JWR’s Introductory Note: This is an update to an article that I wrote for SurvivalBlog in February, 2007. It is part of a series of SurvivalBlog 20th Anniversary update re-posts, in recognition of the fact that the majority of readers did not join us until recent years.
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When I give lectures or do radio interviews, I’m often asked for examples when I mention that “we live in a fragile society.” Here is one prime example: kanban. The kanban or “just in time” inventory control system was developed in Japan, and became popular in America starting in the 1970s. It is now ubiquitous in nearly every industry.
The kanban concept is simple: Through close coordination with subcontractors and piece-part suppliers, a manufacturer can keep its parts inventory small. (Kanban is a key element of “lean manufacturing.”) They only order batches of parts as needed (“just in time”), sometimes ordering as frequently as twice a week.
Companies now hire Six Sigma consultants and Kaizen (“Improvement”) gurus. They buy sophisticated data processing systems. They also used to hire additional purchasing administrators. But now that role is largely filled by Artificial Intelligence (AI) “Expert Systems.” All of these expenses actually save companies money, at the bottom line.
PHONING A FRIEND
I have a close friend, “B.A.”, who has worked as a Lean Process consultant. He chimed in on a draft of this article that I sent him. (See his interspersed notes, indented, in bold.) He concurs that “Just in time” inventory systems have several advantages: Less warehouse space, less capital tied up in parts inventory, and less risk of parts obsolescence.
B.A. Adds: Actually, in many cases, if the simplest [lean process] methods are revealed through asking the “5 Why” questions and understanding optimum flow, the sophistication (including data processing systems) can often be greatly reduced or eliminated; I think the perception is that complexity is better is often a sales job from folks selling the hardware and software!
THE DOWNSIDE TO GOING LEAN
The big downside of kanban and lean inventories is that they leave companies vulnerable to any disruption of supply. If transportation gets snarled, or if communications get disrupted, or a parts vendor has a strike or a production problem, then assembly lines grind to halt. Just one missing part means that no finished products go out the door. In some industries, the complexity and length of the supply chain can be staggering. Some manufacturers of complex products–such as automobiles–now rely on many dozens or even hundreds of parts vendors on several continents. American businessmen have built very long, very complex, and very vulnerable supply chains.
The kanban concept has also been taken up by America’s retailers, most notably its grocery and auto parts sellers. In the “old days”–say 40 years ago–grocery stores had well-stocked “back rooms”, with many extra cases of dry goods. But now in most stores the “back room” has been replaced with just a pallet break-down area. Merchandise comes in from distribution centers, and it all goes immediately to the consumer shelves out front. Thus, what you see on the grocery store shelf is all that the store has on hand. What you see is what you get. The bar code scanners at the checkout counters feed a complex re-ordering system. If Mrs. Jones buys three bottles of pasta sauce, that could trigger a re-order.
Even the U.S. Military has embraced some “lean” techniques in their maintenance and logistics infrastructures, and saved taxpayers millions of dollars. As long as communications and transportation work smoothly, then the entire system hums along like a Swiss watch. But what happens when the transportation infrastructure gets disrupted?
B.A. Adds: There are 8 Wastes often cited in Six Sigma studies. (I added one waste of my own, for a total of nine ). One of the key wastes is Excess Transport. Ideally, a systemic approach to manufacturing will co-locate (in theory) to the point where no transportation, or even movement is required, so transportation is one of the “nasties” that effective lean thinking tends to eliminate. Here are the 8 Wastes (to which I would add “E” for Energy to the TIM WOODS acronym, which now becomes TIMEWOODS 🙂
Transport (excess)
Inventory (excess)
Motion
Energy (Added by B.A.)
Waiting
Overproduction
Overprocessing
Defects
Skills, Savvy, Smarts (squandering the inherent genius in all people involved)
KANBAN ADOPTION HAS PARTLY BEEN TAX-DRIVEN
One of the factors that has strongly encouraged lean inventories is that many states levy an annual tax on business inventories of finished good or sometimes even semi-finished subassemblies. Also, under the Federal tax law, businesses must “keep an inventory and use the accrual method for purchases and sales of merchandise.” As is the case with most other government intervention in the free market, this is another “unintended consequence.” Businessmen hate paying a nickel more in tax than they absolutely have to, so by keeping their inventory small, they avoid the taxes. In some states like California, it is not unusual to see annual “inventory reduction” sales, timed for the month before before the annual inventory tax is levied.
The big “lean machine” works great in normal times. But in times of economic instability, or following a natural disaster, the machine can’t cope. Panic buying can clean out supermarket shelves in a matter of hours. And again, in most cases there is no longer a “back room” with extra inventory. The important lesson in all this is to be prepared. DO NOT count on being able to buy anything to provide for your family on TEOTWAWKI Day +1. Stock up.
B.A. Adds: “Good points, although I’d emphasize the caveat of stocking up (where it makes sense) on the items that you know you will personally use, and you have the space to store, and that won’t suffer any significant shelf-life deterioration, spoilage or nutritional loss (whole grain, water, honey, et cetera.) Also, have some silver for barter currency, [to trade for the items that you overlooked or that you didn’t stock in sufficient depth.]”
Also, while the sensitivity and stability of authentic lean manufacturing and production (as is practiced … or not in many cases) is of some concern, one emphasis that lean senseis make is flexibility and responsiveness, so that, for example, mixed inventory models can respond almost instantaneously to changes in demand (and the intent is to hone the bidirectional speed of communication so that the entire supply web is informed at a much quicker rate to adjust).
The concerns you raise are valid. However, as in so many areas of life, the optimum solutions are not either/or, but both/and. In the case of dependence on technologies such as computer and telecommunication networks, the initial concentration of processing power (mainframes) has given way to vastly distributed, parallel and redundant systems that are far more tolerant of disruptions than ever before.
CONCLUSION
I will close with a few observations: In the 18 years that have transpired since this article was first posted, the general reliance on kanban inventory control has continued to increase. Kanban is now used for not just manufacturing parts and for consumer goods, but also spare parts for military organizations, but also lubricants and spare parts for a variety of industries and public utilities. Alarmingly, the supply of spare transformers for America’s power grid infrastructure has also gone very lean. This means that if there is ever a massive X-Class solar flare that destroys transformers, then it will take even longer for the full power grid to be reconstituted. Plan accordingly. – JWR
Read the full article here