Is It The End of “Just-In-Time” Manufacturing?
Just-in-time has been the primary model for inventory management for years. While it has been universally accepted as a great way to optimize assets, eliminate inefficiencies, and cut costs, some companies may have pushed the philosophy too far, leading to major supply chain disruptions in the wake of Covid-19. It’s time to reevaluate just-in-time and improve the process to avoid unnecessary disturbances in the future.
What is Just-In-Time?
Just-in-time (JIT) has been the predominant inventory management system worldwide for the past 40 years. Originally pioneered in Japan by Toyota after World War II, the purpose of just-in-time is to make manufacturing as efficient as possible. This is achieved by producing only when there’s demand for your product and coordinating with suppliers so materials arrive just-in-time for production to begin (which is how the system got its name.) This system cuts back on costs primarily because it saves space –– manufacturers don’t need a large warehouse to store all the necessary components since they arrive right when they’re needed.
Just-in-time was developed mostly out of necessity. In the years following World War II, Japan had to rebuild its production facilities but they didn’t have much money, space or natural resources to do it with. Those challenges, coupled with the cultural belief that waste is abhorrent, led to the creation of the just-in-time system.
By the mid-1970s, Western manufacturers had started adopting the practice. The just-in-time philosophy began to spread more widely, eventually evolving into the lean management style that came into fashion in the 1990s. Lean methodology is a combination of JIT and continuous improvement principles. The primary focus in lean manufacturing is removing waste by improving processes, products, services, and activities in order to deliver the most value to the customer.
Benefits of Just-In-Time
Just-in-time has been the dominant inventory system for good reason –– it delivers a host of benefits to those who implement the practice. For starters, companies who successfully implement just-in-time save space because they:
Are not storing a variety of parts just in case they’re needed
Only purchase components when an order is placed
Receive materials right before production begins
Ship completed goods immediately to the customer
By minimizing inventory, companies who use JIT can cut back on the amount of warehouse space they need, which saves them money.
This practice also saves money by eliminating overproduction. Since a product is only manufactured if there’s a demand for it, there’s no excess product depreciating in the warehouse. This also reduces labor costs; team members on the production lines only work when necessary and warehouse employees have fewer parts and products to keep track of.
Who Uses Just-In-Time
Just-in-time is by far the most widely used inventory management strategy of the modern era. Of course, the practice of JIT still reigns supreme in the automotive industry where it’s used by Toyota, Harley Davidson, and Ford; while its origin is firmly rooted in the automotive industry, JIT has been implemented by manufacturers in a variety of trades.
In the apparel industry, Nike, Zara, and Uniqlo are prime examples. Fast food restaurants like McDonalds and Burger King have also adopted the basic principles of just-in-time. In the technology sector, Dell, Apple, and Amazon are known to use just-in-time techniques. The just-in-time and lean philosophies are so prevalent that Amazon employees have even reported hearing management use Japanese terms like “andon” (a processing mistake) and “gemba” (the worksite) in fulfillment centers.
The Impact of Just-In-Time Shortages
The level of efficiency that just-in-time delivers has proven to be very lucrative; adopting the practice has streamlined production, cut back on waste, and saved companies millions of dollars over the years. But with the wide-ranging benefits also come a few pitfalls, many of which were revealed during the Covid-19 pandemic.
Just-in-time relies on a healthy supply chain that can deliver exactly what’s needed, when it’s needed. When one part of the supply chain breaks down, it causes a ripple effect that impacts other companies down the line.
For example, let’s say a powdered beverage manufacturer in the United States has an order from a customer for a chocolate-flavored protein powder. The beverage manufacturer contacts their suppliers and places orders for the necessary ingredients. But what happens if their cocoa supplier is located in a country that’s undergoing civil unrest?
Under normal circumstances, they might be able to find an alternate supplier. But what happens when multiple suppliers are shut down, like we saw during Covid-19 lockdowns? The results aren’t pretty: this kind of disruption causes delays, shortages, and rationing.
Just-in-time is also heavily dependent upon predictability. Much of the supply chain relies on forecasts using data from previous years to predict what will be needed the following year. But apparently few people in logistics foresaw a worldwide pandemic.
The discrepancy between forecast and reality caused some major problems in the supply chain. Instead of consumers buying new luggage for their summer vacations in 2020, hospitals needed ventilators. Manufacturers were more than willing to shift production to meet the need, but due to JIT philosophy, there weren’t any extra ventilator parts lying around, ready to be used.
Essentially, just-in-time only works when everything goes as planned. The system is somewhat adaptable when forecasts are slightly off or one or two suppliers fall through, but it can’t withstand any major disruptions. In the case of Covid-19, manufacturers took on too much risk in an attempt to cut costs as low as possible –– and everyone paid the price.
Just-In-Time Needs to Adapt
Just in time was embraced by many manufacturers and generally accepted as an excellent way to cut costs. The practice paid off for many years but it’s painfully obvious that the practice only works when everything runs smoothly and predictably. Now that we know the primary weaknesses of JIT, shouldn’t we make changes to improve the process even further?
Perhaps the best solution is to create a hybrid model, one that utilizes the efficiencies of just-in-time while acknowledging the reality of living in an unpredictable world. We’re not talking about returning to the days when companies kept a hefty supply of parts on hand; instead, manufacturers could maintain a buffer, keeping enough components in stock just in case something goes wrong.
Of course, manufacturers will have to pay to enact these changes. The demand for warehouse space was already increasing before the pandemic due to the explosion of ecommerce; it’s sure to go up even higher now. But that’s a small price for manufacturers to pay for the ability to adapt to changing circumstances and avoid major supply chain disruptions.