Posted on 05/23/2011 3:21:47 PM PDT by Beaten Valve
Fewer than five months into 2011, New Zealand and Japan have been slammed by powerful earthquakes that in Japan’s case also led to a killer tsunami and potentially deadly damage to a nuclear power plant.
Turmoil has erupted in the Middle East with seemingly solid regimes falling and civil war breaking out, while the United States and Europe have experienced unusually cold winters. There has been “slow steaming” on the world’s shipping lanes, all-freighter flights have been reduced or eliminated, and the shortage of qualified truck drivers is back, partly in reaction to the Federal Motor Carrier Safety Administration’s new Compliance, Safety, Accountability program.
Clearly, the $1 trillion international transportation industry faces some formidable obstacles today, and no delivery system is as thoroughly exposed to these negative developments as the much-ballyhooed “just-in-time” (JIT) method of moving goods both domestically and around the world.
JIT was first introduced in the early 1980s and quickly spread to the trucking industry — a shipper’s dream come true. It reduced inventory to a minimum, saving substantial money while at the same time increasing production efficiency. Little wonder that JIT became the standard logistics system for land, air and sea transportation throughout the industrialized world.
Global political, economic and social conditions, however, have changed fundamentally in the 25 years since Japanese automaker Toyota developed JIT and began receiving parts under that system. Truck makers and parts distributors no longer live in a sane and peaceful world. Who would have thought the Egyptian government, seemingly as immovable as the Pyramids, could be overthrown in less than two weeks? Or that many people in oil-rich Libya — with its “dictator for life” and no history of free expression — would embrace democracy almost overnight?
Even nature seems to be conspiring against us. Ironically, Toyota, the first major supporter of JIT, found itself having to cut production at its North American plants by 75% after the March 11 earthquake and tsunami in Japan forced the company to conserve its limited supply of parts made in that country.
Likewise, despite all the talk about global warming, truckers last winter were paralyzed in many parts of the United States with roads under blankets of ice and snow. Thousands of tons of high-value freight sat in truck terminals throughout the Northeast and Midwest.
The successful application of JIT requires every link of the supply chain to remain unbroken. Trucks and their cargo must arrive within a very precise, predetermined period of time — often only hours before the cargo is needed on the assembly line.
With JIT, the shipper is rolling dice with his freight, assuming a seven will come up every time. But the odds are getting longer that it won’t.
Given the natural and man-made disasters that have occurred so far in 2011, JIT’s value must come into question. Yes, JIT could save thousands of dollars by way of lower inventory costs — but millions of dollars could vanish because assembly lines shut down or there’s a lack of goods to distribute — and the billions of dollars spent by shippers, carriers and their agents annually are at stake.
I believe there is a better way for shippers with global manufacturing and distribution operations and their truckers to meet successfully the transportation challenges of today’s unstable world — just-in-case inventory, or JIC.
Just-in-case means moving freight via land, sea or air a number of days earlier to build up inventory. JIC also means moving 10,000 tons of cargo in one shipment rather than dividing it into 10 shipments of 1,000 tons each. Opting for a single shipment minimizes the losses or delays so often the case with multiple shipments.
JIC’s advantages go beyond overcoming today’s upheavals to replace a number of JIT’s shortcomings, problems rarely admitted by JIT’s enthusiastic proponents.
For example, JIT puts enormous stress on every link of the supply chain. Fixating on getting cargo to its destination at a precise time produces extreme pressures that can lead to costly mistakes. Errors in documents can slip by and prompt unsympathetic customs inspectors to turn back the freight. Loading or unloading too quickly can physically damage cargo.
With JIC, however, there is a marked decline in stress for the simple reason that with more time allotted for the mechanics of shipping, errors are far less likely.
An indirect, but important, benefit of using JIC is the inventory buildup tied in with our recent emergence from a serious recession. The U.S. economy should continue to strengthen as manufacturers and distributors spend billions of dollars, adding to the gross domestic product as they restock their inventory.
Now let’s discuss the business of freight forwarding, a business responsible for moving 70% of all domestic traffic — most of it by truck. As a consolidator, I welcome the more balanced playing field between shipper and agent when using JIC.
With JIT, shippers get almost all the benefits. With minimal inventory, costs are reduced substantially, and the shipper guards customer cost advantages jealously. Almost none of these savings is passed on to the shipper’s hardworking agent, the freight forwarder. With shippers constantly pressing for — and generally getting — lower rates, they are laughing all the way to the bank.
