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Thank you Toyota and practitioners of "lean" / "Six Sigma" that told us all about the wonders of just-in-time, to only carry exactly as much inventory was neede

Thank you Toyota and practitioners of "lean" / "Six Sigma" that told us all about the wonders of just-in-time, to only carry exactly as much inventory was needed for demand. After all, we'd rather have that cash in a bank account than tied up in inventory. While well intentioned, the problem is that it all relies on assumptions, largely tied to demand. And when demand goes through a wild whipsaw, and everyone takes diverging viewpoints of the shape of that whipsaw curve, the highly interdependent chain snaps. Labor is an issue for sure. But make no mistake, the "restart from COVID" supply chain conundrum owes a lot of its pain to optimizing everything to the hilt, then reacting slowly as the world around us changed.

LurkingPenguin 5y ago
Toyota actually isn't as JIT as you make it out to be, but that notwithstanding, what's the alternative? Stockpile 30 years' worth of Christmas ornaments in warehouses in Oklahoma, right next to the oil storage?
- archildress 5y ago
  It’s almost as if there are happy mediums in between the two scenarios. :)
  - LurkingPenguin 5y ago
    2 years' worth of Christmas ornaments? 10 years' worth? The amount of crap that we consume is astounding. And in many cases, each specific type of crap requires a bunch of smaller crap (components). There is literally no way for a consumption-driven society as broad and deep as ours to stockpile years' worth of everything.
    - archildress 5y ago
      All planning really is based on assumptions, like safety stock levels. In organizations you typically have someone who decides "hey, this is the right level of inventory to keep, based on our demand right now." That's not a bad approach, but the problem is a lot of supply chain planning is top-down and dictates "we only want to keep $x tied up in inventory" and as you can imagine that number is driven by management as low as possible. When COVID happened last year, levels were slashed so low and now the supply chains can't recover. Basically my view is that it's this over reactiveness and obsession with free cash flow has swung so far so as to create a too-painful jam. I would agree that over consumption is a problem, albeit a separate one to the conversation at hand. Cheers.
      - LurkingPenguin 5y ago
        > That's not a bad approach, but the problem is a lot of supply chain planning is top-down and dictates "we only want to keep $x tied up in inventory" and as you can imagine that number is driven by management as low as possible. This actually isn't true to the extent you seem to think it is, though. > Basically my view is that it's this over reactiveness and obsession with free cash flow has swung so far so as to create a too-painful jam. But that's not the only cause of the supply chain situation. Transportation is also a big part of the issue. Even if you had 10 years' worth of widgets in a warehouse in China, if you can't get them on a ship, or the shipping costs are too high, you get supply shortages where the customers need those widgets.
        swiley 5y ago
        Is there an easy way for people with yachts to transport stuff like this for a profit?
        LurkingPenguin 5y ago
        No. Virtually all goods that move by sea (save for commodities like oil) move in containers, which require container ships and associated infrastructure (deep water ports, etc.).
        swiley 5y ago
        If containers aren't working I'm sure people would be willing to use something like the black and yellow totes given enough market pressure.
        LurkingPenguin 5y ago
        I think you're vastly underestimating the volume of cargo that moves and the world of infrastructure that has been put in place to move it. Also, to the extent that small vessels are used in the "transportation" business, it's for contraband, not Beanie Babies. Look up the street value of 100 kilos (~220 pounds) of cocaine in major US and European cities and compare it to the value of a 40 foot container full of nuts and bolts.
jawns 5y ago
I think some companies recognized that it's possible for once-in-a-generation and once-in-a-lifetime disruptive events to occur, but they crunched the numbers and decided that they could squeeze more from lean practices over the long term than they stood to lose in the disruptive events. Like, suppose you could make $X in profit that is highly resilient to infrequent disruption or twice that with the understanding that every 20 years or so, you're going to have a few bad years because of black swan events. You might determine that you're willing to take your lumps during the chaotic times.
- londons_explore 5y ago
  Few companies plan that far ahead.... You'd get the same outcome by hiring someone and telling them they get a bonus proportional to increased profits, and no bonus in bad years.
- mywittyname 5y ago
  Planning for black swan events would be really dumb: they will never go exact as you plan them to. What if they planned for a GFC-like black swan event where nobody bought cars? Or one where gasoline suddenly went to $400 barrel? There are a million possible black swan events and there's a million ways to plan for them.
jdlshore 5y ago
I hear this complaint frequently, and I always wonder if the people making it are well-informed about supply chain logistics or are just parroting what they’ve heard elsewhere. Because my understanding of TPS and Lean is that it solved serious issues with supply chains involving waste due to outdated and rusted (figuratively and literally) inventory. It also doesn’t prevent the use of buffers to absorb shocks, as Toyota demonstrated in the first year of the pandemic.
