Toyota: A Case Against Just-In-Time

Toyota, the world's currently top auto maker, has stated that due to the massive disaster in Japan which has resulted in parts shortages, that their global car production won't return to normal until the end of the year (November or December).  Due to these parts shortages and Japan's problems with keeping the lights on, all their factories are running at half-capacity, and in some, even worse. 

In a way, this might be a preview of things to come for many companies.  Obviously, it likely won't be due to such natural disasters such as the one that's inflicted so much pain and suffering in Japan.  But anyway, I am getting ahead of myself.  First, let me explain what "just-in-time" means.

Just-in-time (JIT) is a business strategy in the means of production, that is supposed to reduce onsite inventory and thus save on carrying costs.  In order for JIT to work, there must be quick notification from one person/group to another that a certain stock in their inventory is either low or totally gone, so that a new supply of the stock can be ordered.  This saves on warehouse space and leaves more space for other things.  Although there is much more to it than that (Wikipedia's page is very good, IMO), what I just told you is the general gist of JIT.  

Ironically enough, Toyota is known as the pioneer of the JIT system.  Which it now seems to be a hostage to.  But many, many companies use it, including mine (a big-box chain of stores).   Although there are many upsides to such a system, one of the flaws of the JIT philosophy/strategy is that there's an unspoken assumption that things will always run smoothly.  That there can never really be a breakdown, somewhere down the line, in the vast supply chain that gets these things from where our natural resources come from, to where they're processed and manufactured, and to where they are sold (of course, this is a very simplified view of a supply chain).  Japan is just one event that could throw this strategy on its head, and maybe Toyota is learning something now.  But then, maybe not. 

Which brings us to the future.  As our new oil crisis plays out (okay, not exactly a "crisis" but it's getting there) as a result of global production peak and the rapidly decaying value of the U.S. dollar (among other things), this can pose a serious challenge to JIT.  Companies may end up having to pay more for what they order (in contrast to just storing it), as a result of the higher fuel prices (as these rise, many trucking companies put an additional fuel surcharge on the delivery bill) and the higher prices of the items that are being delivered themselves.  And this is assuming that this doesn't play out into supply disruptions of oil, where even if money is no object, you still can't get the gas for the truck to deliver its goods.  Of course, this would put any company, no matter how prosperous, in a serious bind.  By then, corporations may not be merely questioning their delivery strategies, but struggling for their very survival.