When inventories accumulate in a supply chain at different stages, they make demand less visible and the reaction to changes slower than if there were less inventory. (This topic is covered in detail in Beer Game and the Toyota Supply Chain.) Inventory might indicate a slow-moving product, defective items, problems with transportation, picking and packing bottlenecks, and the like. To keep products flowing requires a synchronized supply chain, with each stage and each player not only knowing what to do but also when and where to deliver. Handoffs must be made perfectly.
Now, imagine that the supply chain designer attempted to level out the flows to a large extent. Miraculously, many decisions that are difficult would become easier. For example, if the volume of shipments to a region were relatively stable, or the inbound transportation needs were relatively stable, then these activities could be conducted on a fixed schedule. Thus, visual controls can be used. It is possible to standardize tasks, such as where to stop, what to load first, where to unload, where to drop off documents, and whom to contact for a problem or suggestion. Real problems surface quickly, because deviations become visible. For example, if deliveries had to leave a warehouse within two hours and were color coded by the time of the day, then identifying and fixing problems would be easy. But in order to do that, the work flow would have to be stable and standard; otherwise, the manager would be firefighting to handle temporary surges with no permanent solution to the real problem, which is the demand surge (other than adding flexible capacity). Similarly, when a substantial degree of work is standardized, it is possible to use reliable and tested technology that serves your people and processes. Changes are easily evaluated. They can be studied in a controlled environment to see if the impact is substantial and then adopted into practice after being vetted by a team. The team itself is aware of many of the issues, even before studying the problem.
Consider, for example, the use of recyclable containers. Even though the concept is simple, it is hard to evaluate the costs in a nonstandard environment. But if every shipping quantity and frequency were known, if the loading and unloading methods were specified, and if the routing patterns of the trucks were well established, then one could figure out the optimal size of the containers, the required number of containers, the change in loading and unloading patterns, and the additional cost to ship back the containers. It is no wonder that Toyota implemented this idea smoothly and with visible improvements within a short span of time. Thus, reliable and tested technology does not mean it has to be “boring,” “traditional,” or “inferior”; rather, it clearly balances requirements in the system.
In an increasingly complex world Toyota has continuously adapted its processes to deal with complexity in a small but cumulative manner. One of the major innovations that supports these process innovations is the concept of a virtual supply chain. How does this process compare with the production planning techniques found in the literature? Consider first Materials Requirements Planning, or MRP. One of the drawbacks of MRP is that it does not include scheduling details that allow the planner to visualize how the system will work at a given point in time. Any manufacturing planning system that uses a “time bucket” that is greater than the rate at which operations take place requires an additional system to synchronize the flow of parts into each vehicle as it gets produced. Rate-based planning is also often inadequate for scheduling complex tasks because it fails to observe the discrete handoffs in scheduling. Thus, both MRP and rate-based planning methods miss out on certain details. However, Toyota’s system that assigns parts to each car exactly in the required sequence combines the virtues of both systems. That illustration of visual controls is also an illustration of an innovation that combines the best of ideas available in supply chain management.