This Year's WSJ "JIT"-Bashing Article
Clarity Is Missing Link in Supply Chain - WSJ.com
Ah, here we go, it’s time for the annual Just-In-Time-bashing article from the Wall Street Journal. Some past "the WSJ doesn’t get it" posts include:
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This WSJ Article (as do Many Organizations) Misses the Point of 5S
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WSJ’s Wrong Conclusion on Frederick Taylor
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Updated: Step 1 Earthquake, Step 2 JIT Bashing
This new article, from this morning, follows the common pattern of ripping practices they call "JIT" that are really just the normal bad practices of a typical manufacturer in today’s global supply chain. What they call "lean" (vis a vis "JIT") is either not lean at all or it’s "LAME" (Lean as Misguidedly Executed). Either way, it’s frustrating and it’s not the type of article you want to read on a Monday morning if you’re a lean thinker.
So it begins:
The world’s complex "just in time" manufacturing supply chains are making it increasingly tough for Zoran, and any other single link in the chain, to know what’s going on just a few links away. Sometimes, Zoran itself doesn’t even know how its own chips are used: One batch it thought was destined for DVD players instead turned up in digital picture frames.
Why would we blame JIT for this lack of customer intimacy or communication? Why blame Zoran, isn’t that bad supplier relations on the customer’s part?
And then we have the notion of a "complex JIT" supply chain. Who said "complex" and "JIT" ever went together anyway?
I have a copy of Richard Shonberger’s book from 1982 called Japanese Manufacturing Techniques: Nine Hidden Lessons in Simplicity
In Chapter 7 on "Just In Time" Purchasing, page 159 lists some characteristics of JIT, including the following (with my comments in italics).
- Long-term contracts (don’t jump from supplier to supplier based on piece-price)
- Few suppliers
- Nearby suppliers (not complex and global)
Schonberger shares an example of how Kawasaki chose a seat supplier who was two miles away.
So it’s clear that the WSJ starts off on the wrong foot… describing something as JIT that’s clearly not JIT. It continues:
Because modern industry rewards suppliers with the leanest inventories and fastest reaction times, when economic crisis struck, tech companies up and down the line contracted as sharply as possible in hopes of being the ones to survive.
Ah, here’s another problematic use of the word "lean." Fastest reaction times? Industry rewards SLOW but CHEAP suppliers, often located far away in China. Who is rewarding (say other than Toyota and a few like minded companies) FAST over CHEAP?
Distance and slow speed causes problems… the longer the lead time for components (production and shipping), the harder it is to forecast accurately, even in stable times unlike those we live in today.
Forced to guess at demand for their products in a plummeting market, everyone hit the brakes, hard.
When supply chains are slow and long, you have to "guess" (called "forecasting" in more polite terms). With forecasting, you can overproduce or even underproduce when your production isn’t in sync with demand.
The tech pullback may have been overdone. In March, Best Buy Co. said it could have sold more electronics equipment in the three months ended Feb. 28, but its suppliers’ deep cuts made it tough to keep shelves stocked. Suppliers "all decided to build a lot less," says Best Buy merchandizing chief Michael Vitelli. As the contraction raced down the supply chain, its effects became amplified.
The amplification is known as the "bullwhip effect" or the "Beer Game effect." The bullwhip effect is made worse when you have long lead times and slow response from suppliers.
The WSJ gives an example where the fall in consumer demand is amplified as you go back the supply chain.
- Consumer electronics sales — end customer (down 8%)
- Production of electronics (down 10%)
- Chips for electronics — components (down 20%)
"Usually the guy at the rearmost end suffers the most," says Morris Chang, [chipmaker] TSMC’s chairman.
Ten years ago, I saw Jim Womack describe a similar effect in the airline industry — when passenger miles flown was pretty stable, Boeing’s production varied quite a bit and their suppliers even more so. The solution to this, as proposed by Womack, was Lean and JIT. JIT was not the cause of Boeing’s problems back then.
"JIT" order taking is not the same as JIT production:
As recently as the early 2000s, companies compiled orders only monthly or quarterly; now they often do it every week. Their quicker reflexes this time kept their inventories from swelling dangerously, as happened last time, supply-chain experts say.
I wonder if they are talking about real orders or forecasts? Changing your forecasts frequently can cause chaos in the supply chain, especially if you are re-running an MRP/ERP master production schedule. Small changes can be amplified throughout the system, again causing big variations in production levels.
Then here’s a point where the WSJ article is inconsistent. If JIT kept inventories from swelling, why then did we have this happen:
Although U.S. gross domestic product fell 6.1%, on an annual basis, in the first quarter, nearly half of that was due to inventory reductions.
So which is it? Inventory reductions hurt the economy because companies were more reactive and cut inventories…. but I thought JIT kept inventories from swelling? This doesn’t make sense.
The bullwhip effect can hit you in the other direction — increases in production will also be amplified down the supply chain.
Still, "It’s easier to turn the switch off than turn it back on," says David Pederson, Zoran’s vice president of corporate marketing. Growth forecasts also get muddied because several of Zoran’s customers may be optimistically competing for the same manufacturing contract, he says, and they can’t all win it.
I saw this in 1998 when I was a grad school intern at the semiconductor making image sensor division of Kodak (yes, Kodak made CCD chips — still do, I believe). They made linear sensors for flat-bed document scanners, supplying all the major producers. Their six customers each forecasted they would have 33% market share… and Kodak got stuck with excess inventory as a result.
The WSJ illustrates the long, slow global supply chain:
That about says it all… long, slow, convoluted supply chains are the problem, not "JIT." I wish the WSJ would quit getting this wrong. I wrote a letter to the WSJ reporter suggesting that, in the future, he not just consult with "supply chain experts." He needs to talk to Lean experts like Womack or even Shonberger himself. Now *that* would be some good reporting.
