Automakers to Reconsider Just-in-Time Manufacturing

The automotive industry has been one of the largest adopters of the just-in-time (JIT) production system, but its popularity is being reconsidered due to continued shutdowns globally as a result of the system’s vulnerability to supplier’s timely delivery, which is facing diverse challenges across different markets.

JIT production, one of the most popular trends adopted by automotive manufacturers worldwide, has been key to the optimization of lean manufacturing in which time, labor and materials are optimized by only producing goods as they are needed. This leads to a streamlined production system with minimal on-site raw material, minimal wait times and small batch sizes.

JIT was advantageous in the 1980s when Japanese automakers such as Toyota and Honda beat out competitors in the US market thanks to this system. In smaller auto manufacturing plants, parts would arrive moments before they would be needed for production. Beyond providing savings by reducing the necessary amount of warehousing space, it allowed for defects in inventory to be found immediately so only a smaller number of defective parts would need to be replaced.

Plants in the US, and later worldwide, began to adapt JIT as their manufacturing models were fragmented to follow its three main processes: auto-parts manufacturing, part distribution and car assembling. In Mexico, this led to the rise of subcontracting in auto manufacturing, discarding subcontracted workers from their Federal Labor Law entitlements such as social security contributions. A bill prohibiting subcontracting was published in April 2021, but an open-ended exception for subcontracting in specialized services has allowed automotive companies in the region to continue subcontracting to maintain JIT manufacturing.

Subcontracted workers are not the sole opposers of JIT in the industry. Auto manufacturers have long been aware of how vulnerable suppliers delivering on time were to different accidents that have the power to cut off supply chains and halt plant production. These incidents have only increased during the past two years. COVID-19 shutting down plants, the ongoing shortage of semiconductors, the Canadian logistics worker blockade and the Russian invasion of Ukraine have all caused shut downs to be so common that auto manufacturers worldwide now wonder if JIT continues to be the most effective production system.

Earlier this month, Toyota had to shut down production in 14 different plants across Japan as its  components supplier Kojima Industries faced a cyberattack that led to a five percent drop in Toyota’s monthly production. Without in-house inventory and due to a reliance to timely deliveries, plants continue to shut down globally as supplies are not delivered. Volkswagen and Mazda have had to halt production in Mexican plants due to a lack of semiconductors. AMIA’s Director Fausto Cuevas expects halts to continue in the country for the foreseeable future.

Industry experts, such as Willy Shih, manufacturing professor of Harvard Business School, believe JIT is not likely to go away entirely but rather be modified to keep more inventory in-house. Parts production will also be brought back. Regarding semiconductors, manufacturers are looking to engineer flexible design models in which different chips could be used for manufacturing.