This is no time to have your car break down. “With the effects of the earthquake in Japan rippling through the industry and causing shortages, prices are rising for both new and used cars,” according to a report this week in the Los Angeles Times, which said that buyers now face “the toughest market in recent memory.”
The problem: A dearth of parts on hand is plaguing automakers. As the Times noted, “Ultimately about 700,000 vehicles will never be built because of the quake.” That’s billions of dollars in lost revenue.
How could this happen? Koji Endo of Advanced Research Japan has noted that Japan has a “just-in-time” production system in which “a typical Japanese carmaker has an inventory of certain parts for up to about six hours, and sometimes for just six minutes.” When any part becomes unavailable, the entire process screeches to a halt.
[EXPAND More]This has caused some experts to question whether, in light of such vulnerabilities, the use of “just in time” production—made popular by the Japanese and spread throughout the world in the 1980s and ’90s—even makes sense.
Peter Drucker was an unabashed admirer of the just-in-time approach to manufacturing. “Just-in-time delivery … forces managers to ask systems questions,” Drucker wrote in The Ecological Vision. “Where in the plant do we need redundancy? Where should we place the burden of adjustments? What costs should we incur in one place to minimize delay, risk and vulnerability in another?”
Nevertheless, Drucker recognized that even effective systems often rest on rickety foundations. “Market and industry structures are quite brittle,” he asserted. “One small scratch and they disintegrate, often fast.” At the same time, Drucker added, “a change in market or industry structure is also a major opportunity for innovation.”
And, indeed, some (such as the Boston Consluting Group’s Harold Sirkin) are suggesting just that—fresh ways of thinking about the just-in-time paradigm that will add new dimensions of performance. “Companies need to create dynamic supply networks that can adjust rapidly to sudden changes,” Sirkin wrote in Harvard Business Review shortly after the disaster in Japan.
What do you think:Are the post-earthquake disruptions for Toyota and Honda a repudiation of just-in-time production? Or are they an opportunity for innovation?[/EXPAND]