Updated: Step 1 Earthquake, Step 2 JIT Bashing

A Key Strategy of Japan’s Car Makers Backfires – WSJ.com

Be sure to read the comments for an excellent story from Matthew May about the 1997 Toyota situation and parallels to today.

I predicted it on Wednesday, that the Japan earthquake, which led to production shutdowns at Toyota, Nissan, and others, would be quickly followed by an article that blames that risky Just-In-Time strategy. Well, it only took two days for the WSJ. Either that’s “Just-In-Time” writing, or they keep articles like that ready to go in the warehouse! The WSJ article says:

“For want of a piston ring costing $1.50, nearly 70% of Japan’s auto production has been temporarily paralyzed this week.

Blame it on kanban, the just-in-time philosophy of keeping as little inventory on hand as possible. The strategy keeps inventory costs down and ensures quality. It generally works because Japan’s auto makers have long prided themselves on the almost familial relationships they have with a handful of suppliers of custom parts that deliver several times a week or even daily.

The strategy also has a downside, as became evident after the 6.8-magnitude earthquake that hit central Japan on Monday…”

I’ll come back later and add some of my thoughts, but wanted to share the articles for you to read and comment on…

There is also a free article with similar themes here.

The Journal wrings its hands about JIT and risk about once a year. Others pick up on this tired theme, which I blogged about here in response to an article in The Manufacturer.


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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

15 Comments on "Updated: Step 1 Earthquake, Step 2 JIT Bashing"

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  1. Joe says:

    So let me get this straight…according to their words, the system keeps costs down and ensures quality. However, in the event of a 6.8 magnitude earthquake, there may be problems.

    What is the alternative, accept higher costs and worse quality just to buffer yourself from a 6.8 earthquake? With a chunk of the country without water and power and a nuclear plant leaking radioactive material, is it really such a big deal that there will be a few less Corollas pushed out for a couple of days?

  2. Mark Graban says:

    Joe — I couldn’t have said it any better!! Even if the supplier was running off an MRP system with lots of “just in case” inventory, the news reports said their warehouse was damaged. So, the earthquake would have disrupted that system!!

    So why single out Just In Time?

  3. Bob Graban says:

    Maybe it’s a simplistic and naive view, but it seems like it’s a matter of expected value and economics, similar to the cost / benefit of insurance. Quality and reputation are, of course, a key part of the economics

    When I took a cruise this month, I didn’t mind getting to Rome 3 days early, but coming back to go to work today, it didn’t matter that much to me if I got back at 10 PM last night, taking the chance on a missed connection.

    I remember when I was at the Alaska pipeline, the story of the guy who bought the leftover pipe dirt cheap. People thought he was crazy, until the first time the pipeline burst and the operator had to scramble to quickly get some replacement pipe of that size. Needless to say, it was a seller’s market.

  4. Mark Graban says:

    No, I don’t think it’s a simplistic view at all, the idea expected economic value and risk.

    After the 1997 Aisin fire that shut Toyota down (also for about a week or so), Toyota was quoted in the WSJ saying they thought they had already gotten the correct balance between “efficiency and risk,” that even after the fire they weren’t going to overreact and dramatically change their approach.

    Now, if you have a catastrophic problem EVERY month, then you’d probably plan accordingly. Much the same way if you had an unreliable supplier who was far away, you would have a different inventory strategy than if the supplier was right next door and 100% reliable.

    Here is a free link to the 1997 WSJ article written after the Aisin fire, it was interesting reading.

    I’m sure Toyota will help the supplier get up and running ASAP, then probably not dramatically change their strategy of “just in time.” They won’t be scare off from it just because some half-informed reporter said their strategy was bad.

  5. It was a little over a decade ago that Toyota weathered another such catastrophe, the Aisin fire mentioned in the WSJ article. (BTW, never heard of kanban as a philosophy…a tool maybe). The Aisin fire case study was a central learning case at the University of Toyota, where I spent 8 years as an advisor and master instuctor.

    Long story short: Toyota’s been there, done that. Read on if you want the story. (The Riken affair will undoubtedly become a case study.)

