Missing the Obvious

by BILL WADDELL

Imagine a five story building burning out of control, and some poor soul jumping from the roof in a desperate attempt to save his life, but missing the firemen's net, sadly meeting his demise.  Then imagine the newspaper reporting the event writing three pages of speculation as to why the guy committed suicide, never mentioning that the building was on fire.  Kinda misses the central point doesn't it?

That is what we have in the case of the New York Times writing a story about the implications of the tragic events in Japan under the headline, "Special Report – Disaster Shows Flaws in Just In Time".  They central theme of the article is, "In a globalized economy where manufacturers have moved ever more towards lean inventories and "just-in-time" production — keeping ultra-low quantities of parts on hand to avoid holding expensive stocks of parts — a speedy response was vital because a disruption to the global supply chain would spread quickly, shuttering plants employing legions of workers around the world."

Note the assumption – since the economy is globalized, JIT is a flawed idea.  That assumption is backed up by the august opinions of a couple of college professors, consultants, industry experts and procurement folks at Fortune 500 companies, so perhaps it is unfair to blame the reporters for assuming that professors and industry experts were knowledgeable.

Towards the end of the article, the GM operations honcho hits the nail on the head, saying, "Years ago you had a lot of stock lying around. The big change is that there's not all that inventory lying around anymore. It's far better not to have all that inventory"

The wisdom in those words should have been the clue that, perhaps the underlying assumption of the article was backwards.  Rather than 'Since the economy is globalized, JIT is a flawed idea', the gist of the article should have been, 'Since JIT is a good idea, globalized sourcing is a flawed idea'. 

The headline should have read, 'Disaster Shows Flaws in Chasing Cheaper labor', or 'Disaster Shows Flaws in Economy of Scale Thinking', or 'Disaster Shows Why Regional Manufacturing and Sourcing is a Real Good Idea'. Better yet, 'Accountants Get Burned Working Both Sides of the Street'.  They want the benefits of lean production their dysfunctional accounting systems can identify and the "five pennies per unit" the Northwestern professor suggests they are saving through globalization. 

There is no reason why "Japan produces 57 percent of the world's wafers and around 20 percent of its semiconductors."  There are no wafer trees indigenous to Japan that people go out and shake to make these parts.  Wafers and semiconductors can be made in the USA, Europe or Australia just as effectively if anyone put their mind to it.  The tragedy in Japan should have only impacted Japan, where a lack of semiconductors and disruptions in getting Priuses onto showroom floors would be about the least of their problems right now.

The debate over the merits and risks of sole sourcing misses the central point.  There is nothing wrong with sole sourcing – just sole sourcing with someone who thinks the only way to keep the cost down is to make everything in one giant factory in some corner of the world where labor is cheap and who thinks economy comes from making massive batches of things.

The guy who jumped off the building didn't commit suicide – the fire killed him.  And JIT isn't what's wrong with GM's supply chain – buying semiconductors form a semiconductor company called Texas Instruments that opted not to make semiconductors in Texas is the problem.