The prospect of having a Just In Time (JIT) Supply Chain system has been the goal of innumerable businesses and industries for decades. And for those who have implemented Just In Time processes it has been the backbone of their entire operating structure.
But the global pandemic exposed the fragility of the Supply Chain in virtually every industry. We quickly ran out of healthcare supplies, toilet paper, and more. The extent of disruption has spread to lumber, steel, computer chips, automobiles, furnaces, and any number of additional products.
The fundamental principle of just in time delivery based on real time demand, combined with the unrelenting focus on inventory levels and faster inventory turnover, has created an operating paradigm that is great when things are going well, but which has proven to be ill-equipped to handle disruption the likes of which the pandemic has created.
Does that mean that a Just In Time philosophy has outlived its usefulness? Is JIT past its time?
The History of Just In Time
I started my career in a manufacturing company, working in various functions from the production floor through to warehousing, engineering, Supply Chain, and various back office support functions. At the time the prowess of Japanese manufacturing principles and Japanese production efficiency was the envy of everyone. In our quest to emulate what the Japanese were doing, here in North America, we looked to import those techniques and philosophies.
Just In Time was a part of that strategic aspiration and operational design point for our facility, but that vision came to senior management a little too late. That single manufacturing plant had 8 offsite warehouses in addition to the warehouse that was attached to the main manufacturing plant. I know because early in my career I was put in charge of Warehouse Space Planning. The company was investing millions in a new, highly automated warehouse storage and retrieval system (AS/RS) which would eliminate many of the offsite warehouses.
We weren’t alone. Manufacturing and Distribution organizations all over the world (except Japan) were doing the same thing. Pouring millions into fixed warehouse structures with some level of automation. Huge capital investments, large operating costs, and lengthy payback periods.
And then the concept of Just In Time came to North America from Japan. The very idea was that you would only bring goods into your facility at that last possible moment, and commensurate with actual demand. In such an environment your needs for warehousing and storage space should be reduced dramatically. That’s because excess handling, inventory and storage are considered “waste”, according to Japanese production principles.
The idea for Just In Time is credited to Kiichiro Toyoda and the successful implementation of the concept is credited to Taiichi Ohno. According to allaboutlean.com, “The Western world became curious about the success of Toyota only after the 1973 oil crisis, which hurt many Western car makers but not Toyota. The topic of JIT in particular started to take off around 1980 but reached its peak in 1990.”
Just as we were installing a new automated warehouse system in the early 1980s, that was designed to last decades, the very notion that it was even needed came in to question.
How Just In Time Works
Investopedia succinctly describes JIT as “a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately.”
As the name states, raw materials are introduced to the production process just as they are needed, and not before. There is no stockpiling of goods. Downstream suppliers provide their goods precisely when their customer, the manufacturer, needs them, based on real time demand signals sent from the manufacturer. The manufacturer gets its demand signals commensurately from their end customers as a representation of true and actual demand, not forecasted demand.
Kanbans, optimally sized in consideration of processing times, are the only spots where you will find a very modest amount of inventory. Kanbans are designed to ensure continuity of production flow, while at the same time minimizing any inventory exposure in case there are issues such as quality defects, anywhere in the production process.
Numerous companies in a wide variety of industries have embraced and implemented JIT systems as the backbone of their manufacturing and Supply Chain philosophy. Automotive companies, technology manufacturers, publishers, clothing manufacturers, retailers, and more all have deployed Just In Time techniques.
Why JIT Was “Hospitalized” By the Pandemic?
Just In Time seems to make a lot of sense. Only bring in the goods you need, exactly when you need them, and not before. This should keep costs down, reduce inventory levels, mitigate the extent of any quality problems, lower storage, improve productivity, reduce cycle times, and improve customer delivery proficiency. Most people would agree that those are all results that are desirable and motivational.
While the concept of JIT was born in the wake of World War II, aside from localized disruptions (eg, disasters) in the intervening decades, the overall ecosystem in which JIT has been allowed to grow and prosper had been relatively stable. There are always disruptive events and catastrophes, in varying degrees of significance, but Just In Time has generally continued, undaunted by external forces.
But then along came the Coronavirus, Covid-19. It was a global pandemic unlike anything that has been experienced in a hundred years. Within weeks and months the importance, and fragility, of global Supply Chains was visible to everyone. With countries all around the world going in to lockdown, closing factories, stores, restaurants, events, and workplaces of every kind, every aspect of our personal and professional lives was upended.
Shortages of goods occurred very quickly with the Coronavirus. A shortage of healthcare items (eg. ventilators, medical gear, masks), followed by toilet paper, and household consumable goods hit everyone hard very quickly. But as the pandemic has continued into its second year, and into its third year, no industry has been untouched from supply line disruptions. Lumber shortages, steel shortages, computer chip shortages, logistics, construction, plastics supply, furnaces and appliances, and automobile shortages are a small sample of goods and industries brought to their knees by the Coronavirus pandemic.
Many of these industries used Just In Time systems, which is fine when environmental forces are relatively stable. But the profound impact of the pandemic exposed the flaws in this approach. The automotive manufacturers provided a great example for the fallacy of this approach in dealing with the pandemic.
When the pandemic first hit, and lockdowns were occurring everywhere, automotive manufacturers cut back orders on raw materials, including computer chips. Their Just In Time paradigm made this response automatic, with no consideration for the potential length of this global disruption. They would have assumed that when demand was restored they could immediately turn on the taps and get the requisite supply of goods that they needed. The business model was based on Just In Time, after all.
When you look at semiconductor chip supply, for instance, what the automotive manufacturers failed to take into consideration was that the pandemic would also have the effect of constricting capacity for the chip manufacturers. Further there were many other industries which would see a surge in demand, even during the pandemic, on those chip manufacturers. The result was that when automotive market demand came back, and the auto companies restarted their downstream demand requests, consistent with their Just In Time operating model, companies like the chip manufacturers no longer had the capacity to meet that demand.
For other commodities and raw materials a similar story played out. Capacity was constrained, supplies were limited, and for whatever materials were available prices were increasing substantially.
The Just In Time approach fell apart in the wake of the Coronavirus pandemic.
Is there a Future for JIT?
At some point we will be largely past the Coronavirus pandemic and life will return to “normal”, albeit a new normal in our estimation. It will take some time for industries to get back to some semblance of the pre-Covid operating dynamics that they had been used to for decades. In the case of the automotive companies, we expect it will be well in to 2022 before things start to stabilize for them.
The question then becomes, for those who embrace Just In Time, will they go back to that way of operating or will they alter their operating philosophy to some degree? There will always be disasters of some kind, although we certainly hope it is at least another hundred years before we experience another global pandemic. The danger is that as we get past the pandemic people will forget this recent experience and blindly go back to doing things the same way they were done before.
Visionary and pragmatic leaders should realize that going back to the same old Just In Time system is a dangerous approach. There should be more tolerance for some levels of strategic inventory, to help ensure continuity of supply. There should be broader implementation of Digital Supply Chains, built on end-to-end electronic connectivity enabling real time and more informed decision making. And there should be deployment of risk management strategies built on longer term outlooks, far beyond the typical short term Just In Time horizons.