Supply Chain Risk: Kanban Won’t Cut It

Posted by: Rachael King on July 16, 2009

Today, Kevin O’Marah, chief strategy officer for Boston-based advisory firm AMR Research, is guest blogging. Here’s his post:

Somali pirates, oil prices on a roller coaster, and poison peanuts are typical of the new reality for global supply chains in these crazy, turbulent times. As businesses prepare for a new normal of hyper-volatility, the limits of the Japanese-inspired, low-tech, Lean philosophy are starting to show. The global supply chain in 2009 is a lot more than just a factory and a loading dock – today’s system of plants, distribution centers and retail outlets works more like a worldwide telecoms network than an assembly line. Add a hefty dose of supply chain risk to the mix and a tech-free Lean gospel just can’t hack it anymore.

The Limits of Lean: Why Technology Is Now a Must

Back in the 80’s and 90’s Toyota enthralled the manufacturing world with its almost magically simple approach to Lean production. A favorite legacy of the Toyota way was “kanban,” meaning literally “visual board.” This challenged our western love affair with technology by showing that simple signs or cards displayed in an assembly operation helped dramatically improve operational efficiency. No question this approach worked then, but Toyota’s first quarterly loss in 70 years suggests a need to rethink supply chain technology for even the best of us.

The new news is an exploding level of risk that supply chain people have to deal with. Surveys of supply chain professionals show just how far we’ve come from the simpler days of the Lean shop floor. In 2008, the biggest risks were transportation costs (especially oil) and surging commodity prices driven by huge Chinese demand. Dial forward one year and the Beijing Olympics are in the history books, oil has crashed from $140/bbl to about half that price, global credit completely collapsed sending unemployment up to double digits in many big economies. What goes up must come down, and faster than ever it seems.

2009 data shows supply failure at the top, and well up from last year. Commodity price volatility is still a top concern, but down a bit, indicating that supply chain people don’t necessarily like low commodity prices any more than high prices; they just want stability. Product quality failures, both internal and from suppliers, are well up over the year in a trend that looks to be independent of economic conditions (perhaps reflecting the challenge of ever-longer, more complex supply networks). And of course, dampened consumer spending threatens everyone.