In the days since the terrible events of September 11 we’ve seen many mentions in the American media of the impracticality of Just-in-Time supply of parts and calls for massive warehouses to buffer supply chains. The problem, of course, is that this advice is wrong, and it’s hurtful to those of you implementing lean. Let’s take just a minute to think this situation through.
In almost every value stream, there will be some inventory at points where the product cannot flow. This inventory will typically consist of finished goods at the shipping point in each facility, work-in-process between fabrication steps within each facility, and raw materials (incoming goods) at the receiving end of each facility.
In the current situation, with uncertainty about deliveries from upstream and gyrations in demand from downstream, you may feel it necessary to increase the size of your finished goods and raw materials stocks. However, these extra stocks should be kept aside — out of the path of the value stream but not in some remote warehouse — and their presence does not in any way effect the logic of Just-in-Time parts supply. Each downstream process needing parts should still signal directly to the upstream supplying process when more parts are needed and these should be supplied frequently in small lots. The one adjustment necessary over time, if bottlenecks persist at border points, may be longer reorder times. (Logically this is the same as assuming that suppliers have suddenly moved further away.) Otherwise lean production can proceed as in the past.
All this said, the current crisis does beg us to ask a very simple question central to lean thinking: Why are the value creating steps along most value streams today so far apart, with many border crossings? Why not compress your value streams for each product family to put all of the value creating steps in one area (as at Toyota City) or even in one facility? Depending on factor costs and customer expectations, the appropriate location may be in a high labor cost area — close to end users — or in a low cost area — for price sensitive products where customers are willing to wait. In either case, you will be better off if as many steps as possible are co-located.