Just In Time Production 1️⃣ Equilibrium
”Just In Time”
As this Toyota Production system terminology gets popular, many misunderstand its philosophy. Just In Time is not just about taking out inventories.
To understand its philosophy, it’s better to understand the “market,” which is the core thinking of economics. The center of the market is the equilibrium, where the demand and supply match. The demand and supply are typically isolated by using inventories to chase separate efficiencies. Just In Time production is about the supply directly touching the equilibrium.
My coach starts its factory tour from the shipping area.
And typically, the shipping area is the messiest place in the company. You have many inventories just sitting there for years. Some defects are there, too. You will see a bunch of paper here and there. At the same time, some truck docks are open, while others are occupied with half-empty cargo. Then you hear people screaming, “Where is order XYZXYZ?” Despite all the mess, he stands there and watches the chaotic activities.
As I observed more with him, I learned he understood the current state and imagined the ideal one.
And to understand the ideal state, I started to compare that with the equilibrium of the market in economics since both Just In Time and the equilibrium are very similar.
Equilibrium. The core thinking of modern economics. In the market economy, supply and demand meet at a point where the price and quantity match. They call it “God’s invisible hand.” The brilliant economist will discuss whether that exists or how we can shift that point.
Instead, the Toyota Production System asked, “Let’s pretend it exists and how it should look in the real world.”
Just In Time Production is defined by Taiichi Ohno as “Producing what is necessary when it is necessary for the necessary quantity.”
When I compare the two philosophies in detail, there are similarities and differences.
Ohno does not touch price in his Just in Time definition. But in different chapters, he describes price as something the market defines. As the supplier to the market, they are responsible for reducing the cost to profit from the given price.
2️⃣ Quantity and Types
Economics talks about quantity without product types. But the total amount will not match if our product types don’t match. We should assume that both philosophies are the same.
Timing is something that appears outside the economics graph. But we know that the equilibrium shifts over time. Adding the third dimension to the traditional supply and demand curve may make things look similar.
These are philosophical similarities between the two. In theory, the production line should produce precisely what the market needs. The product should be delivered to the customer as soon as it comes out of the line.
An important thing to note is that Just In Time production and Just In Time delivery are entirely different philosophies. Just In Time delivery can accomplish by keeping inventories. You ship what the customer wants at the time they want. There is no need to change the way you are producing. On the other hand, Just In Time production must produce according to the market needs. If the market needs changes, the supply side must change. When there is a gap between the production and the market, it is not Just In Time production.
Very often, businesses separate demand and supply curves. Sales and marketing only think about the demand curve. One example is the end-of-the-month incentives. It spikes the demand by dropping prices, but the supply chain can’t handle it. Operations will chase its efficiencies and distance the supply curve by keeping warehouses. Both sides are at maximum efficiency, but the business suffers from the high cost of maintaining the inventory and fixed cash.
In another way to describe, Just In Time production is the only and the best way to supply the changing market. You should have Just In Time production if your business serves the market. Theoretically, if you want to keep something other than Just In Time, you need to find a controlled economy, which is few. The only reason the old distanced system is still used is that the market competition is not intense. But that doesn’t mean it will remain that way. Somebody will innovate and change the way it supplies the market.
Starting the plant visit from the shipping area starts with imagining how to supply the equilibrium. How are we supplying now and in the future? A leader should be able to “see” it in the shipping area. By imagining how it should be, you start walking the production line to understand the bottlenecks or the challenges that need to improve to become Just In Time production.