THE IMPACT OF WORLD-CLASS MANUFACTURING PRACTICES ON SMALL MANUFACTURERS - by
David K. Johnson

Continuous Improvement Through Inventory Reduction

One of the most important potential benefits of JIT is the ability to discover and eliminate waste. As will be seen in the simple analogy below, inventory often covers up waste making it difficult to identify its source. Since JIT principles require a reduction in inventory many of the previously invisible problems become drastically apparent. To illustrate how JIT can be used as a continuous improvement tool inventory is often compared to water in a lake, which conceals the obstructions underneath it. When the lake is deep (large inventories) the obstructions (waste) on the bottom of the lake are hidden, making it impossible to identify and remove them. What JIT does is lower the amount of water (inventory) in the lake, making it possible to identify the cause of waste and eliminate it at the source. Once a company has reduced its inventory they can dredge the lake bottom to remove the obstructions thus increasing the overall capabilities of their operations. , , & By identifying the obstructions and then eliminating them, the Japanese in the 1970s and 1980s were able to improve the efficiency of their manufacturing operations and gain a strategic advantage over their US competitors.

JIT can be devastating if implemented incorrectly or for the wrong reasons. As you can easily see from the analogy, a “me too” implementation of JIT with the goal of reducing inventory (water) to free up cash can easily result in the entire company running aground. For this reason the increased cash flow that results from reducing inventory should be seen as an added benefit of JIT, and not the main motivation for its implementation. This “accounting perspective” of reducing inventory to free up cash has resulted in a move in terminology from JIT to lean manufacturing, which is essentially JIT with an emphasis on continuous improvement and the elimination of waste instead of inventory reduction. Or in other words, lean manufacturing is what JIT was originally intended to be.

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Copyright © 2005. David K. Johnson. All Rights Reserved.