JITS, JIT, trucking, automotive, just in time, just in time sequence

As the trucking industry experiences rising industry change, just-in-time-sequence (JITS) supply chains are starting to feel the effects. In this article, we will take a closer look at these industry challenges and discuss the current and potential impacts on JITS.

What is JITS (Just-In-Time-Sequence)?

JITS is the acronym for “just-in-time-sequence,” a common supply chain practice in the automotive industry that eliminates or significantly reduces the need to maintain parts inventory at the assembly plant. In its simplest form, it allows for the parts to be off-loaded directly from the suppliers’ trucks (or minimally buffered) and directed to the assembly lines for use, just as the need arises.

The ‘sequence’ portion of the JITS terminology represents the ability to facilitate multiple models, trims and color assemblies, and to make available different component items, or their variants, to be lined up for use at the exact time they are required at the assembly line.

JITS has been established as an optimal material ‘pull’ system that has significantly enhanced the automotive OEM’s ability to optimize their production capabilities and utilize the same production lines for multiple products with no change-over. The advantage of a ‘pull’ system, over more traditional push based manufacturing, is that we only produce what is needed when it’s needed. The end result means:

  • Reduced materials handling, which is one of the biggest factors in optimal plant layout and design
  • Cost savings in warehousing and floor space along with associated reduction in personnel required
  • Needing to carry only a few hours worth of inventory, thereby savings on inventory carrying costs and working capital
  • Disparate products can be produced on the same assembly line

A Brewing Storm for the Trucking Industry

An estimated 70% of all goods movement in the US is via commercial trucks, but the trucking industry is facing severe challenges, which will only worsen with time. These challenges include:

  • An aging workforce: The 2018 estimate for the average age of a truck driver is 55 years. One-third are between 45 and 54 years of age. Naturally, over the course of the next decade, this workforce is expected to dwindle significantly. The fact that various truck driver health risks also threaten to dent the shortage of truck drivers further certainly doesn’t help this situation.
  • Decline in recruits: While the trucking industry estimates a shortage of roughly 50,000 drivers today, this number is expected to balloon to close to a million by the year 2025. Millennials are not as keen to join the profession since it pays marginally less than farming and manufacturing jobs. The current regulation of 11 hour breaks following a maximum allowable 10 hour shift means that a truck driver is forced to spend time away from work, even though (s)he may be away from home and family, on the road. To complicate matters further, drivers only get paid for the miles driven, so every time the truck is parked in a dock for loading or unloading, sitting in a traffic jam or simply waiting at a checkpoint for clearance, the driver is not getting compensated. Not exactly the ideal working conditions to attract new skilled workers.
  • Online shopping: Online shopping and home delivery is competing for the cubic yards of available trucking capacity. Amazon could be just the tip of the iceberg!

Automotive manufacturing depends heavily on the trucking industry to keep its supply chain engine going, but given these evolving constraints, keeping the supply chain flowing is slowly turning into an expensive proposition, for both auto-OEMs and their suppliers. The resulting cost increase will have to be absorbed by the industry, which already operates on relatively low margins, or passed on to a reluctant consumer.

Trucking Challenges in North America

While the challenge may be looming globally, the North American automotive manufacturing base may be more inclined to try and dilute their just-in-time-sequence (JITS) supply loops. But why just in North America?

  • Automotive manufacturers in Japan and Korea never had the surplus land to build huge warehouses, which may have been the original reason for the JITS philosophy. The same applies to automotive manufacturing in Europe, where investing in additional warehousing space is a lot more expensive than the cost of transportation.
  • North American manufacturing, on the other hand, does not face the same cost barriers, for additional floor space to build a warehouse extension.
  • Competing rail transportation in Europe, Japan and Korea, is also fairly entrenched, sometimes providing the coverage of the last mile.

Automotive retail sales models in North America are also disparate compared to places like Europe. A European buyer will meticulously choose the various options that they want, furnish a small down payment and then wait 8-10 weeks for that configuration to be built and delivered to the closest dealership. In North America, however, the buyer purchases the vehicle off the dealers lot and may often compromise on the exact features they want, or buy a vehicle with more features than they originally thought was needed.

