When: 1973
Where: Japan
Why: Just-in-Time transformed the way all significant global manufacturers operate
How: An American supermarket’s unusual procurement strategy sowed the seed that grew into lean manufacturing
Who: Taiichi Ohno
Fact: When Toyota implemented Just-in-Time at its Nagoya plant, its response times fell to a single day
Just-in-time (JIT) inventory management is the philosophy at the core of the Toyota Production System (TPS) developed between 1948 and 1975 by Shigeo Shingo, Eiji Toyoda – and Taiichi Ohno. Toyota’s methods revolutionised manufacturing in Japan’s automotive industry and, with cultural and sector variations, were eventually adopted throughout the world, first in discrete manufacturing (the sort that produces physical objects), then in process manufacturing and finally in business generally.
Until the arrival of JIT, inventory management depended heavily on forecasting, often weeks ahead. The number of units that the business expected to produce would be worked out based on orders in hand, market forecasts and last year’s performance. Really lazy companies would just follow the last of these, and act retrospectively if they sold more or less than anticipated.
To support this model, manufacturers had to order enough parts ahead of time to meet the forecast. It was not uncommon for the stores to contain three months’ inventory ready to meet production targets. If the stock ran out before the next scheduled order date, more would have to be sourced in a hurry; if there was too much, it would remain on the shelves.
In 1950 Toyota’s managing director, Eiji Toyoda, and executive Taiichi Ohno led a delegation to the USA, visiting a Ford plant in Michigan. They were impressed by its scale, though not by its efficiency. The production process resulted in large quantities of surplus inventory, and an uneven flow of work. Furthermore, because the quality checks were left until the end of the process, many cars were being sent back for re-working.
Henry Ford had envisaged lean principles in 1923 when he wrote: ‘We have found in buying materials that it is not worthwhile to buy for other than immediate needs. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever … That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials.’ But Ohno found no evidence that this principle was being applied in Ford’s factories.
On the same trip he visited the self-service grocery chain Piggly Wiggly, where he found a fully functional JIT programme in practice for the first time. Replacement stock was ordered only when existing quantities reached a critical level. He went back to Japan convinced of the need for a production system that was pulled by real orders, rather than pushed by sales forecasts.
The JIT process, defined by Ohno and adopted at all Toyota plants, hinged on: ‘Making only what is needed, when it is needed, and in the amount needed.’ Quality was made an integral part of the process by eliminating waste, inconsistencies and unreasonable requirements on the production line.
An approach that had initially been regarded with suspicion in the West, due to lazy, xenophobic stereotypes about Japan … gradually became accepted because it improved productivity and profitability, and identified waste.
The JIT system, as implemented by Toyota, dictated that a production instruction must be issued to the beginning of the vehicle production line as soon as a vehicle order was received. The process required a close working relationship between the assembly line and the parts-production process. Any parts used on the assembly line had to be replaced from the parts-production stores, in exactly the same quantity; the parts team were instructed to replenish the assembly stock, and no more – surplus production was eliminated.
The system wouldn’t work without the collaboration of parts suppliers and sub-assembly manufacturers – so Toyota began using ‘Kanban cards’ – product request forms that would be passed back through the supply chain as soon as stocks ran out. Although the Kanban required the suppliers to change their modus operandi, they clearly stood to gain from it – as the whole object of JIT was to produce more vehicles, bringing improved returns all the way down the supply chain.
Following the global oil crisis of 1973, which triggered soaring fuel prices and falling supplies, Toyota recovered markedly faster than its peers; its resilience gained international respect, and manufacturing businesses began to consider JIT as a viable commercial approach. An approach that had initially been regarded with suspicion in the West, due to lazy, xenophobic stereotypes about Japan’s love of order and control, gradually became accepted because it improved productivity and profitability, and identified waste.
More and more companies began to revamp their inventory management strategies, with JIT as the guiding influence. In 1984, General Motors formed a joint venture agreement with Toyota for the production of small cars in the USA – buying into JIT in the process. In 1986 Richard J. Schonberger, a respected authority on JIT, wrote that more than 100 leading American firms had tried out the system – including famous names such as Intel, Motorola and Campbell’s Soup.
Today, thousands of companies around on the world rely on the ideas initially conceived by Taiichi Ohno. In 2005, a group of senior manufacturing executives were asked about their approach to inventory management; 71% said they used JIT. Over recent years, the principles of JIT have evolved into a new, Western concept known as ‘lean manufacturing’, which shares the same commitment to paring costs down to their absolute minimum by imposing rigorous control over the production process, and cutting back on inventory at every stage. Lean manufacturing is now used across a multitude of industries; many companies believe it has played a key role in helping them weather the recession.
One of JIT’s most ardent proponents has been IT hardware giant Dell, which has stripped back its production operation to almost completely eradicate inventory. Although Dell puts nearly 80,000 computers together every day, it doesn’t own or rent a single warehouse, and carries no more than two hours’ worth of inventory at any one time. Experts believe this approach has brought genuine advantages; in fact, it is thought that Dell’s cost-effective production process allows the company to undercut its rivals on price by up to 15%. Dell claims that, because its parts do not arrive until the eve of assembly, they are around 60 days newer than the components of IBM and Compaq machines; this can bring a profit advantage of up to 6%.
Lean manufacturing is now used across a multitude of industries; many companies believe it has played a key role in helping them weather the recession.
Meanwhile, Toyota has been able to establish a position of global strength in the automotive market, based on its ultra-efficient manufacturing process. In 1998 it was found that Ford and GM were taking 50% more time to manufacture a car than Toyota. While GM was not even making a profit on several models, Toyota was making profits stretching into billions of pounds. In an attempt to close the gap, GM began a concerted campaign to emulate Toyota’s production methods, based on JIT. By 2007, GM had implemented the new system in 90% of its plants around the world; the company claimed that this brought cost savings of around $9bn.
Toyota promoted Taiichi Ohno to its board in 1954. He became managing director in 1964, senior managing director in 1970, and executive vice president in 1975. He retired from Toyota in 1978 and died on 28 May 1990 in Toyota City, Japan. Ohno’s influence was felt well outside the field of manufacturing, where JIT has played a huge role in improving back-office functions, sales and customer relationship management.