Four Steps to Creating a JIT Supply Chain Network
Toyota Motor Company invented the concept of just-in-time inventory (JIT) decades ago, a strategy that was eventually adopted by just about every company in the automotive sector, and many more in electronics, appliance, even the food industry, and more.
When Toyota introduced the system, it was more local in nature, meaning supplier facilities were close to its factories. The concept was extended to more global supply chains, but with the same guiding principle: operate with the least level of inventory you can.
It was made possible on a global level due to mostly stable trade conditions and advanced logistics capabilities worldwide, which made the delivery of items highly dependable and predictable.
This level of certainty and predictability has fallen by the wayside given the pandemic, and post-pandemic volatility.
"many have called into question the wisdom of continuing to operate factories on a just-in-time basis that are dependent on global supply chains, many firms are tempted to throw out JIT and revert to “just-in-case” systems that maintain lots of inventory at various locations in the global supply chain to ensure business continuity.” - ManMohan Sodhi, a professor of operations and supply chain management at Bayes Business School in London, and Thomas Choi, professor of supply chain management at Arizona State University’s W. P. Carey School of Business.
A better option is to embrace a modified form of JIT — something that companies such as Toyota and Volkswagen are already doing. Sodhi and Choi say this involves creating stockpiles or manufacturing capacity in strategic places to protect an operation from supply chain disruptions.
“Companies can revamp their JIT supply chains by identifying their contiguous parts that can be run on a just-in-time basis and then connecting these “JIT supply chain segments” via buffers.” - Sodhi and Choi
To do this, according to them, companies need to take four steps:
1. Map your supply chain: the key is getting beyond tier 1 suppliers to tiers 2 and 3. Many of these indirect suppliers pose substantial supply chain risks of which companies are unaware.
2. Identify the segments that can be run on a JIT basis: the key attributes for a JIT segment, Sodhi and Choi say, include minimum fluctuations in demand, matching manufacturing cycle times across the nodes in the segment, and proximity of these nodes.
3. Create buffers at the points where the segments meet: These buffers can comprise some combination of inventory, spare or backup capacity, redundant suppliers, and even facilities shared with other companies.
4. Consider the nature of the supplier relationship: JIT generally assume suppliers are collaborative, supplier relations range from being purely transactional to highly collaborative. Buffers, Sodhi and Choi say, can help protect JIT segments from non-collaborative relationships, with non-collaborative supplier requiring a larger buffer.
Nucleus believes fully in collaboration. We partner with our customers and suppliers on an ongoing basis to achieve the seemingly incompatible goals of better service levels at a lower cost.