November 29, 2021

CFOS RETHINKING COST SAVINGS OF JUST-IN-TIME SUPPLY CHAINS:

CFOs are reexamining just-in-time production after the pandemic left many businesses unable to meet customer demand because of supply shortages.

Until some form of equilibrium is once again reached, CFOs should rethink how just-in-time is used, says Debbie Fogel-Monnissen, CFO of the Institute for Supply Management. The pandemic made clear the total cost of the supply chain, which includes safety stock to increase resiliency, is more important than just short-term gains for maximum elimination of inventory.

Companies that don’t have a resilient supply chain, she says, even as the economy recovers, might miss growth opportunities or even suffer permanent damage to brand loyalty if consumers can’t get what they want, when they want it.

“The pandemic caused rapid changes in demand and supply — a shock to the global supply chain ecosystem that threw the prior equilibrium out of balance, Fogel-Monnissen says. “Just-in-time by its nature requires some predictability and the pandemic interrupted that cycle.”

Related: The Origins of Just-In-Time.

Just-in-Time (JIT) is only one element of lean manufacturing, which is a broader philosophy that seeks to eliminate all kinds of waste in a process.  Although JIT is often considered an enterprise-wide philosophy of continuous improvement, I’d like to focus on the mechanistic aspects of JIT – that is, the development and operations of a production system that employs continuous flow and preventive maintenance. In an effectively implemented JIT production system, there is little or no inventory – which includes Work-In-Process (WIP) – and production is tightly coupled to demand.

The origin of JIT can be traced back to Henry Ford’s production line, in which he was keenly aware of the burdens of inventory. However, Ford’s production system generated large volumes of identical products created in large batches – there was no room for variety, and the system was not coupled to demand levels.

In post-war Japan, Taiichi Ohno (“Father of JIT”) adapted the system at Toyota to handle smaller batch sizes and more variety in the parts that could be used to construct assemblies. In 1952, work on their JIT system was initiated, with full deployment of the kanban pull system by 1962. This was the genesis of the Toyota Production System, an elegant (and sometimes elusive) socio-technical system for production and operations. This approach bridged the gaps between production and continuous improvement and became the basis for lean manufacturing as it is known today.

Exit quote from the second post, which was written in 2010: “JIT is very sensitive to the external environment in which it is implemented. For a review of Polito & Watson’s excellent 2006 article that describes the key barriers to smooth JIT, read Shocks to the System: Financial Meltdown and a Fragile Supply Chain.”

(H/T: Ed Morrissey.)

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