Improving Quality Just in Time
Intuitively, it's easy to understand that improved product quality reduces the need for inventory, particularly buffer inventory of extra components “just in case” something goes wrong. If you have fewer defective components, after all, you don't need to keep as much safety stock. And studies of Japanese manufacturing practices over the past 20 years have suggested that the relationship between quality and inventory can work the other way as well, although researchers have been somewhat vague on exactly how lower inventory can improve quality and by how much.
A study published in the December 2000 issue of Management Science addresses some of these issues. For example, the authors explain that low levels of buffer inventory give workers key information on reliability and quality as well as where improvements may be needed. The study also found that the most dramatic benefits come when companies train and empower workers to find creative ways to improve process reliability on the basis of the information they gain from just-intime (JIT) inventory initiatives.
The article, “Information and Incentive Effects of Inventory in JIT Production,” by Michael Alles of the Rutgers Graduate School of Management, Amin Amershi of the University of Minnesota's Carlson School of Management, and Srikant Datar and Ratna Sarkar of Harvard Business School, is based on surveys and interviews with plant managers and senior executives at 116 AT&T, Boeing, Hewlett-Packard, Chrysler, Ford and Kodak plants. The managers rated their inventory changes and their effects on a 1–5 scale, with the scores validated by senior managers and follow-up discussions. The ratings were subjective because plants measure inventory in different ways, and many plants have special circumstances that affect their ideal inventory levels. Thus the study can't predict that lowering inventories by a given percentage will result in a proportionate quality increase.
Still, the study showed clear effects. “If you lower inventories,” explains Sarkar, “right away you have some cost savings, but really the Big Bang occurs when you train the workers” to work smarter and respond to problems in a low-inventory environment. In fact, the study showed that the effect of inventory reduction and training on process reliability is 29% greater than the effect of inventory reduction alone.
But how does JIT inventory actually affect quality? As Toyota demonstrated decades ago in its manufacturing operations, lowering work-in-progress (WIP) inventory often exposes process problems. It means, for example, that companies can no longer hide defective components in inventory. When workers can't just toss out a defective part and reach into safety stock, they have to figure out why there are problems. And when a factory gets its workers thinking creatively about production problems, process innovations can occur spontaneously. Of course, inventory levels should never drop to zero; some buffer stock is necessary. “But if you tighten inventory a little, you could get the work force to take some kinks out of the process,” says Sarkar.
“For example, there was a company assembling stock components with a pneumatic screwdriver,” explains Michael Alles. “Every once in a while, there would be fluctuations in air pressure that would cause the driver to slip and scrape the product.” An engineer or a manager might propose to monitor fluctuations in air pressure — a complex and expensive control-systems solution. In this instance, a worker came up with a new idea: Simply use a screw nail whose slots don't extend to the edges, so the screwdriver can't slip from the screw head. “That's working smarter,” says Alles.
Low inventory itself may not be the primary quality driver. Processes and worker attitudes also play a role. Many people seem to think that workers don't care about quality, observes Arthur M. Schneiderman, an independent consultant on process management based in Boxford, Massachusetts. “Quite the contrary, I believe that workers want to make defect-free products. However, systems that we create prevent that from happening. One of those archaic systems is the separation of production and inspection, which is further exacerbated by unnecessary inventory.” In Schneiderman's view, management structures on the plant floor are the most critical element. Low-inventory processes can help only if there is attendant process change.
The paper's authors agree.“Just-in-time has been seen as an inventory control system, and especially by American firms, as a way to cut costs,” says Alles. “What we're saying is that it is a management control system. It can be used to further management goals, such as motivating workers.”