Leveling the Schedule-Inventory’s Role
Leveling the schedule has profound benefits throughout the value stream, including giving you the ability to plan every detail of production meticulously and standardizing work practices. If you visit a Toyota plant or a Toyota supplier, you will see the great pains taken to level the schedule. The best Toyota suppliers also work on the assumption that Toyota’s demand for their parts will be level. This is a risk, because not keeping finished goods inventory means leaving themselves fully exposed to any wild variations in their customer’s volume and mix of products. They can do this and still sleep at night because Toyota is a very reliable customer and levels out its production schedule.
For example, Trim Masters is a U.S. supplier in Georgetown, Kentucky that makes seats for the Camry and the Avalon manufactured there. Trim Masters builds and delivers seats just in time, based on a broadcast from the Toyota plant that orders one seat at a time. From the time the orders are placed, Trim Masters has three hours to build the seats, put them on the truck in sequence, and deliver them to the Toyota plant, so they appear on the assembly line in the exact order needed for production. Trim Masters orders parts just in time from its suppliers and keeps very little inventory, with inventory turns of 128 times per month. The Avalons and Camrys take different seats that require different parts, so Trim Masters has to trust Toyota will make the mix of Avalons and Camrys that it projects. If there is a sudden spike in Avalon seat production, Trim Masters will run out of parts and must pay for emergency delivery of parts. This happens routinely for U.S. auto companies, providing many truckers and helicopter pilots a good living on high-priced expedited freight. This happens from time to time with Toyota, but by and large it carefully maintains a leveled schedule and builds what it says it will build.
Most suppliers are not like Trim Masters and must satisfy customers whose demand fluctuates significantly. In these cases, TPS experts will often recommend keeping at least a small inventory of finished goods. This seems to contradict lean thinking. Theoretically, the leanest solution is to build to order and ship just what the customer wants. (If you are going to keep inventory, why keep the most expensive inventory—finished goods? Instead, build to order and store only raw material inventory.) But this reasoning doesn’t consider the importance of heijunka. A small inventory of finished goods is often necessary to protect a supplier’s level production schedule from being jerked around by sudden spikes in demand. It may seem wasteful, but by living with the waste of some finished goods inventory, you can eliminate far more waste in your entire production process and your supply chain, if you keep your production level.
This is one reason why companies that have successfully applied TPS often schedule their production with a combination of building to order and maintaining a pre-determined level of finished goods inventory. The case example at the end of this chapter shows a company that builds high-volume seasonal products to hold in inventory and then builds other products to order. This combination allows the company to level the schedule over the year, have a smooth flow, and build most of its products to order.