    Just before dawn on Saturday, February 1st, 1997, a fire erupted at plant #1 of Aisin Seiki’s Kariya plant, which produces proportioning valve (P-valve) units and tandem master cylinders, which are crucial elements of brakes. The fire completely destroyed production capability. Toyota’s P-valve units were provided solely by Aisin, and due to their unique technique most valves were machined at that plant.

    Almost all of Toyota’s plants globally were at full capacity at the time of the fire. At that time, per day production in Japan alone was over 15,000. As we all know, Toyota’s lean Continuous Flow Production Process requires lines to minimize parts in stock. As a result of the fire, Toyota anticipated a wide-scale stoppage of almost all assembly lines in Japan, and some overseas. The fire had the potential to severely impact total sales.

    The fire was out by 9 am and had burned 8000 square meters of the Aisin plant. The fun began immediately.

    Genchi genbutsu (go look, go see) was conducted by Toyota’s GM of Production Control in the midst of the fire to grasp the situation. A crisis team was formed for the site, then he returned to to HQ to form another task force, and gathered staff to make the decision whether or not to stop vehicle assembly. An obeya was set up to centralize information flow. Another one was set up at the fire site. The role of the site team was to decide how best to recover P-valve production.

    By mid afternoon the team was in the throes of identifying which model Aisin valves were being used for. At that time two different hinban (parts numbers) systems were being used, Toyota’s and Aisin’s. So reconciliation was required. It took into the night to do so. That’s when the entire situation was fully grasped. The news wasn’t good: most models were affected. Then the team went to phase 2 grasping: assessing quantities of stock in Toyota plants, Aisin plants, and Parts Banning Yards. They found enough for a day’s assembly, if they decided to deplete all parts stock.

    By Sunday afternoon, production engineers were prepping a way to restart valve production at another Aisin plant, but plans were up in the air. The decision to stop Toyota vehicle production was yet to be made on Sunday afternoon. 3 guidelines were given:

    1. Don’t deplete all of the parts stock. (Decision: use only part of the stock on hand for the ihgh demand models; assembly stopped for all others.) Toyota EVP Akira Takahashi’s quote: “Quality of the product and the safety of the customer are our most important objectives. Therefore we need to keep a certain volume of existing stock to enable us to ensure the quality of the alternative production valves. These parts are gong to be used for brakes.”

    2. Prioritize models by market demand. (Decision: necessary line stoppage based on this priority. They also prioritized the restart order of suspended assembly lines while simultaneously completing a detailed plan for temporary supply of alternative parts of P-valves and tandems.)

    3. Give priority to the supply needs of Toyota’s competitors. 80% of the output from the Aisin plant went to Toyota, but Toyota decided they would only take supply after competitors’ needs were met. The Takahashi quote: “If the supply of alternative parts is used to try to meet the overwhelmingly big needs of Toyota as a first priority, that would mean renouncing Toyota’s social responsibility as well as going against our corporate philosophy. (See my book, The Elegant Solution, for the guiding innovation principle of Fit With Society, the main ingredient of which is systems thinking.)

    On Monday, based on these guidelines, Toyota decided to stop almost all of their assembly, effective the following day, Tuesday. Task force activities were redirected to help Aisin set up a new line at their other plant, and to monitor output to prevent competition among assembling plants over the parts. All collected data and decision points were shown on a large matrix chart and continuously updated in the obeyas.

    Five days after the fire, the supply level of P-valves was still unstable, but over the course of the five days roles and objectives had become much more clear. On the 6th day, supply began to stabilize, reaching levels of 70-80% of daily requirements.

    By Day 7, all Toyota assembly lines returned to run on an 8-hr per day operation. Production continued over the weekend.

    10 days in, the new parts line at Aisin’s other plant started operation.

    At the 17 day mark, all of Toyota’s assembly operations were returned to pre-fire levels.

    1200 Toyota associates had been allocated to resolve the fire issues, working overtime and weekends for nearly a month. Number of vehicles not assembled due to the fire totaled 70,000 units for the entire Toyota group. 70% of the loss was at Japanese plants, rest abroad.

    Distaster? Absolutely. Huge business impact? Definitely. But the unity and resolve of Toyota and its suppliers evidenced by the dedication of resources and manpower, was unprecedented and points to the power of principled leadership of the Toyota organization. In the end, over 100 suppliers contributed to produce and deiver alternative valves and tandems to Aisin until the restart of regular operations.

