Wednesday, September 18, 2013

The Counterpoint to Dell's Resilience

Toyota, long the bastion of lean manufacturing and the emblem of the value of an ultra-efficient supply chain, is ironically the perfect counter-point to Dell.****  Both companies pride themselves on their lean production processes.  However, while he latter responded admirably to a shock to its supply chain, the former found itself hamstrung by the very practices it popularized.

In 2010, Toyota discovered a defect in its gas pedals.  Specifically, the pedals would stick when pressed.  The impact of this defect was exacerbated by two hallmarks of the “Toyota Way”: the standardization of parts and the procurement of parts in large batches produced by few suppliers.   Under normal circumstances, these practices conferred upon Toyota considerable economies of scale.  The standardization of parts allows Toyota to buy tens of thousands of a given part and install them in everything from Lexus’s to Camry’s.    Toyota’s procurement strategy allows them to reap huge quantity discounts.  In this instance, however, these strategies forced Toyota to “halt sales of more than half of its U.S. models.”****

Dell’s shock and Toyota’s shock were fundamentally very different.  However, the impact each shock had its on its company was determined more by the respective company’s response than by the nature of the shock.  Dell determined that the labor strike was inevitable and planned accordingly.  Toyota, on the other hand, was caught with its pants down.  While Toyota could not predict which parts will be faulty and when; they could subject their parts to more rigorous quality control.  Such testing would not dodge the issue of defective parts, but it would afford Toyota a softer landing.

In general, lean manufacturing requires a company to have a variety of contingency plans.  Are there industries in which the cost of implementing such contingency plans outweighs the benefits of a lean production process?

" How Lean Manufacturing Can Backfire."  Wakabayashi, Daisuke.  Wall Street Journal.  January 30, 2010.

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