Out of Time for the JIT model?

For decades now, the benefits of the Japanese-pioneered JIT inventory models were trumpeted in every sort of business and management textbook. Looking at the aftermath of the tsunami, the net economic benefits of this model need to be reexamined. For practical purposes, two sets of forces came into play with the widespread adoption of JIT. The first was consolidation for things like automotive seating, in which a large, global company like Johnson Controls emerged by acquiring weaker competitors and scaling up the model for these larger automotive components. For these bigger ticket items, capital could be profitably employed and their size allowed them some bargaining power versus the manufacturers.

For traditional auto parts that involved metal bending and forming, there was also consolidation, but the economic benefits to this consolidation led to lower quality parts in response to continuing manufacturer pressure for price reductions. Medium and smaller size suppliers always operate on life support, and JIT is what took them there. Finally, all of the pressure leads to the complete lack of R&D in the parts business, so there's very little innovation.

The auto industry needs a vibrant network of parts suppliers who can provide a decent financial return to their owners on a consistent basis. In the end, consumers probably benefit too. A poorly designed accelerator assembly for Toyota cost it thousands of times more than a little more margin would have for a better designed part. I'm not saying that the industry should vertically integrate once again, but it certainly needs to look beyond the "penny wise, pound foolish" siren song of JIT.