Lean Enterprise Institute Responds to The Wall Street Journal's Mischaracterization of Just-in-Time
As a Lean Community, we must confront misunderstandings of lean thinking & practice regularly. Unfortunately, The Wall Street Journal has published such a misinterpretation, amplifying it with a headline crafted to get clicks. It worked. We clicked. And because of the WSJ’s reach, we felt a rebuttal was necessary. Here is the “letter to the editor” that we sent last week.
To the Editor:
It is unfortunate that you did not consult more fully with knowledgeable sources in researching the August 21 article “Why Are There Still Not Enough Paper Towels?” https://www.wsj.com/articles/why-arent-there-enough-paper-towels-11598020793
The misconceptions are numerous. Your attribution of culpability – “Blame it on lean manufacturing” – is wrong and propagates a host of harmful conclusions. In fact, the paper towel “problem” can be explained by simple economics that would hold regardless of manufacturing philosophy, lean or otherwise.
Research on supply chains (Fisher 1997) suggests there are two distinct types. Functional and innovative. Functional supply chains flow products that satisfy basic needs and are widely available. These products have been characterized as having a long life cycle, changing very little over time, and having little variety in their offerings. Demand is stable and predictable with many competitors in the market, which typically leads to low profit margins. A company providing these products will usually employ a business strategy that focuses on minimization of costs throughout the process. Inventory is used to satisfy demand since the cost of obsolescence is low.
Innovative products are typically characterized as trendy, fashionable, or high tech, and exhibit highly variable, difficult to predict demand. Uncertainty is much more prevalent than with functional products. New products fall into this category because the initial demand is often unknown. Innovative products have short life cycles and larger product variety. The profit margin for innovative products is high, which means lost sales have a big impact on company performance. Speed and flexibility of production are paramount.
Clearly, paper towels fit into the functional category. Companies manufacturing these products must be focused on cost. Maintaining low cost means that such companies utilize available capacity to a high degree. Slight fluctuations in demand can be managed by maintaining small quantities of safety stock and a very small capacity cushion. Meeting a large surge in demand such as that experienced in reaction to the pandemic is beyond the capability of a functional supply chain. No matter what Inventory management system is used, there was just insufficient Inventory and capacity in the system to meet demand. Better management might help alleviate the shortage at the margin, but the root of the problem comes down to economics—low priced paper towels are a product of high utilization of specialized equipment linked to a functional supply chain.
The aspect of lean manufacturing that is at issue in your article is the Toyota innovation of Just-in-Time production. Unfortunately, since first becoming widely known outside Japan in the 1980s, JIT production has frequently been misconstrued as “JIT delivery” or “JIT Inventory control”. The article perpetuates this mischaracterization and introduces new ones.
An ideal JIT supply chain is one that is short and agile. The central focus in designing a lean supply chain is to shorten the time between when demand for product is known until the product is supplied. This short supply time is repeated from point-to-point throughout the end-to-end value stream. Value-stream thinking emphasizes the important fact that only what is needed to provide value flows as smoothly as possible from raw material to final customer.
It has been widely known for 60 years, through a study by MIT researcher Jay Forrester, that the longer and more complex the supply chain, the more the “bullwhip effect” occurs. As final customers’ orders fluctuate, as will naturally happen even absent the panic buying inspired by a pandemic, the upstream manufacturer will receive dramatically amplified orders, unless a lean value stream is introduced. By removing barriers to the flow of all materials related to producing a product, the product can be manufactured faster and when more product is required it can be “pulled” by customer demand. That is the intent of a supply chain incorporating the principles and practices of a JIT system of production and delivery.
Toyota figured out long ago that whenever you have too much of anything, you often have everything except what you need. Further, holding onto excess material generates waste; wasted time and effort in looking for what you need, waste of space and money tied up into holding it, and more. Further, since the unexpected does indeed happen, you often end up throwing away a great deal of materials. So, in the middle decades of the 20th century, Toyota devised its strategy of JIT with the intent of producing and delivering only the right product at the right time in the right amount. JIT has proved to be an innovation in management that has served Toyota and countless other firms and, more importantly, customers remarkably well.
We would argue that the paper towel shortage was not due to lean manufacturing but instead due to the lack of volume flexibility inherent in the functional supply chain chosen to deliver customers a low-priced product. We concede that some of the causes for the shortages that have occurred during this pandemic are attributable to management. As Professor Hopp rightly points out in your interview, poorly constructed supply systems can be brittle even when their designers call them lean. Evidence shows, however, that true lean thinking and practice help prevent supply problems rather than causing them. We would be happy to consult with you regarding corrections of this or any future articles.
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