What does this mean for the scheduler at an OEM’s plant in Europe? The scheduler will experience better visibility on the demand side and a tighter, more firm schedule based on actual pre-orders. Their North American counterparts, on the other hand, have to look at the actual sales trends and predict the expected demand based on inputs from sales data, dealership forecasts and inputs from their own marketing teams. Whilst this may be an oversimplification of the sales process, it’s not too far from reality either.

JITS, trucking, automotive

How will North American based OEMs Mitigate Industry Challenges?

The automotive OEMs, with their assembly plants in the US and Canada, are realizing that the longer term solution for challenges like rising operating and storage costs may lie in building a small buffer stock next to their assembly lines. The potential increase in transportation cost could be easier to offset by the storage of a couple days of inventory, or perhaps even a week’s inventory, for smaller parts. Can the vehicle “infotainment systems” or even the steering wheels be delivered on a weekly basis instead of a daily milk run? That will lock up a little more in warehousing shelf space and capital cost, but could offset the ever increasing transportation and operating cost even more. However, in the North American context, this is not only possible, it may be far more viable than previously considered.

Even today, a number of small parts are “kitted” along the assembly line, and the kit travels with the vehicle along the assembly line.

Honda North America has recently started to explore the possibility of reducing their daily milk-runs to just once or twice weekly. It’s only a matter of time before the other OEMs follow suit. After all, they all face the same challenge of finding adequate trucks.

What Does the Future of JITS Hold?

JITS as a supply chain is a mature practice that has benefited the auto manufacturing industry, and it’s not likely to be diluted in the foreseeable future. But the challenge faced due to the cost of trucking in parts “just-in-time” needs to be handled deftly, without unduly burdening the logistics department or the production schedulers. The answer may lie in sub-optimizing only a portion of the assembly components and setting up internal kanban loops to bring smaller parts from the onsite warehouses to the assembly line, still just-in-time (JIT) or just-in-time-sequence (JITS).

The supply chain/logistics departments will be tasked with these additional optimizations and would have to manage the ordering from their tier-one suppliers, in more manageable delivery buckets, less frequently than they are currently used to. This will also mean that the logistics personnel will be tasked with the management of cubic feet of storage on the warehouse shelves and not just the frequency of the supplier trucks.

Given that supply is typically managed by a third party logistics provider (3PL), these 3PLs will have to not only coordinate with the schedulers for most of their JITS delivery to the assembly line, but also with the supply chain/logistics departments for the remaining deliveries to the warehouse stock.

Impacts and Opportunities

  • 3PLs can take over the operation and management of the OEMs’ internal warehouses, thereby isolating the OEMs from the modified supply chain.
  • Warehousing personnel and consultants could be tasked with optimizing layouts to accommodate these increased storage needs. Would factory layouts need to be altered?
  • Software providers could be asked to step up and accommodate the changes in the new flow of materials. Picking logic may need to be tweaked.

Alternative Solutions

  • Currently over 50% of finished cars and light vehicles are transported out of the OEM’s facility by rail. Can some of the same infrastructure be reutilized and repurposed to deliver component parts?
  • Will commercial autonomous (self-driving) vehicles scale up in a reasonable time to overcome the shortage of drivers?
  • Uber Freight is promising to change working conditions for the workforce, making transportation careers more attractive for younger drivers, but it’s still in its infancy.

A Rising Trend with Global Potential

While the challenges faced by the trucking industry will certainly have a ripple effect on many other industries, the automotive industry is one that will feel the most effect, simply due to their dependence on trucking providers. JITS as a supply chain philosophy will continue, with hardly a change for the final assembly, but the preceding process of feeding the JITS components to the final assembly will certainly have to be modified in the next 4 to 5 years. How long will European and Asian OEMs be insulated from the trend? They may have to devise a different solution altogether!