On Friday, there was yet another Wall Street Journal article about Lean (fixating as they always do on the “Just In Time” component). The article titled “For Lean Factories, No Buffer” yet again takes an outdated 1980s view that Lean is about low inventory.
On the flip side, I was more pleasantly surprised that Fox News Channel aired video during an afternoon newscast about Lean. Fox News seems to think they have discovered some wild, new trend – although I shouldn’t pick on them too much since they did a nice job with a news story in 2009 about Lean healthcare (view video excerpts here and here).
Low Inventory is Not the Primary Goal
The Lean world is still recovering from the notion that Lean is all about materials management and supply chain practices, including just-in-time delivery of parts, kanban systems, and the like. A book from the 1980s Zero Inventories set the wrong expectation about just-in-time practices.
The only ways to have truly zero inventories are to have:
- Completely 100% predictable demand (and stable demand over time)
- Suppliers with zero lead time (located next door) and
- 100% perfect quality (zero defects)
Pretty unrealistic, even for the most simple and most boring of factories. It’s especially unrealistic in this day in age when so many components or products come across the Pacific Ocean via a slow boat ride (either because the buyer CHOSE to chase cheap labor by locating in, say, China, or because they HAVE to buy from China because that’s the only place you can get certain items from). If solid just-in-time practices are suddenly obsolete, it’s more that the world changed – and if it’s changed that much, companies need to quit trying to be JIT for financial purposes when it kills them operationally.
OK, so I’ll give people credit that they know “zero” isn’t possible, but too many companies seem to be ready to get too close to the edge of a cliff by cutting inventory too low (as if that’s the primary goal of a business)… and sometimes they fall off.
About ten years ago, when I worked for Factory Logic, a now-defunct startup company, we were guests a company that made huge mobile construction cranes and such. We toured the factory where they said they were using Lean methods. The space outside of the factory was a parking lot of half-built cranes. They were sitting there because there were so many parts shortages that hardly anything could be built to completion. A lot of the activity in the factory was based on chasing parts and figuring out what COULD be built, instead of thinking about what SHOULD be built for actual customer demand.
The visiting Japanese sensei we had with us made a very good point, as I’m paraphrasing:
Job number 1 – make what your customers need. Job number 2 – low inventory.
Too many companies get that backward. Now the sensei wasn’t saying that TONS of inventory was good. It was all about balance. You need enough inventory to keep production running to keep customers happy so you can stay in business (this company we visited eventually went bankrupt, I believe). It’s sort of like a Goldilocks approach to inventory – not too much (too costly) and not too little (no production and lots of scrambling). With Lean or JIT or any approach, you have to be reasonable. JIT was never a substitute for thinking – nor is Lean.
This guy in Arizona understands that Lean is about making sure your customers get what they need – being responsive to demand – and not just about low inventory.
The WSJ Story Fixates on JIT
So we hear the horror stories of JIT in the WSJ piece, even companies that had suppliers NOT impacted by the recent Japan earthquake and tsunami disaster).
The article starts:
The just-in-time approach to manufacturing, which has swept the world’s factories over the past two decades, has made a virtue out of keeping inventories lean. But some manufacturers think it has gone too far, and that having a little extra padding might be a healthier option.
When the companies say “it has gone too far,” what is “it”? They shouldn’t be blaming JIT as if it’s the problem, they need to look at their own choices they have made about sourcing and customer demand.
One company leader says:
“Just-in-time makes sense, but it’s vulnerable to disruptions,” says Terex Chief Executive Ron DeFeo, “so what we’re seeing now is the theoretical being adapted to meet the world of the practical.”
Funny, I always thought Lean and the Toyota Production System were eminently practical to begin with. You set inventory levels based on your reality and you adjust and react over time, following the PDCA Cycle.
There’s a constantly use of the passive voice in the article, including:
But many manufacturers have gotten stretched too thin in recent years.
Who do they have to blame other than their own decisions? It should read “Manufacturers have chosen to stretch themselves too thin in recent years” might be more accurate.
Back to Terex:
“We had a supplier actually tell us a couple of days ago: ‘You guys were rough on us when the bottom fell out, so why should I help you now?’ “ says Timothy Fiore, Terex’s vice president of strategic sourcing.
Since lead times are never zero, most suppliers will plan and build parts based on the demand forecasts of their customers. When sales didn’t meet demand, I’m sure a lot of manufacturers just bullied their suppliers into eating all of the loss (a “zero-sum game” as Bob Emiliani would rightly point out). Truly Lean companies collaborate with suppliers, they don’t beat up or bully them into forced cost reductions or eating 100% of the loss. It’s no surprise that Terex’s suppliers wouldn’t go out of their way to help now that sales are increasing. They’ve been burned before…
Part of Terex’s response has been to “freeze” its commitments to key suppliers, in effect promising to buy specified amounts of goods over the next three months. As each month ends, the company’s commitment clicks forward another month, giving suppliers some additional security.
