A few days after the lifting of a blockade at the Canadian border, the auto industry faces a serious dilemma.
Over the past three decades, manufacturers have embraced lean manufacturing. Largely drawn from Toyota’s production system, the complex strategy relies heavily on things like automation and other labor-saving steps. But the centerpiece is a system known as “just-in-time” or “JIT” production, which has dramatically reduced the amount of inventory held at auto factories. It turns out that this approach is extremely vulnerable to disruptions that can quickly shut down plants.
While no other industry has become more dependent on JIT production, it has also become a way of life for everything from agriculture to aerospace to consumer electronics, and it is partly responsible supply chain disruptions and inflation that the industry has battled. the last two years.
“The current generation of auto leaders have learned from Toyota’s production system, focusing on cash out of inventory,” said Joe Hinrichs, who retired as global head of automotive operations from Toyota. Ford Motor Co. in 2020.
“Now with everything that’s happened, including Covid, the semiconductor shortage, geopolitical risks and other events,” he said, there are growing concerns that manufacturing in fairer – JIT production, in particular – no longer works.
The first innovators
When Japanese automakers made their massive entry into the US market in the early 1980s, they had major advantages over their Detroit competitors because they used JIT production. Their vehicles tended to be more fuel efficient and were found to offer much better quality, according to David Cole, director emeritus of the Center for Automotive Research in Ann Arbor, Michigan.
But big brands, like Toyota, could also produce a vehicle for thousands of dollars less than their American rivals. And it wasn’t just because Japanese labor was cheaper or they used robots – as they proved when they started opening assembly lines in the United States.
Plants like the one Honda set up in Marysville, Ohio, which was the first Japanese-owned assembly plant, had virtually no warehouse space. Parts typically arrived from suppliers an hour or less before they were needed on the line. In some cases, these parts were lined up in exactly the same order as they would be needed.
This means factories can be smaller and cheaper to build and maintain. And the industry as a whole has billions of dollars less of capital tied up in inventory. Meanwhile, if a defect is discovered, there are fewer defective parts to replace or repair, explained Willy Shih, professor of manufacturing at Harvard Business School.
“You catch problems earlier, before you have a train of bad parts to deal with,” he said in a phone interview.
Until recently, JIT and lean manufacturing seemed like the most efficient way to produce goods since Henry Ford enabled the first moving assembly line in 1913, according to Hinrichs.
Of course, there were occasional problems. More often than not, severe storms could disrupt the flow of trucks that regularly drive to assembly plant loading docks. A fire at a supplier’s factory could wreak havoc – as happened in 2018 when Ford was left without the magnesium crossbars needed for its F-150 pickups. Following the 2011 tsunami that devastated northern Japan, the industry found it relied on a single supplier from that region to supply the black pigment needed for automotive paint.
But the pros far outweigh the cons.
Recently, several of these unpredictable “Black Swan” events have occurred, Cole noted. With climate change becoming increasingly apparent, the supply chain has been repeatedly disrupted by blizzards, hurricanes and tornadoes.
Then came Covid-19. The pandemic led to a three-month shutdown of North American auto manufacturing in the spring of 2020. Even when automakers and suppliers were allowed to restart, they faced setbacks. Even now, disease-related labor shortages continue to be a headache. The pandemic, meanwhile, has led to an ongoing shortage of critical semiconductor chips that in recent weeks alone has forced Toyota, Ford, GM and others to cut production.
According to Detroit consultancy AlixPartners, automakers lost $210 billion in revenue in 2021 due to semiconductor-related shortages alone, which will continue to hurt balance sheets this year.
Add to that the impact of trade wars ordered by Trump and the possibility of global economic chaos if Russia decides to invade Ukraine. And the geopolitical problems are not necessarily just on the other side of the globe, as this month’s border blockade demonstrated.
“Everyone has problems,” Cole said, warning that JIT production “maybe needs a rethink.”
Several top industry executives, including Ford CEO Jim Farley, have warned that the auto manufacturing system faces serious challenges. Most, however, declined to discuss the topic on record, citing “competitive” concerns.
The only automaker to answer questions directly is Toyota, which said last week it had cut its global production forecast for the current quarter by nearly 500,000 vehicles due to semiconductor shortages. Toyota is still analyzing the impact of the blockade of Canadian truckers which briefly affected two US plants and three others in Ontario, the latter plants rolling out some of the company’s most popular models, the Toyota RAV4 and Lexus RX.
“Due to a number of supply chain, weather and COVID-related issues, Toyota continues to face production-affecting shortages at our North American plants,” the automaker said in a statement. release this week.
Separately, Toyota spokesman Ed Hellwig added in an email: “In the spirit of kaizen (the Japanese concept of continuous improvement), we are continually reviewing our production processes to find performance gains. ‘efficiency. Maintaining a resilient and efficient supply chain is an essential part of these processes.
But even with the growing number of problems plaguing the automotive industry, there may not be a feasible alternative to JIT methods.
“Is JIT going to disappear? I don’t think so,” said Dan Hearsch, general manager of automotive and industrial practice at AlixPartners. “It will change.”
Experts like Hearsch and Shih, the Harvard Business School professor, agreed that several big changes could include keeping more inventory at auto plants in the future and bringing parts production back in-house. Hearsch added that the industry is even exploring 3D printing technologies that could be programmed to deliver any part needed without the need for expensive tooling.
Automakers are also looking for ways to design vehicles more flexibly. If the preferred semiconductor isn’t available, for example, they could switch to a different chip and simply modify the vehicle’s software, according to Hearsch.
In the meantime, Hinrichs thinks automakers and other industries will have to find a way to shore it up, or else the production disruptions we’ve seen in recent months could become increasingly common.
What is clear, experts agreed, is that the automotive industry has encountered a range of issues that raise critical concerns about lean manufacturing in general and the JIT production system in particular. But they are far from ready to cancel it.
JIT “is the best system there is,” Hinrichs said, although it’s not perfect. But he said there was no doubt the industry had been given clear warning that the system needed some fixing. Otherwise, he said the production disruptions we’ve seen — and the shortages they’re causing on dealer lots — “will become more frequent.”