Learning from History: Why Supply Chain Managers Shouldn’t Disregard the Lean Manufacturing Principle

The day before the twentieth anniversary of the 9/11 attack on the World Trade Center, Politico published “They Created Our Post-9/11 World. Here’s What They Think They Got Wrong.” In the closing sentence, U.S. Senator Joe Lieberman stated his “lesson learned” regarding America’s unpreparedness:

You’ve got to be careful not to always fight the last war.”[1]

That sentiment is undoubtedly true, but isn’t the reverse sentiment also true? Sometimes we move so quickly to fight the next war that we foolishly disregard the last one. Indeed, supply chain managers may be experiencing such a moment right now.

A Brief History

The field of supply chain management extends over much of human history. It was first practiced during the early developmental periods of agriculture, industry, trade, and military conquest. It later took great leaps forward during the periods of mercantilism and industrialization, and then entered the modern age during the transformation of the global economy after World War II.

Indeed, supply chain management was transformed with the implementation of lean manufacturing principles. First popularized in Japan by Toyota and other manufacturers, lean manufacturing engineers espoused the goals of zero lead times and zero inventory balances. They later developed business applications in other sectors, ranging from Zero-Based Budgeting processes to Zero Inbox email procedures.

Lean manufacturing proponents emphasize the benefits of running extremely sparse and slender systems that waste no resources, that only utilize what is required at the very moment that resources are needed, that demand full justification for every purchased item, and that maintain a continuous and smooth flow of materials and activities.

For decades, these appeared to be “no brainer” operating practices. Supply chain managers always presumed that they were common-sense principles …

… until the coronavirus struck and the climate changed.

Fighting the Next War

In March 2020, shortages ranging from computer chips to toilet paper began to plague the global economy. Suddenly lean manufacturing became the principle to blame! Why, asked critics, did we ever assume that shipments would always arrive on time? And why did we believe that employees would always report to their workplaces on a full-time schedule?

Consumers began to hoard face masks, toilet paper, and cans of soup. Corporations began to run short of electronics equipment, rare-earth minerals, and transportation vehicles. Indeed, for supply chain managers, inventory-on-hand appeared to evolve from a burden to a benefit. They began to perceive the “Next War” as one in which the primary risk was failing to move away from lean management principles.

Unfortunately, supply chain managers who share this perception are failing to learn from history. Toyota, for instance, never applied lean management principles to its entire supply chain. Instead, it only applied those techniques to the specific segments of its supply chain for which it was cost-effective to “run lean” on a risk-adjusted basis.

Toyota History

When Toyota first developed its Toyota City manufacturing hub, it offered as many local city locations to its suppliers as possible. The physical proximity of its raw material and industrial component suppliers reduced the risk of inventory shortages. Thus, if Toyota ran short of an important component, an employee could simply drive over to a nearby supplier for replacements.

However, the manufacturing hub only represented one segment of Toyota’s supply chain. Its automobiles still needed to be transported to Japanese ports, shipped to the United States, processed through Customs, and then sent to dealerships before they could be sold. At every step of this distribution process, Toyota stockpiled a reasonable amount of inventory.

Why? Because the risk of running out of vehicles was simply too high. A customer who couldn’t be served in a Toyota dealership could easily drive down the street to the Honda dealer. Conversely, when incomplete paperwork trapped vehicles in the U.S. Customs zone, Toyota administrators couldn’t simply drive down the street to a different Customs Office. In both cases, the risk of such events could be addressed by increasing vehicle inventories.

Pandemics, Hurricanes, and Wildfires

In today’s high risk business environment, incomplete Customs paperwork is clearly not the greatest worry facing supply chain managers. Pandemics, hurricanes, and wildfires are now far more likely to cause disruptions in the flow of manufacturing and distribution activities.

When such disruptions occur, it is easy to wrongfully conclude “I must avoid fighting the last war. Lean manufacturing had its day, but the world has changed. Supply chain experts cannot help me now, so I’ll simply build up excess supplies of inventory throughout my system.”

Why is that wrong? Because supply chain experts always knew that inventory stockpiles are desirable under certain circumstances. In other words, the last war never ended; only the battles — which now have names like Covid, Ida, and Caldor — are new.

