Lean manufacturing: Another name for just-in-time shortages

Teschler on Topic

Leland Teschler • Executive Editor
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TV watchers of the Tonight Show may recall this joke from host Jay Leno during a 2006 monologue: In a remarkable speech over the weekend, Secretary of Health and Human Services Michael Leavitt recommended that Americans store canned tuna and powdered milk under their beds for when bird flu hits. What? This ranks right up there with “duck and cover” during a nuclear attack. In case of radiation wear a hat. Powdered milk and tuna? How many would rather have the bird flu?

A real knee-slapper. But we can’t help but wonder how Mr. Leno’s supply of toilet paper held up during the recent shelter-in-place orders.

The advice to hoard canned goods during the year of the avian flu was largely ignored, partly because most people took the threat of a pandemic about as seriously as Leno did. Today, shortages are no laughing matter. Reports are that five months after the first shelter-in-place orders, an average of 21% of household paper products were out of stock at U.S. stores. Similar shortages have been reported in Europe and Asia.

Much of the blame for the scarcities is being heaped on principles embraced by lean manufacturing. Even engineers whose employers don’t practice lean manufacturing probably know that the main teachings of the discipline include just-in-time delivery of raw materials, devoting precious little space to stored inventory, and operating with almost no slack. Though lean manufacturing principles began to take hold in the 1980s, it is only in recent years that such practices have become standard operating procedure. The Wall Street Journal recently reported that earnings calls of S&P 500 companies last year mentioned the terms “inventory reduction” and “lean” more than 550 times.

You can get an idea of the potential problems by just reviewing the main principles of lean. They generally include eliminating low-value features, organizing work flow, setting up pull-based production, and boosting product quality. The key idea missing from this list is operational resilience. Critics say the flexibility to handle extraordinary scenarios vanished somewhere in the quest to make 100% use of production capacity and squeeze out every fraction of a penny of profit.

We’d argue that lean principles aren’t the only source of supply problems. The analytics firm Beroe Inc. pegs the North American market for management consulting at about $109 billion. This figure makes you wonder whether the companies talking up inventory reduction on earnings calls are the same ones spending significant amounts on high-priced gurus telling them how to run their business. And how much was that advice really worth if it led to five-month-long shortages?

Consider the claims made by the McKinsey & Co. Global Manufacturing Practice: We guide clients through the design and implementation of operational strategies that will stand the test of time, while creating agility and a product portfolio that is commercially and operationally optimized. Reading through one of McKinsey’s white papers, we find that they are big on modeling: Today’s powerful computer systems allow companies to build detailed models of their entire value chain, from procurement all the way to customer demand and final delivery.

Judging by the empty shelves in our local supermarket, we know of at least one scenario that seems have been left out of those modeling effort. DW