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Step 1 Earthquake, Step 2 JIT Bashing
August 1, 2007
A Key Strategy of Japan's Car Makers Backfires - WSJ.com
I
predicted it, that the Japan earthquake, which led to production shutdowns about two weeks back at Toyota, Nissan, and others, would be quickly followed by an article that blames that risky Just-In-Time strategy. Well, it only took two days for the WSJ. Either that's "Just-In-Time" writing, or they keep articles like that ready to go in the warehouse! The WSJ article says:
"For want of a piston ring costing $1.50, nearly 70% of Japan's auto production has been temporarily paralyzed this week.
Blame it on kanban, the just-in-time philosophy of keeping as little inventory on hand as possible. The strategy keeps inventory costs down and ensures quality. It generally works because Japan's auto makers have long prided themselves on the almost familial relationships they have with a handful of suppliers of custom parts that deliver several times a week or even daily.
The strategy also has a downside, as became evident after the 6.8-magnitude earthquake that hit central Japan on Monday..."
What is Toyota supposed to do then? Hold lots of expensive inventory "just in case" they have a once-in-ten-years catastrophy? The WSJ admitted that Lean is good for costs and quality, so what are they really suggesting Toyota do? It's a pretty shallow and uninformed article on the WSJ's part. Toyota (and others) were back up and running within a week. Let's say Toyota had the supplier hold lots of just-in-case inventory.... well the Riken warehouse was damaged, so it's possible that all of that inventory would be damaged even if they had it.
There is also a
free article with similar themes here.
The Journal wrings its hands about JIT and risk about once a year. Others pick up on this tired theme,
which I blogged about here in response to an article in The Manufacturer.
Here's the letter I wrote to the WSJ:
Dear Journal Editors:
After hearing news of the recent earthquake in Japan , I publicly predicted the coming “Is Just-In-Time Risky?” article and you delivered (“A Key Strategy of Japan's Car Makers Backfires,” July 20). The writer blamed kanban and the “lean manufacturing” approach used by Toyota and many others, although you rightfully recognized that the philosophy “keeps inventory costs down and ensures quality.”
News stories reported that the Toyota supplier, Riken Corp., suffered damage to its factory and to its warehouse. It seems irresponsible to suggest that companies with supply chains that normally flow smoothly should hold “just in case” inventory stockpiles that can just as easily be damaged in an earthquake or other such rare disaster. Toyota suffered a similar shutdown in 1997 after the Aisin factory fire, another situation where parts were sourced from a single supplier and inventory levels were low. As the Journal itself wrote, again in 1997, “The fire and its aftermath have left Toyota executives convinced that they have the right balance of efficiency and risk.’
Should Toyota , and others, sacrifice cost and quality for a one or two week disruption that happens every ten years? Toyota is, by its nature, self-critical, so I would trust Toyota management, especially given their track record of sustained growth and profitability, to find the right balance more so than outside analysts or reporters.
Mark Graban
Posted by Mark Graban on August 1, 2007 | Comments (4)
