Global shortages during pandemic reveal failings of Just in Time manufacturing
In the story of how the modern world was constructed, Toyota stands out as the mastermind of a monumental advance in industrial efficiency. The Japanese automaker pioneered so-called Just In Time manufacturing, in which parts are delivered to factories right as they are required, minimizing the need to stockpile them.
The most prominent manifestation of too much reliance on Just in Time is found in the very industry that invented it: Automakers have been crippled by a shortage of computer chips — vital car components produced mostly in Asia. Without enough chips on hand, auto factories from India to the United States to Brazil have been forced to halt assembly lines.
“It’s the investments that they don’t make,” said William Lazonick, an economist at the University of Massachusetts. Winter storms that shut down petrochemical plants in the Gulf of Mexico have left key products in short supply. Andrew Romano, who runs sales at a chemical company outside Philadelphia, has grown accustomed to telling customers they must wait on their orders.Dramatic increases in demand made pet food scarce and Grape-Nuts cereal all but disappear from American store shelves for a time.
Densely populated and lacking in natural resources, Japan sought to conserve land and limit waste. Toyota eschewed warehousing, while choreographing production with suppliers to ensure that parts arrived when needed. “We went way too far,” Alicke said. “The way that inventory is evaluated will change after the crisis.”
In the decade leading up to the pandemic, American companies spent more than $6 trillion to buy their own shares, roughly tripling their purchases, according to a study by the Bank for International Settlements. Companies in Japan, Britain, France, Canada and China increased their buybacks fourfold, though their purchases were a fraction of their American counterparts.
When the pandemic began, car manufacturers slashed orders for chips on the expectation that demand for cars would plunge. By the time they realized that demand was reviving, it was too late: Ramping up production of computer chips requires months. In normal times, the company is behind in filling perhaps 1% of its customers’ orders. On a recent morning, it could not complete a tenth of its orders because it was waiting for supplies to arrive.
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