But if Terex doesn’t have trust with it’s suppliers, how do they know Terex won’t back out on these “commitments”?
McKinsey chimes in:
“What we’re seeing is a general move toward building safety back into the system,” says Alex Niemeyer, head of the supply-chain practice for the Americas at consulting firm McKinsey & Co.
There should have ALWAYS been safety in the system – meaning “safety stock” or enough inventory to help buffer against unexpected demand, lead times, or quality. Again, you need balance – too much safety stock will hurt just as much as not having enough. You can’t possibly buffer against EVERY unanticipated consequence or disaster. People love to say that JIT and Lean fall down during huge crises, but does “fat manufacturing” protect you any better? What if a warehouse full of parts in Japan, waiting to be delivered JIT, had been destroyed in the earthquake?
We also hear from Ariens, a CEO and a company that knows that Lean is about far more than inventory management (as they taught ThedaCare).
Mr. Ariens remains a fan of the just-in-time approach, but sees how the theory is stumbling in practice. For the past nine months, he says, he has had trouble getting enough rubber belts and tires for his machines.
“A lot of the supply chain for those things in the U.S. has moved to China,” he says, and so he has to order six weeks in advance and sometimes faces delays in getting what he needs. Recently, however, his rubber supplier moved some production back from China to a factory in Tennessee, which Mr. Ariens hopes will make it easier for him to get faster shipments.
Again, what’s the the “JIT = theory” argument?? As I said earlier, if Ariens has suppliers in China, JUST IN TIME WILL NOT WORK. Sorry for my shouting. JIT was designed originally for Japan – when you have a small country with suppliers nearby, then JIT works great. When Toyota was a partner in the NUMMI plant, they had long supply chains bringing parts from the midwest (where much of the auto supplier capacity is). Toyota was smart enough to not rely as much on the same style of JIT as they would have in Japan. Plus, if they got burned, they would PDCA and adjust, rather than blaming “theory.”
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Lean is MORE than Just JIT
Dan Ariens, the CEO, is likely still a fan of Lean – the broader management system. Ariens, as he taught John Toussaint, the former CEO of ThedaCare, that Lean is about a management system for improving quality and continuously improving your business.
I really wish that the WSJ would go to get a quote from somebody like Jim Womack, Jeffrey Liker, Steven Spear, or John Shook in cases like this. Any of those thought leaders could point out that Lean is a much broader set of management principles than JIT and companies struggling with their interpretation of JIT doesn’t discredit “Lean” (or even JIT).
The Fox News Video and Story
Now the palate cleanser is the Fox News story called “”Lean’ Manufacturing Takes Root in U.S.” in print (you can also view video online). For one, they reached out to Jeffrey Liker for a quote about Lean. Fox News didn’t fixate on zero inventory or low inventory. Yes, they mention the idea but they give a broader angle. They even mention Henry Ford as a precursor to modern-day Lean.
“If you take the Toyota definition, it’s really a very holistic system of people, equipment and processes,” said Jeffrey Liker, professor of industrial and operations engineering at the University of Michigan. “And the result is to be competitive by continually reducing the price of goods, giving your customer more for less and developing your employees so they can continuously improve the system.”
The piece mentions GE’s use of Lean (a relatively new discovery on their part, after fixating on Six Sigma alone for so long) and uses Herman Miller as an example of Lean success (a company that has been at this longer than GE).
Again, Fox News goes to Liker for a quote and a nice holistic wrapup:
Liker drew a contrast between companies that achieve leanness simply by slashing payroll and squeezing more productivity out of remaining workers, and those, like Toyota, that see their employees, even in lean times, as assets that appreciate over time.
“So, for example, during the recession, [Toyota] didn’t lay off people, even though their sales were down by about 40 percent. And they used that time to train the people and use them for thinking of ways to reduce waste, to eliminate cost — called kaizen in lean language. Other companies, like the suppliers, did the same thing.”
Leaders in academia, nonprofits, hospitals and even the U.S. Navy have all now embraced the lean concept, which has even been applied to the production of weapons systems.
It’s great that Liker could point out that Lean is not about layoffs and that Toyota invests in people (as you can illustrated in my latest Doofus and Leanie cartoon). And, yes, even healthcare is getting into the Lean act.
About LeanBlog.org: Mark Graban is a consultant, author, and speaker in the “lean healthcare” methodology. Mark is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. Mark is also the VP of Customer Success for the technology company KaiNexus. He lives in San Antonio, Texas.