When I teach the core operations management course, I tell my students that if they read a book that summarizes lean operations as an inventory reduction “method”, they should throw it right away. So I guess I should cancel my Wall Street subscription based on the following statement from a recent article (“Gadget Appetite Strains Suppliers”):
Companies like Apple and Nissan are seeing the drawbacks of lean manufacturing methods, which call for carrying little inventory but make supply snags tougher to offset.
First, it is important to understand that lean manufacturing is a method that calls for waste reduction and continuous improvement as a way to reduce cost, while improving quality and efficiency. While excessive inventory is clearly wasteful, lean does not require complete inventory elimination. Furthermore, the hallmark of lean is the gradual improvement through which waste is eliminated slowly allowing the organization to adjust to the new situation (for example, meeting deadlines with less inventory). Even Toyota, when lean was developed, has quite a bit of inventory in multiple places in the supply chain. If firms decide to reduce inventory as a way to slash costs even when it is clear that they don’t have the capability to handle demand without sufficient levels of inventory – one can blame the firms for failing to understand the foundations of lean, but one cannot blame the method itself.
Another issue I have with the article is that I am not sure Apple ever implemented or planned to implement lean. Steve Jobs’ “Management By Chaos” does not lend itself to the methods and processes required for lean implementations. Again, while Apple (and members of their supply chain) may want to reduce their inventory- I am not sure one has to equate it with lean. Of course – it is possible that their suppliers decided to become lean, but the article is too vague regarding these issues.
So, what are the causes for these shortages? The article offers two possible explanations. One is related to the inability to ramp up production coming out of the recession:
It’s extremely difficult for the suppliers to ramp up capacity suddenly, especially after a period when many firms slashed capital spending,” said Masatsune Yamaji, a senior research analyst at Gartner Research.
The second reason is related to capacity scarcity for a products based on new technologies:
Still, Apple has been unable to meet demand for its iPad, which went on sale in April, or its new iPhone 4. Although the company has long-term contracts with major suppliers, analysts point to shortages of the gadgets’ specialized touch displays.
Both are plausible and common reasons and both are unrelated to lean.