The Toyota Production System (TPS) and lean started 70 years ago. Lean has evolved, but not significantly. The business environment has changed a lot with digital technology playing a role that none of the architects of TPS could have anticipated. In this article, I’ll be making the case for an update to how lean is structured and practiced.
Just In Time predates TPS: it was conceived by Kiichiro Toyoda in 1936–i.e., before Toyota Motor Company was founded. While Jidoka (built-in quality) is just as important as JIT in the current form of TPS, I believe Just In Time is the true North Star of lean.
Back when TPS was developed, Just In Time was not feasible for two important production factors: labor and assets. Heijunka (production leveling) was the main countermeasure to these limitations. Heijunka has so often been presented as a foundational element of the TPS house that it is unquestioned dogma. Today, however, JIT is possible for labor and assets and leveling should become a thing of the past. This is what we can call “Full JIT”, and companies that adopt it will see effects as powerful as those that came with the original JIT.
What has changed is the near complete elimination of transactional costs with digital marketplaces. In “The Nature of the Firm”, Ronald Coase concluded that firms grow so long as it is more effective for them to accomplish transactions internally rather than through the market. This theoretical underpinning is key to understanding what’s happening today with digital manufacturing. But in Coase’s days and until recently it was a devil’s bargain: lower costs in exchange for higher rigidity. Now, however, digital marketplaces have changed the equation in favor of markets and flexibility.
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With B2B marketplaces offering on-demand resources, leveling is no longer needed. This doesn’t mean companies should forget about SMED or heijunka boxes. Indeed, we should differentiate between leveling and smoothing: leveling is the artificial setting of uniform daily workloads—we should abandon it. Smoothing is the pursuit of batch size 1 and the “spreading out” of parts production to ensure a smooth demand and supply of parts and components throughout the value stream at the scale of a single day or shift—we should pursue this. Said another way, leveling requires higher inventories, whereas smoothing enables lower inventories.
I anticipate four big things will happen when businesses start moving to “Full JIT” and into the next generation of manufacturing:
- A tremendous leap in productivity and ROA with a corresponding reduction in lead time
- The Amazon effect will make companies that successfully manage this change very successful while driving their slower competitors out of business
- The successful companies will not become smaller as Coase predicts. They’ll become more value-intensive as they get rid of non-value adding business functions like HR and FP&A and use their ability to rapidly seize on new customer needs to expand their revenues.
- They will become more decentralized as Operations people regain more power.