If the Covid pandemic has taught us anything, it's that the global supply chain and methods of inventory management adopted by organisations - specifically, the Just-in-Time (JIT) method - had certain vulnerabilities that led to the compromise of the once-efficient global supply chain. The pandemic disrupted factories worldwide, causing severe shortages in parts and raw materials. For instance, Apple struggled with iPhone production due to part shortages, and pharmaceutical companies faced critical shortages of drugs as China, a major supplier, shut down its factories. Even seemingly simple products like disposable diapers were affected, as they required more than fifty materials sourced globally.
This disruption underscored the fragility of the JIT system, which had been the standard for over 50 years. The origins of this system are rooted in the post-World War II era in Japan, where Toyota pioneered a revolutionary approach to manufacturing.
Before Toyota's JIT system, the prevalent manufacturing method was exemplified by Henry Ford's approach. Ford's assembly line at the Highland Park plant was a marvel of its time, producing the Model T at an unprecedented scale. Ford's vision was to create an affordable automobile for the masses, which required a new way of manufacturing. He was inspired by the efficiency of slaughterhouses and textile factories that used conveyor systems to speed up their operations. This led to the development of the moving assembly line, which significantly increased production speed and reduced costs.
Ford's pursuit of vertical integration led to the creation of the Rouge plant, where raw materials were transformed into finished vehicles within a single complex. Ford aimed to control every aspect of production, avoiding reliance on external suppliers. This strategy, while innovative, often resulted in significant waste and inefficiency, as large stockpiles of inventory were maintained to ensure production continuity.
In contrast, post-war Japan faced unique challenges that made Ford's methods impractical. The country was grappling with severe economic constraints and resource scarcity. Eiji Toyoda and Taiichi Ohno, Toyota's engineering and production masterminds, admired Ford's production efficiency but knew it couldn't be replicated in Japan due to financial and logistical limitations.
In 1950, Eiji Toyoda visited Ford's Rouge plant, seeking inspiration. While impressed, he realised that Japan needed a different approach. Back in Nagoya, Eiji and Ohno began developing what would become the Toyota Production System (TPS), introducing JIT manufacturing. This innovative approach was inspired by American supermarkets, where Ohno observed that shelves were restocked based on consumer demand, ensuring minimal waste.
At the core of JIT was the Kanban system, a visual scheduling tool that helped manage production and inventory. Kanban cards acted as signals within the production process, indicating when new parts were needed, ensuring a smooth flow of materials without excess buildup. This method drastically reduced inventory costs and improved efficiency, allowing Toyota to produce high-quality vehicles with minimal waste.
One notable example of this innovative approach was in the stamping shop. Traditional methods required massive and expensive Western press lines to operate continuously, making millions of parts each year. However, Toyota's early production was only a few thousand vehicles annually. Taiichi Ohno developed simple die-change techniques, reducing the time required to change dies from a full day to just three minutes. This allowed Toyota to produce small batches of parts efficiently, reducing inventory costs and improving quality by quickly identifying and correcting mistakes.
The success of TPS and JIT at Toyota had a profound impact on manufacturing practices worldwide. By the early 1980s, Japanese automakers had claimed nearly 30% of the global market for cars, up from less than 4% two decades earlier. This was largely due to the efficiency and quality improvements brought about by JIT and TPS. Around this time, General Motors formed a joint venture with Toyota, and Ford executives travelled to Japan to learn from Toyota’s efficient practices. Since then, the influence of Toyota's innovations has extended beyond the automotive industry, inspiring transformations in various sectors, including pharmaceuticals, hospitals, and electronics. It is also important to note that since the invention of the JIT system in the 1950s, technological advancements allowed for significant efficiency gains, particularly with the introduction of barcoding and Radio Frequency Identification (RFID) in the 1970s and 1980s.
Looking at Toyota’s history, considering the supply chain constraints they faced, along with the technological advancements of that era, one could argue that history indeed repeats itself. We now realise that, though efficient, the JIT system is not resilient to macroeconomic shocks. However, in this new age of AI, innovative inventory risk management solutions for demand forecasting, consumer behaviour analysis, and supply chain risk identification are emerging. The post-Covid era may just be the beginning of a new inventory management approach and a new leap for the industrialisation of our civilisation.