Conversation between Taiichi Ohno and retail founder Masatoshi Ito
Setsuo Mito has interviewed Taiichi Ohno a lot and published those interviewed.
There was a conversation between Ohno and Masatoshi Ito, the founder of Itoyokado (The largest Japanese supermarket) and Seven-Eleven Japan (The largest convenience store).
Their conversation about “Just In Time” was fascinating.
Ito was born as the son of a small retailer in 1924. Upon succession, he developed the business as one of the largest supermarkets in Japan. Not only they grew as a supermarket, they entered a convenience store chain, Seven-Eleven Japan.
Seven-Eleven started in the USA. In 1973, Itoyokado signed a licensed operation in Japan. Since then, Seven-Eleven Japan has evolved uniquely. In 1991, Itoyokado took control of Seven-Eleven.
Seven-Eleven Japan is a “Just In Time” beauty. Each store, less than 250 square meters, receives several daily shipments. The store changes the product lineups to breakfast, lunch, and dinner by receiving several shipments. Customers can enjoy fresh foods while buying other essential household goods.
The conversation between Ito and Ohno happened when Ito visited Toyota in the mid-seventies. Ito came since he wanted to understand how Toyota is reducing inventories.
Ito; “It is challenging to operate with zero inventory.”
Ohno; “Agree. TPS aims to create the flow. We level the flow to accomplish Just In Time. It is not a “Zero-Inventory System.”
This question from Ito seems to be a common mistake about Just In Time. Just In Time is not a zero inventory system. Sometimes I face the same criticism with a wrong understanding. I always explain that inside the standardized work, which is the foundation of TPS, one crucial element is the standard in-process stock. We define the stock based on logic and visualize it on the shop floor. Any deviation is the subject of problem-solving. Lack of standards and logic is the biggest issue.
By the way, journalist Mito claims that Ohno decided to write “Toyota Production System” when he learned that educated managers such as Ito miss understood “Just In Time.”
Ito; “Then, in many cases, we need to keep on average three months’ worth of inventory.”
Ohno; “I don’t think there is a value with that number. Products that are selling well will have almost zero inventory. On the other hand, you probably have six months or more low-sales products.”
Ito; “You are exactly right.”
These conversations highlight the danger of this average. Average is conveniently used but dangerous. It hides stockout and obsolete inventories. We need to pay attention to each incident to ensure the root cause is understood. If we spend too much attention on the average and try to solve the stockout, the common conclusion is to increase the average inventory level. This mistake applies to inventories and other KPIs such as output.
From here, the two talk about what is “Now.”
The answer to what is “now” is not clear. But the two agreed that understanding what is “now,” not past or future, is essential for business.
As we know that Ohno and TPS defined what needs to be produced now at each process. The production lead time was long, and in many cases, they were chasing the past. To fight against this problem, they leveled the orders and denied what needed to be produced. They attacked processes that did not have the flexibility to meet the market.
Ito and his business focused on the information of “now.” They invested in connecting daily sales information. From this information, they started to think differently. They start saying that what is important is not knowing about what sells well. The information about what sold well in the past is easy to gain. Just chasing such information might lead to keeping products with declining sales. They need to know when to stop selling products. Their resources, especially space, are limited. Keeping inventories of poor-selling products is deadly. The information they need is which products are not selling well and why.
It is interesting to read the conversation between retail and operation giants. The two saw the value of accomplishing “Just In Time.” Although the two worked in a completely different industry, the two focused on defining “now.” The two also understood the importance of stopping. What is more interesting is that the two had this motivation to learn from a completely different industry, like the “supermarket.”
Reference; Setsuo Mito, “Taiichi Ohno and Toyota Production System (2003)”