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Just-in-time 2.0: lean manufacturing in times of volatility
For the past 40 years, manufacturers have been trying to live up to the just-in-time (JIT) method. While many would say they’re effectively implementing the lean manufacturing principles, the vast majority are still carrying too much inventory and too much risk.
It’s taken a pandemic to bring this to light and prompt manufacturers to think about alternative approaches to resilience. But very few would want to go back to just-in-case (JIC) manufacturing and the large inventories it requires. So, how can a highly complex business become more resilient without ending up with “excess and obsolete” inventory? The answer steers us back to JIT.
The original rationale for JIT is just as relevant as it was over four decades ago. Reducing the risk of obsolescence (especially in fast-moving industries), and avoiding waste in storage and inventory management has never been so critical. But what’s changed is the mechanism to deliver JIT. And a new version that delivers far superior performance not only exists, it’s also been de-risked more than you’d think.
What is JIT 2.0?
JIT doesn’t work anymore because it relies on steady supply and accurate demand forecasts. Restoring supply chain stability is impossible, at least for the time being. But skewed demand forecasts can be accurate, again, even with current levels of demand volatility. They simply need to be upgraded with the latest advances in artificial intelligence (AI) and machine learning (ML):
First, high-quality algorithms generate more accurate, more granular and more robust demand forecasts, and run at a weekly cadence. Second, advanced machine learning models surface uncertainty and allow you to incorporate expert knowledge into forecasts, making for more trustworthy predictions. This technology can even automate decisions, but it surfaces deeper insights for the most complex ones so you can combine machine and human intelligence for optimal decision-making.
Taken together, these technologies can deliver a demand forecasting capability that doesn’t just tell leaders what’s likely to happen, but why and what they can do about it. With more informed, faster decision-making, manufacturers can stick to JIT’s original focus on lean planning and augment it with renewed agility in operations. JIT 2.0 is, therefore, a lean manufacturing approach designed to handle today’s demand volatility.
While improved forecasts and enhanced agility sound like the benefits of an exclusive technology, JIT 2.0 isn’t reserved for a select few. Any business should be looking to return to the ideals of low-waste production and low-cost inventory – especially those at the extreme ends of the profit spectrum.
Just-In-Time 2.0 for cost-focussed businesses
In these uncertain times, most businesses are relying on ad hoc measures to ease their financial crisis. But when these inevitably stop working, there’s always the temptation to make sweeping cost cuts. These measures aren’t sustainable. What they need is a combination of tactical and strategic thinking to accelerate time-to-value. JIT 2.0 can achieve this by rapidly freeing-up cash flow and cutting costs through improved planning, and then enabling leaders to explore growth opportunities.
- Free-up cash flow immediately through inventory management
Inventory reduction is the most common way to address liquidity. You could discontinue products, but this can result in lost sales and is slow to generate impact due to existing contracts. But with JIT 2.0, you can link demand and supply planning more tightly, moving from monthly to weekly planning. This will generate immediate, substantial gains across your product portfolio. This approach can also be highly tailored. For example: your supply planners can set realistic constraints at a very granular level to take into account site-specific factors like the availability of raw materials, or even the placement of individual machines.
- Drive cost reduction through improved sourcing
Most large businesses fully or partially outsource production. But its low costs are under scrutiny as the incentives for localisation depend on macro and geo-political reasons. Using a JIT 2.0 approach, however, businesses can de-risk their product portfolio and make the right decision when it comes to make-or-buy. Better forecasts enable you to meet customer requirements on-time and in-full. So, you can place the right orders at the right time, be it from providers of raw materials, components or logistics, or from third party suppliers. This is a key enabler for consolidating supplier relationships, and leads to significant cost savings and process simplification.
- Manage cost overruns through strategic planning
Over the last 18 months, businesses have struggled to source everything, from semiconductors to wooden pallets. As a result, many manufacturers have reduced production capacity, leading to a severe impact on their bottom line. What JIT 2.0 can do is help you pursue a high-margin growth strategy much more consistently by optimising decisions across the supply chain. During the 2021 shortage of semiconductors, for instance, many automakers made the mistake of diverting supplies towards high-margin models. But this strategic decision has a follow-on impact on decisions along the supply chain. The ability to optimise those decisions (like logistics and distribution) at-pace and with confidence is critical to meeting commercial targets.
Just-In-Time 2.0 for growth-focussed businesses
The pandemic hasn’t been disastrous for all businesses. For some, living and working patterns shifted in their favour; for others, the pandemic failed to scupper their strong performance. But what they need to reckon with now is sustainability – how long will this demand last? Instead of burning through cash to acquire new customers, they should be investing in the right strategic priority accounts. JIT 2.0 allows them to do this by pinpointing customer needs more precisely to maximise revenue and enabling them to meet growing demand.
- Expand existing accounts by improving service levels
If you want to grow, delighting your existing customers is the most obvious solution. But when it comes to highly volatile demand, predicting and satisfying it isn’t so easy. Under JIT 2.0, businesses can use a range of leading indicators to generate forecasts at the right cadence – be it minutes, weeks or months. They can make best use of whatever data they have, no matter how patchy or noisy, and build in expert knowledge (like sales conversations or a competitor in crisis). This results in a measurable improvement in service levels whilst controlling working capital outlays.
- Make the most of acquisitions through strategic planning
Following record levels of deal activity in 2021, the outlook for this year remains strong. Sectors like industrial manufacturing and automotive, in particular, have seen a surge in private equity deals. JIT 2.0 can help get the most out of mergers and acquisitions by enabling leaders to finesse optimal production plans. Precise demand signals can help make under-utilised assets more productive and support a more controlled expansion of specialist production capacity. This enables businesses to be fast-movers in industries with long lead times, without incurring the excess costs of being too early.
- Nurture new growth areas through cross-functional prioritisation
Growth-focussed businesses are always on the look-out for strategic opportunities to refine their competitive advantage. It could be launching a new product line, expanding into a new territory or developing another, value-added commercial offering. But thanks to JIT 2.0, businesses can rapidly align inter-linked decisions to capture new revenue. Once an opportunity has been identified, the full workforce – including sales, planning and production teams – can sync together to realise growth potential at pace. And if demand is weaker than anticipated, more accurate forecasts can flag this to management early.
Are we running out-of-time?
Moving from JIT to JIT 2.0 isn’t a quick, nor a simple shift. But at the same time, it doesn’t need to be done all at once. Using the ideas outlined above, are there any areas of your supply chain process that could benefit from the AI-driven approach of JIT 2.0? By starting with a contained use case – like demand planning or production planning – you can immediately begin to benefit from the advantages AI can unlock.
To find out more about using AI and a JIT 2.0 approach to manufacturing, get in touch with our team.
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