufacturing cycle times across the nodes in the segment, and proximity of these nodes.
3. Create buffers at the points where the segments meet: These buffers can comprise some combination of inventory, spare or backup capacity, redundant suppliers, and even facilities shared with other companies.
4. Consider the nature of the supplier relationship: JIT generally assume suppliers are collaborative, supplier relations range from being purely transactional to highly collaborative. Buffers, Sodhi and Choi say, can help protect JIT segments from non-collaborative relationships, with non-collaborative supplier requiring a larger buffer.
Sodhi and Choi also say today’s digital supply chain technologies can enhance this type of modified JIT approach. That would include advanced analytics, for example, to help identify common parts across product lines and design optimal buffers.
Another example is use of “digital twins,” digital models of the physical supply chain that might “alert downstream plants about any upstream disruptions faster so they can avail themselves of the buffers more quickly,” Sodhi and Choi write.
“The response to the problems plaguing global supply chains is not to jettison the just-in-time approach to inventory and production,” Sodhi and Choi conclude, “It is to change the system so it can better handle uncertainties.”
The full column can be found here: Don’t Abandon Your Just-In-Time Supply Chain, Revamp It
Any reaction to these ideas on JIT? Let us know your thoughts at the Feedback section below.
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