August 2010
The Wall Street Journal, quoting a Gartner Research analyst, recently reported that Nissan lost production because of lean. The article said that “Nissan Motor Co. had to close four of its five Japanese assembly plants, costing 15,000 units of lost production, and two plants in the U.S., with an undetermined loss of production, because of lean process methods. Each of the six plants was closed for at least three days.”
It seems the problem was that Nissan ramped up production faster than key suppliers could increase shipment of critical parts. That clearly illustrates the challenge and the risk of a lean operation or a lean supply chain.
In a non-lean environment (let’s call it “fat” to save space in the balance of this discussion), companies buffer for uncertainty or disruption with extra inventory. In a lean supply chain, they strive to reduce the effects of uncertainty and disruption with information.
In the fat supply chain, rising auto production puts higher demand on suppliers. Suppliers see that increase and ramp up their own production (and purchases) accordingly. During the ramp-up period, the auto producer will draw on the supply of inventory in the pipeline to keep producing cars while the supplier catches up and eventually replenishes the pipeline inventory.
In the lean supply chain, there is much less of this buffer inventory so the auto company can quickly exhaust any extra parts that may be available and then be dependent solely on the supplier’s ability to produce.
In theory, the supplier would know about the increase in production sooner (through collaboration and better communications) so there would be less of a lag between auto company ramp-up and supplier ramp-up. It doesn’t always work as well as we would like.
The trade-off is a simple cost – benefit relationship. The benefit of lean is lower cost (primarily lower inventory but also less waste in all resource areas), better agility (quicker reaction time). The cost is the kind of risk we see in this example; the buffers aren’t there to protect you when things change more (or faster) than you can accommodate.
Lean operation is essential for survival in today’s competitive global markets. But be aware of the costs (risks) in a lean approach. A well designed and well managed supply chain will be flexible and agile. Change is to be expected, and success lies in how well the supply chain can accommodate change and minimize disruption.