Question

discuss the pressures that Lean systems pose for supply chains, whether in the form of process failures due to inventory shortages or labor stoppages, etc. Also discuss how these pressures may apply to a firm, which is actually implementing Lean philosophy in their operations

Answer 1

Answer:

Just in time or lean systems can result in dramatic cost reductions, but can also turn a solid supply chain system into a fragile one. The pressure to reduce costs and inventory levels have negative consequences in case of unplanned events. Remember how an earthquake halted the production of Japanese cars for almost half a year? I hope that things as bad will not happen again, but what about small disruptions in the supply chain.

Since safety stocks are minimum or even non-existent, even something as common as a bad storm might halt assembly lines.

I once visited Toyota's pickup factory where they produced at that time around 140,000 pickups per year. The total stock of engines available was surprisingly 6, but if you divide 140,000 by 365 days = 383.56 pickups per day. Now we can divide 383.56 by 24 hours = 15.98 pickups per hour. So that means that the average inventory level only lasted 22.5 minutes. Toyota invented the lean system more than 40 years ago and it is continuously trying to make it perfect, and apparently it works for them. As a visitor, I was amazed to see the small number of engines in stock, but at the same time that the engines were being transferred to the assembly line, a new batch was being received.

But can other non-Japanese companies execute lean systems so effectively as Toyota or even Honda? I really doubt it. First of all, the pressure over the supply chain managers is huge, the pressure over the suppliers is also huge and the consequences are not always positive. One of the problems with pressuring your own employees so much is that they can only focus on their job, and that results in less innovation. Many successful companies allow their employees to spend some time on their own trying to create new products or come up with new ideas for improving services, e.g. Google, 3M.

Another issue is what happens if something goes wrong with the other part of the business which is selling the manufactured products. E.g. Toyota closed its factory in Venezuela many years ago but it hasn't fired any employee and they continued to pay their suppliers until their contracts ended. Once you sign a supplier contract with Toyota, you know it is very specific and demanding, but you also know you will get paid as long as you do your job no mater what. But will an American company pay salaries for more than 6 years without doing any work at all. I know Toyota relocated some workers to other countries, but a few hundred still remain without working.

Japanese philosophy and how they consider patience a great virtue is good for them and it works for them, but highly stressed western employees will probably have a hard time. Personally I couldn't understand how they do it, but it takes years to do so.