The latest victims of the economic downturn seem to be suppliers in the electronics supply chain. As reported in the May 18th WSJ article “Clarity is Missing Link in Supply Chain“, as business began to contract, Best Buy dramatically cut back their forecasts to electronics companies such as Toshiba just before the holiday season last year, for fear of ending up with unsold inventory. The ripple effect throughout the supply chain was dramatic. As Toshiba reacted quickly and suddenly cut back its DVD player production, other suppliers were impacted far out of proportion to the actual event. This is also known as the whipsaw or bullwhip effect, with suppliers at the end of the chain feeling the harshest impact. The order cutbacks at Best Buy hit the semiconductor supply chain, including such companies as Applied Materials, a maker of the capital equipment used in semiconductor chip production, who had to lay off 2,000 workers and furlough thousands of others. The impact was felt through the supply chain, down to a small machine shop in California that makes aluminum parts for machines semiconductor plants and that had to lay off 75% of its workforce, far out of proportion to the initial glitch, and now is sitting on a year’s worth of inventory.
JIT, the practice that spared the top of the supply chain from being stuck with excess inventories, ending up hurting it. As sales failed to tank as much as predicted and customer demand was actually greater, there was no inventory to sell to consumers. Thus, the ugly side of just-in-time manufacturing was exposed.
What went wrong? First, there was a lack of visibility at the lower links of the supply chain. Could that be prevented? Yes. Communications with lower tier suppliers would help avoid some of the surprises. Supply chain visibility and optimization software would have helped some of the firms get visibility into what could happen upstream and downstream. But then these firms would need to inform and collaborate with their suppliers and help them prepare for the drop in business so that they would not be blindsided and left holding the inventory bag, so to speak, for their customers.
But is this the fault of JIT practices? Not really. The challenge is to optimize service to customers and minimize inventory. It is costly to hold too much just-in-case inventory and in the end, does not pay off in the electronics industry where idle inventory rapidly becomes obsolete.
However, that doesn’t stop the JIT-bashers from piling it on. See, JIT doesn’t work. Get rid of Six Sigma. Lean is useless. That’s the amazing commentary that comes out when supply chain failures occur. People blame the tools, not those who use the tools. As the saying goes, “A bad workman blames his tools.” There seems to be a lot of pent-up anger over high-performance management systems and tools such as JIT, Lean and Six Sigma as well as a readiness to rush to judgment that it’s the tools that cause the problems. The toolheads like their tools and convince others that the tools are the silver bullet. Many businesses don’t like dealing with the messiness of leadership, culture, change, customer-supplier collaboration and continuous improvement. However, JIT, Lean and Six Sigma are worthless without them.