It may seem odd to turn to your lean manufacturing supply chain experts for advice in a business environment where inventory must increase across the board. In truth, though, lean manufacturing experts have been practicing within this environment all along. Thus, supply chain managers shouldn’t disregard the lean manufacturing principle. Throughout the post World War II period, it has always been employed as a viable strategy at appropriate stages of the supply chain. That simple fact remains true today.


[1] See https://www.politico.com/news/magazine/2021/09/10/9-11-attacks-20th-anniversary-reassessing-20-years-of-war-506924.

Measuring Stakeholder Capitalism: Accountants Are Saving The Planet!

Five years ago, Jane-Gleeson White authored the whimsically titled book Six Capitals, or Can Accountants Save the Planet? Its sub-title was Rethinking Capitalism for the Twenty-first Century.

For obvious reasons, the book proved to be quite popular with the accounting crowd. And during the past five years, it also proved to be prescient about the global community’s flourishing debate regarding the impact of capitalism on social inequality, economic instability, and environmental degradation.

Last month, the World Economic Forum worked in collaboration with public accounting’s “Big Four” global firms to produce a White Paper entitled Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation. Under normal circumstances, one might expect such a White Paper to be filled with general platitudes and vague goals about moving “towards” more concrete standards over the long term.

Not this time. The White Paper is stunningly specific about a major obstacle that impedes our attempts to save the planet. Indeed, it presents a detailed solution.

What is the obstacle? It is the lack of a universal consensus around a single set of sustainability standards. The Paper creates such a set by synthesizing the frameworks and standards of five different voluntary bodies, while referring to the Sustainable Development Goals of a sixth body, the United Nations. Drawing upon these sources, the Paper defines 55 universal metrics and disclosures that can be utilized by all global organizations.

These are not 55 vague definitions. They are detailed technical standards that are designed to be measured within organizations and then reported to the public. In the White Paper, the World Economic Forum and the “Big Four” public accounting firms assert that:

By reporting on these recommended metrics in its mainstream report – and integrating them into governance, business strategy and performance management —a company demonstrates to its shareholders and stakeholders alike that it diligently weighs all pertinent risks and opportunities in running its business.

But beyond this, those corporations that align their goals to the long-term goals of society … are the most likely to create long-term sustainable value, while driving positive outcomes for business, the economy, society and the planet. This is the true definition of stakeholder capitalism.

Amen.

Water Use Reporting At Coca-Cola

The Verge, one of the online platforms of Vox Media, published an investigative story last week about the sustainability accounting practices of Coca-Cola. It raised a number of questions about the manner in which the firm reports on its water use in the production of its signature product.

For instance, the article noted that:

Coca-Cola claims that for every drop the company uses, it gives one back. But “every drop” includes only what goes into the bottle. The company does not count water in its supply chain — including the water-guzzling sugar crop — in its “every drop” math.

During the first two weeks of June, we are utilizing our Save The Blue Frog web site and case to support an intensive accounting course at Providence College in Providence, Rhode Island, USA. It is the capstone course for the graduate accounting program, entitled Strategic Management in a Global Business Environment.

Thus, for our course, the investigative story provides a well-timed example of the need to utilize standard industry metrics for the reporting of environmental, economic, and social outcomes. The capstone course is emphasizing the standards, frameworks, and metrics of the Global Reporting Initiative, the International Integrated Reporting Council, the Sustainability Accounting Standards Board, and the United Nations in its curriculum.

Many thanks to Barbara Sullivan-Watts, a Special Lecturer at Providence College who is teaching Environmental Biology at the institution, for bringing the Coca-Cola article to our attention.

Sustainability and Integrated Reporting

Are you worried about the future of the Sustainability Movement? Fear not! Our accountants are endeavoring to save the planet.

It may be reasonable to feel a little dubious about that statement. Nevertheless, author Jane Gleeson-White has written a best-selling book entitled Six Capitals: The Revolution Capitalism Has to Have — or Can Accountants Save the Planet?

She does not definitively answer that question in her text. However, she does explain that our accountants have many impressive allies who aren’t ordinarily associated with their profession.