JIC is a practical, realistic and efficient successor to JIT. It’s fair to the shipper, fair to the trucker and fair to the forwarder. With adequate amounts of inventory securely in place next to the assembly line or within the distribution warehouse, JIC almost completely eliminates the nightmare of lacking parts or supplies just when they are needed most.
With JIC, trucking company dispatchers can sleep more soundly at night.
The author has 35 years of experience in logistics. Consolidators International is a freight-forwarding company based in Los Angeles.
Isn’t “just in time” a free market response to government taxation of inventory?
That one slipped under my radar. Boy, does Obama neglect ANYTHING to make our life more inefficient and expensive?
Perhaps in part, but it’s also an issue of not tying up your cash too.
While I have been a firm believer in lean inventory as long as you cover your bases, I do believe there’s a case to be made for avoiding being so short that emergencies cause your stores to run out almost immediately.
Well in part but it is more than just that. The idea is to have youir cash flow tied up in its most productive use. Stockpiled inventory does necessarily produce income but money in the bank draws interest.
More than anything JIT is about maximizing efficiency.
I like building to a kan ban, although only one of our customers ever used it religiously.
The concept of “just in time” inventory control has a lot as aspects.
Tax on inventory is one issue, but not the primary issue.
Excellent point that completely slipped by me..
No, not by the measure of a "one off" occurrence... It should be changed because it is a crappy way to do business. I think that JIT has done almost as much damage as "planned obsolescence" has... Doing to inventory what planned obsolescence did to product.
Seems to me nothing more than the sky is falling, the sky is falling.
The factory I used to work in was fined something like 10 grand per hour for every hour our GM recipient plant was down due to a lack of parts.
In a perfect world it wouldn’t happen but things happen, machines break and suppliers don’t supply.
JIT was exactly that!
And one company bean-counter starts it and demands his suppliers deliver the goods needed for assembly of his product.
Then the bean-counter at the supplier says, "Hey! That makes sense." and demands his suppliers do the same for his company.
Less warehouse space, less overhead, less "closed for inventory days", less personnel.
And in case of "Whoops we forgot to order that!" UPS Next Day Air and FEDEX ride to the rescue.
**but things happen, machines break and suppliers don’t supply.**
and Trucks break down, and at $5.00+/gallon diesel, seeing lot of trucks being PARKED with FOR SALE signs in them. That’s not going to help the JIT either.
And as long as the taxpayers can pick up the pieces when you're unable to cover, then it's a smart gamble (tru of any leveraging scheme, not just JIT). Employers no longer have to consider long-term consequences, and "efficiency" is only local--JIT is less efficient in the broader picture.
Jackrabbit starts and jamming on the brakes might be seen as "more efficient" in getting you to a destination quicker, but it's not more fuel efficient. And when wear and tear are considered, other inefficiencies appear.
But since it's "efficient" in the short-term and burdens can be shared with our current economic system (profits are private; losses are shared), it's the rational choice.
BTW, I understand that you were explaining the intent of JIT and I hope you're not offended at my marking up your comment, since you're right about the intent and claims of JIT.
I was working during a new product launch when we had all 170,000 Cadillac door panels we had done returned for a design flaw. (A metal stud inside the door was ripping side air bags)
We ended up hiring 100 temps to dismantle the doors so we could reassemble them with that single stud ground down with a die grinder.
Just-In-Time = Oh-Shit-We're-Out
And unions never ever strike...
We had a no strike clause in our contract. The UAW picketed our shop over it. LOL idiots.
I worked 3 years in a captive job shop supplying parts for Ford and we delivered a few over 50,000 McPherson struts each week split between two different assembly plants. We never missed a shipment in the time I was there.
This all reminds me of an old story told about Henry Ford.
In the early days, the contract with the supplier of the headlights to the Model-A detailed not only the specifications for the headlights but also the packaging in which they were to be delivered.
There were to be two lights per box; the boxes were to built of oak slats; the boxes were to be of certain dimensions, and the headlights should be packed with a certain kind of straw.
The supplier wanted the business, and so they complied with Ford’s demands.
Later they discovered that the boxes they shipped the headlights in were being knocked apart to make the floor boards and the straw that was used for packing material was being used to stuff the seats.
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