Is Just-in-Time out of date?

B4T Editorial Staff

Just-in-time (JIC) inventory planning has been a standard business practice since Toyota popularized it in the early 1980s. Everyone agrees that JIT—practiced correctly—saves time and money. But that doesn’t mean that everyone loves it. In a guest column in the May 23 issue of Transport Topics, Julian Keeling, CEO of Consolidators International, raised the issue of whether the times have become too risky for JIT. 

Americans Invented JIT
A little history may be in order here. JIT was not, as commonly believed, invented by Toyota. It was the creation of none other than Henry Ford. In My Life and Work, Ford explains the system: “We have found in buying materials that it is not worthwhile to buy for other than immediate needs. We buy only enough to fit into the plan of production.” Ford kept a large warehouse but he grudged every square foot of it, lamenting that if only there was such a thing as a perfectly functioning transport system, raw materials “would go directly from the railway cars into production.” 

Japanese Perfected It
Efficient though it was, Ford’s system was not widely adopted until the 1950s when Japan was rebuilding its industrial base. Because Japan is a small island country, land is dear. At the time, companies—even ones the size of Toyota—could ill afford to match their warehouse area to their scale of production. Taciichi Ohno, Toyota’s chief engineer, examined the problem and realized that the company could dramatically reduce warehouse space by adopting JIT. As usual with the Japanese, the concept was improved and refined until it was a model of efficiency. 

It’s worth a moment to ponder why JIC wasn’t adopted sooner by other companies. Almost forty years intervened between Henry Ford’s introduction of JIT and Toyota’s embrace of it. Why the long delay? 

Ford’s JIT
The reason is that it wasn’t possible. Ford’s JIT bore only a passing resemblance to Toyota’s. The automotive industry of Ford’s era was a regional venture with national ambitions and absolutely no international reach. Ford Motors was situated in Detroit, central to a large segment of a part of the U.S, which had been industrialized by the railroad and was already a hub for the meat-packing industry. JIT as practiced by the Ford Motor Company in 1908 meant rail and barge deliveries from mid-America and lower Canada. Scheduling of parts arrival was much simpler than the task Toyota faced. 

The system that Ford speaks of in his 1922 autobiography was possible because of its (relatively) small size. As the automobile industry grew, JIT fell out of use. The close coordination of production and of inventory was no longer possible or even necessary. The continued growth of the auto industry—even during the Depression years—meant that “lean manufacturing” wasn’t essential to survival. In 1940, the Roosevelt Administration began its policy of “lend/lease,” loaning money to England and Russia to purchase war materials, meaning that Detroit was also cranking out military vehicles. The year after, war was formally declared and Ford, like the rest of American industry, roared into high gear. 

Toyota’s JIT
By the time Toyota took up JIT, it was a forgotten practice. Japan imports most of its raw materials, which it turns into products that are exported to the rest of the world. Keeping costs down is essential. By the early 1980s, world freight transport had become a sophisticated system where a single cargo could be passed through a combination of ship, plane, barge, rail or truck. Costs were controllable and arrival was predictable. Times had changed. Taciichi Ohno’s great discovery was that freight handling had become fast, predictable and—most important—cheap. For Toyota, it was cheaper to place many small orders in a year than to pay for one large order, which would also take up valuable warehouse space. 

JIT meant a much more complicated system of ordering, storing and reordering, but once in place, it ran largely on its own. Toyota’s system was so successful that it became a model for other car companies – for companies of every kind. Eventually, JIT became the default inventory plan for most businesses. 

So if Just-in-Time works so great, why change it? 

What’s Wrong with JIT?
Keeling, in his TT column, takes issue with JIT on two counts. First, for factories, JIT makes natural disasters even more disastrous. The disaster that comes to mind of course is Japan’s own recent tsunami and its trail of subsequent calamities. It may seem callous to bring up inventory planning in a tragedy of such dimensions, but Keeling isn’t dismissive of the human woe; he’s simply concerned with the reality of recovery. Life must go on. Factories must rebuild and resume production if survivors are to keep their economic foothold. 

JIT planning means that only the minimal number of replacement parts is in the pipeline at the moment of any disaster. Assuming that the parts at the factory are destroyed, the plant must remain idle until all missing parts are reordered and delivered. The delay can mean weeks, which can mean the ruin of a quarter and a consequent loss of jobs. 

Just-in-Case Inventory Control
Keeling proposes replacing JIT with “Just in Case” inventory planning. He doesn’t go into detail but detail isn’t really necessary. JIC is the same as JIT except more: more parts in the warehouse, more parts in the pipeline. How many more is up to the inventory planner. 

The logical counter-argument is that Keeling is overreacting. Disasters like the Japanese tsunami are infrequent things. JIT has worked wonderfully well in the decades since it has been introduced. Why ditch it for the occasional hitch? 

The problem is that we may be facing a future where disasters are increasingly common. Most climate scientists believe that global warming will bring more storms, more tornados, more hurricanes, more tsunamis, more weather extremes of all kinds. This will mean more social disruptions, which will at times lead to political disruptions. One doesn’t have to believe in Apocalypse to foresee a time when the supply chain will have to start anticipating the unanticipated. JIC can’t undo the consequences of disaster but it can make recovery faster and easier. 

Being Fair to the Freight Forwarder
Whether you accept it or not, Keeling’s argument is a rational one. He has, however, two motives for instituting JIC and the second has less to do with moderating economic upheaval and more to do with donating to the Needy Freight Forwarders Fund. It isn’t until paragraph 16 that Keeling gets to the nitty-gritty: 

“Now let’s discuss the business of freight forwarding, a business responsible for moving 70% of all domestic traffic – most of it by truck.… With JIT, shippers get all the benefits. With minimal inventory, costs are reduced substantially, and the shipper guards customer cost advantages jealously. Almost none of these savings are passed on to the shipper’s hardworking agent, the freight forwarder. With shippers constantly pressing for—and generally getting—lower rates, they are laughing all the way to the bank. JIC is a practical, realistic and efficient successor to JIT. It’s fair to the shipper, fair to the trucker and fair to the forwarder.” 

In other words, JIT reduces the amount of cargo in transit, providing leverage to the shipper, who uses his savings to woo the shopper but not reward the “hardworking agent.” 

The World Doesn’t Need JIC… Yet
One can hardly blame Keeling or any other freight broker for wanting to get paid more. He wants to “laugh all the way to the bank” just like the shipper. That’s capitalism. And Keeling deserves credit for admitting the self-interest in his criticism of JIT–but raising the wages of freight forwarders is insufficient reason to change JIT, which is based on the premise that natural disasters are rare events and should not be included in inventory planning. 

To be fair, Keeling isn’t the only one questioning JIT. The logistics blog Logistician quotes Robert Martichenko, CEO of Leancor, who says, “In many cases, tightly stretched global supply chains don’t make sense anymore.” A Honda spokesman has admitted that it is “looking into ways of de-risking JIT.” 

The world changed in the years between Ford’s Model-T and Toyota’s Corolla. Cargo handling became more complex and reliable. JIT is viable only so long as freight moves in a stable environment. If natural disasters (or regional wars or ocean piracy) become so frequent that they’re almost “normal,” JIT may no longer be possible. 

Sticking with JIT
Keeling may well be foresighted in his call for JIC. If he is, he won’t need to repeatedly argue his case. It will be self-evident in the worldwide havoc wrecked by the forces of nature and the imprudence of man. For now, all we can do is wait. The time for Just-in-Case inventory planning hasn’t come. Let’s hope it never does. 

This story was drawn from articles in Transport Topics, Times of India, Lean Deployment, Logistician and Wikipedia. 

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