The truth is, whether you're in manufacturing or health care, inventory is evil. Worse yet is when people hoard and over-order. I once had a client whose warehouse personnel spent three-quarters of their time restocking items that had been over-delivered to the plant. Someone would call for an expedited order, the warehouse pickers would pick that order and then it would arrive - somewhere. When the person who first called for the expedited order couldn't find it, they'd call the warehouse again. The pickers would then pick a second or third order. Or worse, they would buy new parts to satisfy the order. Then they would ship the parts to the factory and it would be hit and miss as to whether or not the parts ended up where they were needed.

Toyota learned that lesson in the 1950s, when they were facing bankruptcy. They learned to make just enough, just in time. Their approach at that time was just to make saleable items. This meant having kanbans and just-in-time systems in place; but more than that, it meant having an accurate measure of anticipated demand. The old Big 3 saying, "You can't sell it if you don't make it," proved to be false.

The real question is: Can you produce the necessary items at the lowest cost? By "necessary items," we mean a sales trend. Every Toyota is sold first, before it is made. It's true that the dealers buy some cars, especially those made a distance away from where they're sold, but they know the customer preferences down to their postal code. Very, very rarely does a dealer car not sell.

The Toyota system clearly understands that production systems must accommodate gradual changes in the global market demand, and allows for a better approach to increases and decreases in production demands. In order to systematize such a production system, the shop floor management had to associate a sense of guilt with holding inventories. They had to keep in mind that they were only producing saleable items. Remember, it is wasteful to:
• Produce items that are presumed to sell;
• Produce items in less time than needed; and
• Produce more items than needed.

Over-production can lead to various wastes other than inventories. Increasing in-process stock, waste of movement and wastes of transportation all add up quickly. Truly value-added work comes from having just enough of the right material, at the right place, at the right time. This is what Toyota calls "just in time!"


Dr. Timothy Hill is an Industrial and Organizational Phychologist and Certified Lean Six Sigma Black Belt with global expertise in Human Resources/Human Capital. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .