Last week I wrote a post about how the earthquake was the cause for the supply chain interruption at Toyota, not lean (post here). It was centered around an article I had found on Bnet. Since then two other articles have been written regarding the Japanese crisis and lean.
The first was written by Margaret Hefferman (article here). She starts out by saying:
Beyond the tragedy of the Japanese tragedy, the industrialized world is experiencing a profound philosophical aftershock. Much of our business theology about lean, mean just-in time manufacturing, about re-engineering, outsourcing and globalization is wrong.
Again, this quote makes you wonder about the understanding of lean. This is the only mention of lean in the article.
But one of the reasons why the business impact of the natural disaster is so widely felt is because our supply chains are now so immense.
The rest of her article talks about how a supply chain spread across the world creates great complexity. It also makes a company more vulnerable to natural disasters, political uprisings, and harder communication between people.
I think Margaret makes some great points that actually support the lean philosophy on complexity in supply chains and supplier relationships.
The second article was written by Jeff Haden (article here).
You absolutely should learn from what is happening in Japan — just don’t overreact.
Jeff is right. We should use this as a learning experience but don’t overreact to this crisis. Jeff gives some good advice on what companies should NOT do during this time.
- Increase inventory. Running out of supplies, materials, and finished goods could cripple your business. So can the carrying costs involved with maintaining excess inventory “just in case.” Maintain inventory levels based on more likely risks: Spikes in demand, late deliveries, or production/quality problems.
- Add suppliers. Some Japanese firms are unlikely to resume production for months, so some businesses are scrambling to find other sources. Still, don’t create multiple redundancies in your supply chain. You will only add administrative costs, additional complexity to your purchasing systems, and pay incrementally higher supply costs since smaller order quantities typically mean higher prices. (If you are largely dependent on one supplier for a key supply, definitely establish other sources.)
- Fatten manufacturing. Lean manufacturing practices are under fire in some circles, sometimes due to a lack of understanding of lean manufacturing. Lean manufacturing isn’t complex; it’s simple. Simple is good. Adding buffers and additional WIP and redundant capacity and crewing typically decreases productivity and increases cost.
- Stop outsourcing. Working with freelancers or outsource partners in other countries exposes your risk to service interruptions. Bringing those functions in-house exposes your business to higher costs. Treat outsourcing like you do your supply chain: Don’t rely on a sole source. Have backups in place. Know who to call in an emergency. While it may be tempting, bringing every function in house could result in a financial disaster for your firm. (Bottom line: If it made business sense to outsource before the earthquake, it makes business sense to outsource now.)
- Change because you think you have to. Your ability to adapt is what makes you a successful business owner. Make changes to your business model based on logic and foresight, not because you feel you have to do something in response to a crisis that may never impact your business. Sometimes the best response is no response, especially if you’re already doing most things right.
This all sounds like it is right in line with the lean philosophy and not in contradiction to it.
Jeff ends with what companies should do.
What should you do in response to the Japanese crisis? Take a close look at inventory levels, at the strength of your supply chain, at potential weaknesses in your manufacturing/shipping/sales processes, and at how you manage any outsourced functions. Look for glaring weaknesses. Just don’t work to create plans and systems that will mitigate every possible risk.
Pause, reflect, make smart changes where necessary, and stay focused on what made your business successful in the first place.
Sounds like good advice to me. Companies shouldn’t overreact and add inventory and suppliers because a giant “What If”, but we shouldn’t ignore what happened either. We should learn from it and apply changes that make sense to mitigate risk without the company getting away from what made it successful to begin with.
Be smart…don’t react without understanding.