Just-In-Time: A Cautionary Tale

At Product Camp Boston, Alan Armstrong encouraged anyone who hasn’t read “The Goal” to read it right afterwards.

This brought back fond memories.  I read the book in the late eighties.   It also brought back one unhappy memory from the mid nineties.

I was with a startup at the time. Just-In-Time Manufacturing was quite the fad.  The head of manufacturing at my company decided to implement JIT by the book.  The goal was to minimize inventory.  No more stockpiling of components or finished goods!  Think of all the capital we would be freeing up from the inventory!

Lo and behold, inventory was minimized. The balance sheet looked fantabulous. What incredible efficiency!  We were nearly as lean as Toyota!

Weeeeell… this worked as long as the components all passed incoming quality control (IQC).  There came a day when one key component flunked IQC.  We suddenly had 100% failure of all samples tested on this component.

PANDEMONIUM!

After a few all-nighters, we finally realized from our root cause analysis that something had gone south in the supplier’s manufacturing process.  As that was a single sourced component, we were stuck.

The supplier bent over backwards to mitigate this. However, this took time.  It was a good 4 weeks before we received parts that were in spec again.

Meanwhile, we depleted our finished goods inventory.  We had to shut down our own manufacturing line until we received good components again.   We ended up losing a couple of deals due to inability to fulfil them in time, not to mention the cost of lost productivity on our line.

The moral of the story: JIT is not to be applied naively. The general principle makes perfect sense but flexibility is key in its application.

In the case of my startup, we eventually evolved to a system where we stockpiled high risk components that had a history of quality fluctuations, while going light on purchasing commodity items.  Inventory levels were not as spectacularly low, but we never had to shut down our line again.

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