    And Toyota recompensated all of them.

    So, the WSJ (a publication that is often still a step short of the leading edge of even conventional thinking) can knock Toyota’s methods all it wants. Toyota will take the high road, do the right thing, and be emboldened by it.

  6. Dan Markovitz says:

    Mark,

    You should get a crystal ball for your prognostication abilities. When I saw the WSJ article, I thought, “Mark called it!”

    The journalist should have gone one step further and analyzed the costs of holding extra inventory of this part — and, of course, every other part Toyota needs to make their cars — versus the expected costs of the disruptions due to a 6.8 earthquake. My guess is that the costs of the former would *far* outweigh the expected costs of the latter. And while it’s not quantifiable, tolerating waste (in terms of excess inventory) would probably have negative effects on other aspects of the company.

  7. Shawn says:

    Mark,

    I knew you would be all over this. As I read the article, I started fuming.

    I wanted to email the author and ask them “Say, how have the strategies of gm, ford and chrysler played out?” Or ask them “how do you suggest the companies hedge against random acts of nature in the future?”

    Then, I recalled the words of Ambassador Londo Mollari from the TV series Babylon 5, which are most appropriate for the author of the article:

    “Ah, arrogance and stupidity all in the same package. How efficient of you!”

    Creating customer pull and driving improvement to those in gemba are my passion. This, along with the pending acquisition by Rupert Murdoch, have made me question my continued WSJ sub.

  8. Mark Graban says:

    Shawn — thanks for your comment, I think it’s your first time on here. Please do come back and comment more…

    This is the letter I actually wrote the WSJ (and should have cc-ed the reporter):

    Dear Journal Editors:

    After hearing news of the recent earthquake in Japan , I publicly predicted the coming “Is Just-In-Time Risky?” article and you delivered (“A Key Strategy of Japan’s Car Makers Backfires,” July 20). The writer blamed kanban and the “lean manufacturing” approach used by Toyota and many others, although you rightfully recognized that the philosophy “keeps inventory costs down and ensures quality.”

    News stories reported that the Toyota supplier, Riken Corp., suffered damage to its factory and to its warehouse. It seems irresponsible to suggest that companies with supply chains that normally flow smoothly should hold “just in case” inventory stockpiles that can just as easily be damaged in an earthquake or other such rare disaster. Toyota suffered a similar shutdown in 1997 after the Aisin factory fire, another situation where parts were sourced from a single supplier and inventory levels were low. As the Journal itself wrote, again in 1997, “The fire and its aftermath have left Toyota executives convinced that they have the right balance of efficiency and risk.’

    Should Toyota , and others, sacrifice cost and quality for a one or two week disruption that happens every ten years? Toyota is, by its nature, self-critical, so I would trust Toyota management, especially given their track record of sustained growth and profitability, to find the right balance more so than outside analysts or reporters.

    Mark Graban
    http://www.leanblog.org
    Keller TX

  9. Tom Southworth says:

    The question that I would like answered is What Would Detroit Do, if faced with a similar situation?

    If a plant supplying any of the Detroit 3 went into the tank, would GM send 300 engineers to the supplier to help with rebuilding (as Toyota was reported to have down with Riken) or have given priority for production parts to Chrysler and Ford, as Matthew May wrote in his comments about the Aisin fire? Maybe when pigs fly.

    The Detroit 3 would have simply turned to the supplier(s) behind door #2 and door #3 and asked “who’s got the best price?” and would have starting building up inventories of unmatched parts and then not be able to understand why today’s production model differs in quality from next week’s, as more and more cars go off the assembly line into the rework area.

    Meanwhile supplier #1 loses their #1 customer, the one who’s already forced them to cut prices so much that they can barely break even on the part and they end up folding, putting hundreds or thousands out of work, permanently.

    That’s what Detroit would do, in the humble opinion of this former metro-Detroit resident and Tier 2 supplier who felt the trickle down effect of forced price reductions every year.

  10. Mark Graban
    Twitter:
    says:

    And yet again, here in 2011, but not the WSJ this time:

    http://www.bnet.com/blog/auto-industry/lean-production-another-casualty-of-the-japanese-quake/127?tag=content;feature-roto

    Lean Production: Another Casualty of the Japanese Quake?

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