- mzs 5y ago
  Here's recent supply-chain thread calling-out a current bottle neck: https://threadreaderapp.com/thread/1451543776992845834.html https://threadreaderapp.com/thread/1451543776992845834.html https://twitter.com/typesfast/status/1451543776992845834 https://twitter.com/typesfast/status/1451543776992845834
  - jdlshore 5y ago
    That’s a great thread, thank you. Do note that one of the replies calls his fundamental thesis into question, though: empties are sitting on chassis not due to regulation, but due to lack of equipment for stacking them higher.
    - margalabargala 5y ago
      Reasonably large mobile cranes exist and the cost of renting one for a day is small compared to the amount of capital bouncing around logistics operations surrounding the Port of LA. They're not currently in use at truck yards because it's illegal to stack containers high, but if it were no longer illegal then they could be quickly and temporarily set up.
      - jdlshore 5y ago
        There’s a respondent in the thread claiming that it’s not illegal, but I don’t know how accurate their information is.
  - 5y ago
imtringued 5y ago
The problem isn't Toyota. It's that companies are so damn risk averse that they would rather have money in bank accounts rather than take a risk and keep producing too much even during a half year downturn.
- Workaccount2 5y ago
  I don't think it's risk aversion so much as it is "Parts on the shelf don't pay interest/dividends".
  - bluGill 5y ago
    Parts on the shelf also rust. My company saves a lot of money not having to de-rust iron parts now that everything is back out the door 5 days after it arrives in the factory. Not to mention sometimes parts rust enough that they no longer pass quality standards.
- cascom 5y ago
  Except that when companies do this, and then ask to be rewarded for making that investment, they are lambasted for price gouging or profiteering…just ask any hardware store that has sat on a pile of snow shovels through the summer in order to capture a premium price when a blizzard is approaching…
  - throaway46546 5y ago
    I agree price gouging laws lead directly to shortages. Take the recent toilet paper shortage. What is a more preferable outcome, not having toilet paper available or having to pay 4x as much for a roll? Because the latter is illegal we have empty shelves instead.
    - mywittyname 5y ago
      The problem with price gouging is that people are irrational and feel entitled to the price they paid last week. People get super fucking angry at price gougers. Which is how the nation ended up with these laws to begin with. So even if the government were okay with "market adjustments" on basic goods, there would still be this risk of stores getting looted/destroyed because people are so angry at how quickly prices increased. Businesses are much less emotional. Most are just going to adapt to the new price.
yunohn 5y ago
> Thank you Toyota and practitioners of "lean" / "Six Sigma" that told us all about the wonders of just-in-time, to only carry exactly as much inventory was needed for demand. While Toyota might have popularized the concept, it seems odd to blame them for the common-sense idea of just-in-time. It’s quite natural, normal humans also don’t hoard everything they can possibly think of needing, nor should companies. It’s eco-friendly to be JIT as it leads to less wastage; while optimizing for rare shortages will result in wastage all the time.
- blix 5y ago
  > It’s quite natural, normal humans also don’t hoard everything they can possibly think of needing... For most of human history we did exactly that. The deeply interconnected "JIT Consumption" world is really quite new. And if consumption patterns suddenly change then you can't buy toilet paper anymore.
  - munk-a 5y ago
    I'd actually disagree pretty strongly with this. For most of human history the spoilage rate of pretty much everything we produced was so high that stockpiling goods for the sudden economic shocks was solely reserved to governing bodies. Remember how you built ten bazillion granaries in Civ? Sure, the game has taken quite a few liberties with history but we have evidence of communal food storage going all the way back to Babylon. When's the last time you saw a granary or any sort of food stock that was actually built and maintained by a government in the modern world? Before the modern epoch it was really rare to personally stockpile goods due to the extreme possibilities of spoilage (everyone loves weevils and moths right?) - that's only been an option in the near history.
    - blix 5y ago
      For most of the pre-modern era, 'governing body' simply means a group with enough stockpiled resources, especially food, to project power. Anyone who could get in on this action tried to. Spoilage is an issue, but humans came up with many neat tricks to work around this, many of which are still used today (fermentation, for example). Anyone who didn't want to live or die soley by the whims of the local warlord during a harsh winter had to maintain their own food stockpile. The great lie of Civ is to present this as centrally organized when for most of human history this power was very finely decentralized due to the expense of communication and logistics. But as socities become more centralized food stockpiles haven't disappeared. Many governments still maintain food stockpiles, especially poorer countries.
rumpelstilz18 5y ago
"After all, we'd rather have that cash in a bank account than tied up in inventory." The "We" includes you. And it is inherent in our society what we add layer of layer of complexity.
snarf21 5y ago
Would you be making the same statement if covid hadn't happened? I think companies realized that net net, JIT is more profitable and they'll worry about the outliers when/if they happen.

