Okay, Okay, I can hear it now from all of the MBA Consultants with years of manufacturing experience, “With only two years manufacturing, he’s going to talk to us about Just in Time”. Well to you over educated wonders, yes I am. If you really learned the history of Just in Time you will know that the concept was perfected in manufacturing by Toyota. They borrowed some concepts from Ford BUT their true inspiration was American Supermarkets. Taiiahi Ohnu, a Toyota manager came to America with a group from Japan to study American manufacturing techniques. Yes they did learn from Ford and other manufacturers but Ohnu was truly interested in visiting American supermarkets and studying how they replenished their shelves. A customer buys one off the shelf and the grocer replaces that one on the shelf. A true pull inventory system. Short distribution stream and fast replenishment. That was the true inspiration for Ohnu. Since I spent thirty-one years in retail, for Walgreens, recognized as one of the best in the industry for distribution and replenishment, yes I am going to talk about it with some authority, thank you. Now kindly sit down and listen, you’re not receiving your hourly consulting fee for reading this anyway.
Early attempts in America to implement Just in Time were misguided. Companies did not take the time to understand the concept and tried to implement it. Their take on it was to strong arm the vendors and force them to ship just the right amount at just the right time, no matter what. What they did not look at was the consequences of not including the entire supply chain. Vendors were forced into this and the only way to comply was to build inventory at their level, ready to ship at a moments notice to their customer. The cost of holding this inventory throughout the supply chain always eventually caught up to the customer who was implementing this new miracle cure. The results, cost rose.
Over time companies realized their error and began looking at Just in Time throughout the entire supply chain. Now they were getting it. Everyone in the chain makes smaller batches with quicker machine change overs, they all carried less inventory of finished goods and work in process. Their overheads fell, everyone saved money and things worked great, Right? Well in concept yes. Some companies do a great job of this but there are a couple of flaws that need to be accounted for. The first one is the biggest flaw in every system, PEOPLE. The second one is the root of the supply chain and it’s inability to respond.
The key to Just in Time is forecasting. Forecasting your needs in the future, so suppliers can plan, acquire their production needs and respond. Any Just in Time system is only as good as its forecasts. Forecast can be very simple, number made last year plus ten percent due to our current sales increase. Others factor in economist forecast, seasonality, stock market trends and I’m sure a little palm reading and taro cards. Regardless they have a forecast. So where do people come in. When production hands the forecast to purchasing, they expect purchasing to have materials to meet that forecast. Often, purchasing wants to REALLY make sure so they meet the forecast so the pad the it 10% or 20% or whatever they think they might need. Now the supplier manufactures to forecast plan they add buffer and safety stock. Safety stock is to anticipate demand spikes from the customer and buffer stock to anticipate potential machine breakdowns or supply problems on their end. So you have the supplier already making the forecast plus and then the buyer has tweaked the forecast higher. At the end of the year the supplier looks at the forecast versus what the customer really bought and then walks into the warehouse and actually see the difference sitting on his shelves. All that stock is just like dollar bills sealed in a vault. Useless until it is sold. So what does the supplier do? Anticipate the buyer and begin cutting all of the customers forecast by 10% or 20%, to anticipate them padding the figures. Now the data is completely corrupt and Just in time doesn’t work. If you think this doesn’t happen talk to any CEO or scheduler at any business to business manufacturer. With true forecasts, suppliers can figure the actual time it takes to make one item (yes I know there is a LEAN, Japanese word for that. I think the only reason they throw around the Japanese is so the consultants can convince us that it is sooo complicated we need to pay them big bucks to do it for us. BUT that’s a story for another Blog. Sorry consultants) estimate time and materials for the batch and meet the forecast demands of their customer.
The other problem that arises is in mid-sized non publicly held companies. Those places where the CEO is the final word. These people built there empires by being smart and aggressive. They will proclaim that they want everyone to prepare for a 20% increase in business the following year. They have no data for this, the company is doing nothing different. The CEO just wants to push his team. Hey, If they don’t hit 20% and only get half of that, 10% aint bad, except when you are forecasting. See HUMANS. Forecasting does work with quality input, as long as people leave it alone.
The other challenge to supply chain just in time occurred to me the other day. As a spring manufacturer I usually think of us as the bottom rung or first components to our customers. Fasteners, springs, seals and gaskets and the castings will always be at the first of the process. So we are the start of the supply chain? NO! We have vendors that supply us wire. The wire vendors buy from steel mills. The steel mills buy ore and minerals to make the steel. That’s where supply chain stops working. At the very bottom rung is usually natural resources. Natural resources do not have an infinite supply. God set that part up as a one time shot. Lead times on ore are very difficult to change. As demand goes up shortages occur. When spring demand goes up, we make more. And the larger the quantity we sell you, the better the price you get. It is that way in most manufacturing unless you actually hit a total demand over production capacity. It is never that way with natural resources. The supply chain is somewhat held hostage at this beginning stage.
So what am I trying to say about Just in Time?
1. It works, but you must include the entire supply chain
2. Manipulating the figures destroys the system. Leave it alone.
3. Realize that it isn’t perfect and you need to account for that.
4. Communication up and down the line are essential
4. You don’t need and MBA to figure it out. Buy a book. Ask questions.
So there it is. Consultants you may now start taking shots at it, point out all of my errors, suggest alternate ways and explain why my way will fail.
But before you do, keep in mind that we were over 99% on time delivery last month, and our in-process and finished goods inventory is lower than it has been in years and our customer satisfaction surveys hit a new record high.