Just-in-Time Production and Its Fragility

In postwar Japan, Toyota engineers led by Taiichi Ohno developed what became known as the Toyota Production System. A central idea was 'just-in-time': instead of keeping large warehouses of parts, factories received components only as they were needed, signaled by cards called kanban. This reduced waste, storage costs and defects, and manufacturers worldwide copied it from the 1980s onward. Combined with global value chains, lean production made firms highly efficient. But it also reduced buffers.

When the 2011 Tōhoku earthquake and tsunami damaged Japanese factories, including a key maker of car chips, production stopped at plants far away; the same year, floods in Thailand disrupted the world's hard-drive supply. During the pandemic, carmakers that had cut chip orders found they could not quickly restore supply. Firms now debate the balance between efficiency and resilience, considering larger inventories, multiple suppliers and production closer to home, all of which raise costs.