LurkingPenguin 5y ago

Toyota actually isn't as JIT as you make it out to be, but that notwithstanding, what's the alternative? Stockpile 30 years' worth of Christmas ornaments in warehouses in Oklahoma, right next to the oil storage?

archildress 5y ago
It’s almost as if there are happy mediums in between the two scenarios. :)
- LurkingPenguin 5y ago
  2 years' worth of Christmas ornaments? 10 years' worth? The amount of crap that we consume is astounding. And in many cases, each specific type of crap requires a bunch of smaller crap (components). There is literally no way for a consumption-driven society as broad and deep as ours to stockpile years' worth of everything.
  - archildress 5y ago
    All planning really is based on assumptions, like safety stock levels. In organizations you typically have someone who decides "hey, this is the right level of inventory to keep, based on our demand right now." That's not a bad approach, but the problem is a lot of supply chain planning is top-down and dictates "we only want to keep $x tied up in inventory" and as you can imagine that number is driven by management as low as possible. When COVID happened last year, levels were slashed so low and now the supply chains can't recover. Basically my view is that it's this over reactiveness and obsession with free cash flow has swung so far so as to create a too-painful jam. I would agree that over consumption is a problem, albeit a separate one to the conversation at hand. Cheers.
    - LurkingPenguin 5y ago
      > That's not a bad approach, but the problem is a lot of supply chain planning is top-down and dictates "we only want to keep $x tied up in inventory" and as you can imagine that number is driven by management as low as possible. This actually isn't true to the extent you seem to think it is, though. > Basically my view is that it's this over reactiveness and obsession with free cash flow has swung so far so as to create a too-painful jam. But that's not the only cause of the supply chain situation. Transportation is also a big part of the issue. Even if you had 10 years' worth of widgets in a warehouse in China, if you can't get them on a ship, or the shipping costs are too high, you get supply shortages where the customers need those widgets.
      - swiley 5y ago
        Is there an easy way for people with yachts to transport stuff like this for a profit?
        LurkingPenguin 5y ago
        No. Virtually all goods that move by sea (save for commodities like oil) move in containers, which require container ships and associated infrastructure (deep water ports, etc.).
        swiley 5y ago
        If containers aren't working I'm sure people would be willing to use something like the black and yellow totes given enough market pressure.
        LurkingPenguin 5y ago
        I think you're vastly underestimating the volume of cargo that moves and the world of infrastructure that has been put in place to move it. Also, to the extent that small vessels are used in the "transportation" business, it's for contraband, not Beanie Babies. Look up the street value of 100 kilos (~220 pounds) of cocaine in major US and European cities and compare it to the value of a 40 foot container full of nuts and bolts.

jawns 5y ago

I think some companies recognized that it's possible for once-in-a-generation and once-in-a-lifetime disruptive events to occur, but they crunched the numbers and decided that they could squeeze more from lean practices over the long term than they stood to lose in the disruptive events. Like, suppose you could make $X in profit that is highly resilient to infrequent disruption or twice that with the understanding that every 20 years or so, you're going to have a few bad years because of black swan events. You might determine that you're willing to take your lumps during the chaotic times.

londons_explore 5y ago
Few companies plan that far ahead.... You'd get the same outcome by hiring someone and telling them they get a bonus proportional to increased profits, and no bonus in bad years.
mywittyname 5y ago
Planning for black swan events would be really dumb: they will never go exact as you plan them to. What if they planned for a GFC-like black swan event where nobody bought cars? Or one where gasoline suddenly went to $400 barrel? There are a million possible black swan events and there's a million ways to plan for them.

jdlshore 5y ago

I hear this complaint frequently, and I always wonder if the people making it are well-informed about supply chain logistics or are just parroting what they’ve heard elsewhere. Because my understanding of TPS and Lean is that it solved serious issues with supply chains involving waste due to outdated and rusted (figuratively and literally) inventory. It also doesn’t prevent the use of buffers to absorb shocks, as Toyota demonstrated in the first year of the pandemic.

