US automakers try a Japanese inventory system
Just-in-time production, a manufacturing system that holds parts inventories to as low a level as possible, is widely used in Japan to reduce production costs on automobiles and other products.
Now the US auto companies are attempting to incorporate just-in-time--or Kanban, as the Japanese call it--into their manufacturing systems. There are conflicting views on the value of the concept for the US manufacturers, and it appears that any gains from it will be slow in coming.
Strictly speaking, Kanban is a form of just-in-time manufacturing in which a workman holds up a card, or Kanban, to signal that his container of parts is used up and he needs a new supply.
A supplier representative sees the flashing card and rushes up with a new carton of parts which he trades for the Kanban.
Thus, the carmaker has practically no inventory of parts. In other words, the supplier maintains the inventory. However, the supplier's supplier performs the same function for him so that the net result is economical production.
At Toyota, where the just-in-time system originated more than 20 years ago, Kanban works especially well because a majority of its suppliers are located within 60 miles of the assembly plants.
Indeed, all the Japanese manufacturers benefit from the fact that their operations are clustered in a rather narrow strip of the nation.
Both General Motors and Ford Motor Company have studied the Kanban system intensely and now have experiments under way to see how much of it they can incorporate into their own operations.
This system of inventory control is especially attractive now because of the high cost of money. It has been estimated that it now costs a US manufacturer 25 cents for every $1 worth of inventory it carries a year.
Just-in-time is also appealing because it has a potential for producing better-quality cars. The system has been likened to a river whose flow has been substantially reduced. The boulders (or problems) then become more visible. Another plus is that Kanban immediately focuses the attention of management and the involved employees on any problem. Otherwise, the production line would be shut down indefinitely.
Robert Stone, GM's vice-president of material management, estimates that his company has about $9 billion tied up in various inventories at any one time.
GM is prepared to set up experimental just-in-time systems for several Midwest assembly plants, as well as at the assembly plants in Linden, N.J., and Tarrytown, N.Y. Stone estimates that the system used in plants outside Michigan could save the company $100 million over five years.
An important requirement for just-in-time is that the suppliers be very reliable producers of high-quality parts. Partly for this reason, GM now is signing multiyear contracts with some suppliers.
Stone notes that GM has about 3,500 suppliers while a typical Japanese plant has no more than 200. According to Stone, GM hopes to enourage some suppliers to locate near its plants in the future. It also expects to reduce the number of its suppliers by half over the next five years.
Several groups inside Ford Motor Company now are conducting just-in-time test programs. Typically, Ford body and assembly operations is involved with 13 suppliers in a test program to supply eight assembly plants located in the Detroit, Cleveland, Chicago, and Toronto areas.
Called a daily material requirement system (DMRS), it is based on sending daily messages by computer as to the exact number and kind of chassis, axles, springs, wheels, air-conditioning compressors, lamps, and sheet metal that will be needed three days ahead.
Whether these components will be needed at 8 a.m. or 4 p.m. also is specified. All the parts are trucked to the plants, some from as far as 300 miles away.
Although just-in-time and variations of it are difficult to incorporate into existing manufacturing systems, the results are encouraging to Ford body and assembly operations. It's expected that the system will be extended to other plants and suppliers as the opportunity arises.
A number of factors tend to slow down the incorporation of a new system into American production lines. One is that the American auto-manufacturing complex is much more sprawling than the Japanese auto industry.
Just-in-time also calls for much more teamwork among workers than they normally exhibit.