Has Lean Become Too Extreme?

Has just-in-time gone just a little too far? In some markets, the aftermath of the crash of ’08 and its recession may have revealed a built-in weakness of JIT—that is, the way that just-in-time can (ironically) lead to delays.

Craig Hockings is on the front lines of this development. The Chicago-based vice president of sales and marketing works for the stainless steel division of Schmoltz+Bickenbach, an internationally integrated steel supplier that both makes and distributes specialty steel. This year, he says, business is up an amazing 35 to 40 percent from one year ago. Practically no manufacturer could have anticipated such a change, he says. No steel company did.

As a result, the challenge his company faces right now is to use its existing inventory and capacity as strategically as it can, to try to minimize customers’ wait for material. Even so, wait times are pronounced—and in the leanest JIT supply chains, that delay propagates all along the chain’s length.

In theory, of course, JIT avoids delays—while also avoiding the costs of carrying inventory. JIT producers stockpile very little, receiving components essentially as needed from other JIT producers.

In practice, though, JIT pushes inventory pressures upstream. The metal producer sits at the head of that stream. Steel cannot be milled to order with the same responsiveness that a CNC machined component can be cut to order, says Mr. Hockings. Rather, an installation as massive and complex as a steel mill has to work to demand forecasts. Going into 2010, the most optimistic forecast saw only a slow increase, but something else happened instead.

“Demand went from 0 to 100 miles per hour,” he says. Automotive-related production has been particularly strong. The resulting lead times, though long, are at least improving, he says. Schmoltz+Bickenbach is ramping up its production capacity as fast as physics and personnel will allow.

Yet he wonders whether there isn’t something in this experience to be learned about just-in-time. The practice is still new—at best only decades old, too young to have experienced such extreme changes in demand before. This year, a little inventory would have gone a long way. Specifically, if every link in the supply chain had carried a small amount of surge inventory, then the chain would had the capacity to meet the sudden demand increase—without any one company having to shoulder the total cost of carrying that much stock. Going forward, would this small amount of inventory be a more cost-effective stock level? The experience of 2010 might reveal that the optimal level of lean actually involves a little more “fat” than many manufacturers have come to expect.