Does Lean Increase Supply Chain Risk?
Here’s another article with the theme of how “just in time” (JIT) is too risky for supply chain purposes. This type of article usually pops up in the WSJ about once a year (they’re about overdue, I think).
“‘Especially for the way business is done now, with companies using lean manufacturing and JIT techniques, and keeping inventories low,’ said Mark Hillman, research director at AMR Research and one of the study’s authors. ‘They need to know that they will have a continuous supply of materials and components from their supplier (or their supplier’s supplier) if problems occur.'”
This problem occurs if you define lean as “JIT.” That’s an incomplete definition of lean at best. Lean is a more comprehensive management system than that.
The goal of lean or JIT isn’t to cut your inventory so close that you’re shutting your production down. “Just in Time” deliveries, whether through kanban or some other method, still have to include some amount of “safety stock” to protect you against typical problems that might happen. The more risky your supply chain, the more variation you have, the more safety stock you need.
The supply chain risk is worse if you think you can pull off “Just in Time” with suppliers in China. That’s crazy. Of course that’s risky, doing something like that. What you should really be doing is taking steps to reduce the variation or the risk in your supply chain. The usual non-lean recommendation is “you need more inventory, move away from JIT.”
The best way to ensure a “continuous supply” of parts is to do the following:
- Keep suppliers close to you (as Toyota does with the San Antonio factory)
- Have frequent, small-batch deliveries (like Toyota)
- Partner with your supplier in continuous improvement and problem solving activities (like Toyota) rather than just relying on inventory buffers to protect you