For instance, HRH Charles, The Prince of Wales, is playing a key leadership role through The Prince’s Accounting for Sustainability Project. Gleeson-White credits the Prince for being a major impetus behind the global adoption of the Six Capitals model.

For the next two weeks, we will utilize our Save The Blue Frog web site and case to support an intensive accounting course at Providence College in Providence, Rhode Island, USA. It is the capstone course for the graduate accounting program, entitled Strategic Management in a Global Business Environment.

As the final course that students complete before graduation, the curriculum emphasizes the need to analyze global business problems in an integrated manner, and to recommend solutions in a persuasive context. May we agree that there is no better topic for achieving these goals than Sustainability?

You are welcome to use this link to review our materials. As always, we continue to welcome your comments, suggestions, and feedback.

If UPS’ Accountants Can Deliver Holiday Packages, Human Capital May Be More Flexible Than We Expected

Now that the dust is clearing on the blow-out holiday sales season that retailers enjoyed last month, tales are emerging about the extraordinary steps that their supply chain managers took to meet customer demand.

What tales? Consider, for instance, the global delivery firm UPS. It received so many packages in the days leading up to Christmas that it was forced to ask hundreds of its accountants, marketers, and other office workers to join their colleagues in sorting and delivering packages.

Some were actually met at the doors of their office buildings and told to go home, change clothes, and report to operations facilities. Others were instructed to deliver packages with their own automobiles.

Pretty unusual, huh? Even more noteworthy is that the office workers completed these tasks responsibly. Apparently, their lack of training and personal unfamiliarity with delivery tasks failed to impede their performance.

That raises a few interesting questions. If accountants and marketers were able to succeed at these operating tasks, is human capital more flexible than we expected? If so, is the principle of work specialization overblown? And if true, are we spending too much time, effort, and resources on specialty training, and not enough on cross-training?

After all, cross-training was the fundamental Human Resource Management philosophy for centuries before Henry Ford and others developed modern Operations Management theory during the early 1900s. Business managers previously believed that it made more sense for craftsmen to learn all of the functions of producing a product or service, instead of specializing in a single function or two.

We now live in an era when many long-accepted assumptions about workers are falling by the wayside. For instance, riders now trust part-time Uber drivers as much as they ever trusted part-time taxi drivers. And travelers now trust part-time Airbnb hosts as much as full-time hoteliers.

Indeed, the UPS experience may simply represent another case of Human Capital being more flexible than we ever expected. And that very flexibility may be the harbinger of a human labor revolution.

In Connecticut, Has Risk Management Gone Awry?

Connecticut has always been known as the Land of Steady Habits. Last week, however, it also became known as the Land of Miserably Unhappy Commuters.

That’s because the high voltage feeder cable that powers the New Haven (Connecticut) to Grand Central Terminal (New York City) commuter train line failed last week. Stranded passengers were told to expect little or no train service for up to three weeks.

So why is this a prime example of risk management gone awry? It appears that the Metro-North rail system has always maintained a secondary electrical system. But two weeks before the failure, engineers removed the secondary system from service for maintenance upgrade work without replacing it with any other temporary resource. Thus, when the primary feeder cable failed last week, there was no other system in place to power the train line.

Regrettably, Connecticut Governor Dan Malloy noted that Metro North officials appeared to have been taken by complete surprise. He said that “there appears to have been little plan(ning) for this type of catastrophic failure.”

The discipline of Enterprise Risk Management (ERM) embraces a few key principles. Organizations must identify potential crises before they occur. For crises that are relatively likely to occur, preventive controls must be implemented to reduce the likelihoods. And for events that will be relatively costly if they occur, crisis response functions must be implemented to contain the costs of failure.

Did the folks at Metro North follow these principles? Because a failure of the primary feeder cable could inflict so much damage on commuters, one may question whether the secondary system should ever have been removed without the temporary implementation of another crisis response function. And because the severe aging of the electrical fleet and infrastructure makes such failures relatively likely to occur, one may ask whether the primary system (as well as, or perhaps in place of, the secondary system) should have served as the focus of preventive maintenance work.

In other words, Governor Malloy’s own observations reveal that the public transportation agency was following a risk management plan that was bound to go awry. And now the commuters of Connecticut are bearing the brunt of that failure.