mzs 5y ago
Here's recent supply-chain thread calling-out a current bottle neck: https://threadreaderapp.com/thread/1451543776992845834.html https://threadreaderapp.com/thread/1451543776992845834.html https://twitter.com/typesfast/status/1451543776992845834 https://twitter.com/typesfast/status/1451543776992845834
- jdlshore 5y ago
  That’s a great thread, thank you. Do note that one of the replies calls his fundamental thesis into question, though: empties are sitting on chassis not due to regulation, but due to lack of equipment for stacking them higher.
  - margalabargala 5y ago
    Reasonably large mobile cranes exist and the cost of renting one for a day is small compared to the amount of capital bouncing around logistics operations surrounding the Port of LA. They're not currently in use at truck yards because it's illegal to stack containers high, but if it were no longer illegal then they could be quickly and temporarily set up.
    - jdlshore 5y ago
      There’s a respondent in the thread claiming that it’s not illegal, but I don’t know how accurate their information is.
- 5y ago

imtringued 5y ago

The problem isn't Toyota. It's that companies are so damn risk averse that they would rather have money in bank accounts rather than take a risk and keep producing too much even during a half year downturn.

Workaccount2 5y ago
I don't think it's risk aversion so much as it is "Parts on the shelf don't pay interest/dividends".
- bluGill 5y ago
  Parts on the shelf also rust. My company saves a lot of money not having to de-rust iron parts now that everything is back out the door 5 days after it arrives in the factory. Not to mention sometimes parts rust enough that they no longer pass quality standards.
cascom 5y ago
Except that when companies do this, and then ask to be rewarded for making that investment, they are lambasted for price gouging or profiteering…just ask any hardware store that has sat on a pile of snow shovels through the summer in order to capture a premium price when a blizzard is approaching…
- throaway46546 5y ago
  I agree price gouging laws lead directly to shortages. Take the recent toilet paper shortage. What is a more preferable outcome, not having toilet paper available or having to pay 4x as much for a roll? Because the latter is illegal we have empty shelves instead.
  - mywittyname 5y ago
    The problem with price gouging is that people are irrational and feel entitled to the price they paid last week. People get super fucking angry at price gougers. Which is how the nation ended up with these laws to begin with. So even if the government were okay with "market adjustments" on basic goods, there would still be this risk of stores getting looted/destroyed because people are so angry at how quickly prices increased. Businesses are much less emotional. Most are just going to adapt to the new price.

yunohn 5y ago

> Thank you Toyota and practitioners of "lean" / "Six Sigma" that told us all about the wonders of just-in-time, to only carry exactly as much inventory was needed for demand. While Toyota might have popularized the concept, it seems odd to blame them for the common-sense idea of just-in-time. It’s quite natural, normal humans also don’t hoard everything they can possibly think of needing, nor should companies. It’s eco-friendly to be JIT as it leads to less wastage; while optimizing for rare shortages will result in wastage all the time.

blix 5y ago
> It’s quite natural, normal humans also don’t hoard everything they can possibly think of needing... For most of human history we did exactly that. The deeply interconnected "JIT Consumption" world is really quite new. And if consumption patterns suddenly change then you can't buy toilet paper anymore.
- munk-a 5y ago
  I'd actually disagree pretty strongly with this. For most of human history the spoilage rate of pretty much everything we produced was so high that stockpiling goods for the sudden economic shocks was solely reserved to governing bodies. Remember how you built ten bazillion granaries in Civ? Sure, the game has taken quite a few liberties with history but we have evidence of communal food storage going all the way back to Babylon. When's the last time you saw a granary or any sort of food stock that was actually built and maintained by a government in the modern world? Before the modern epoch it was really rare to personally stockpile goods due to the extreme possibilities of spoilage (everyone loves weevils and moths right?) - that's only been an option in the near history.
  - blix 5y ago
    For most of the pre-modern era, 'governing body' simply means a group with enough stockpiled resources, especially food, to project power. Anyone who could get in on this action tried to. Spoilage is an issue, but humans came up with many neat tricks to work around this, many of which are still used today (fermentation, for example). Anyone who didn't want to live or die soley by the whims of the local warlord during a harsh winter had to maintain their own food stockpile. The great lie of Civ is to present this as centrally organized when for most of human history this power was very finely decentralized due to the expense of communication and logistics. But as socities become more centralized food stockpiles haven't disappeared. Many governments still maintain food stockpiles, especially poorer countries.

rumpelstilz18 5y ago

"After all, we'd rather have that cash in a bank account than tied up in inventory." The "We" includes you. And it is inherent in our society what we add layer of layer of complexity.

snarf21 5y ago

Would you be making the same statement if covid hadn't happened? I think companies realized that net net, JIT is more profitable and they'll worry about the outliers when/if they happen.