Ogle's Eye
Is it Time-Up for Just-In-Time?

Welcome once again to Ogle’s Eye, my weekly blog on automotive supply chain issues. I look forward to receiving your contributions and comments (use the form at the end of this article), either on what I’ve written or if you simply need to get something off your chest.

The philosophy of Just-In-Time (JIT) is simple: inventory is waste. JIT inventory systems expose the hidden cost of keeping stocks and the JIT inventory philosophy defines how it is viewed and how it relates to management.

Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. This does not mean to say that JIT is implemented without an awareness that removing inventory exposes pre-existing manufacturing issues. Since the concept was first introduced as part of the Toyota Production System there have been few, if any, industry professionals who have not espoused it whole-heartedly.

Until now, that is. For the second time in quick succession the viability of JIT is coming into question. First we had the terrible Japanese earthquake and tsunami, the effects of which caused major disruption to automotive supply chains. Now it is Thailand’s turn to feel the impact of a natural disaster as the worst floods in 50 years cover many areas around Bangkok, areas which are home to hundreds of manufacturing companies which are now completely inundated. The automotive industry is one of the most seriously affected and we have already seen Toyota and Honda being forced to stop production for lack of components. The European launch of the new Honda Civic has had to be postponed and there has also been down-time in North America.

The disadvantage of the JIT system is, of course, that it relies upon all the elements of the supply chain functioning properly. As soon as one link is broken, the ramifications can be dramatic and can affect production on a global scale. Even though the thought is abhorrent, one would be foolish to believe that there will be no more natural disasters. Don’t forget that, before the two most recent examples, there was also the disruption caused by the Icelandic volcano last year.

One has to ask whether the automotive logistics sector has a Plan B. Do companies have a back-up scenario to cope, at least partially, with serious disruption to the supply chain? How do you solve the apparent conflict between lean logistics and risk management, since the essence of risk management involves buffers such as inventory and lead times to eliminate disruption? Does lean manufacturing automatically mean fat logistics?

I think both exist -the lean manufacturing and the risk management – but they have moved to different places in the supply chain depending upon the industry. In a high inventory industry the risk tends to be transferred downstream. In automotive we have seen a trend in the last few years, perhaps even longer, that the risk should be transferred down to the logistics providers to store inventory and to replace it on line and on time. There is a desire to have less inventory on your books wherever you are in the chain. Some companies have very efficient supply chains if they have a single specific product going to a single specific market. In general, however, I believe that the risk has simply moved to a different part of the supply chain.

Please let me know what you think. Be as outspoken as you like, it’ll still get published.

Don’t forget, if you haven’t already done so, to register for the Automotive Supply Chain Europe conference in the Hyatt Regency hotel in Mainz, Germany on November 29 and 30. Day One will deal with inbound issues and purchasing and Day Two with finished vehicle distribution. You can register for either day or for both, and everyone is welcome to the gala dinner in the hotel on the first evening.
Every sector of the supply chain will be discussed by expert panelists and presenters. Full details of the conference can be found by clicking here

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