Does Lean Increase Supply Chain Risk?


Coping With Disaster – 1/30/2007 – Manufacturing.Net

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:

  1. Keep suppliers close to you (as Toyota does with the San Antonio factory)
  2. Have frequent, small-batch deliveries (like Toyota)
  3. Partner with your supplier in continuous improvement and problem solving activities (like Toyota) rather than just relying on inventory buffers to protect you
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  1. Kevin Carrelli says

    I would say that Lean increases visibility to Supply Chain weaknesses. As you list, continuous supply of parts is best achieved by suppliers that are Capable and Nearby. If a company has suppliers all over the globe, then yes, there is more risk to the Supply Chain. Logistical and quality problems can take weeks, or months, to be found when sourcing parts from thousand of miles and weeks of transit.

    As long as companies only look to move costs from the COGs line to the overhead line by sourcing from the cheapest (many times furthest) distance, there will be a need for larger inventories, warehouses, and risk. But then, that’s not very Lean.

  2. […] 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 […]

  3. Behzad says

    “Just in Time” and “Safety Stock”!!?
    It is really confusing

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