How could JIT still be relevant in the COVID new normal? If not to waste the chip shortage crisis, what could be the trigger for the car computing revolution?
Just-In-Time(JIT), a core Lean methodology has been the gold standard of car manufacturing. But because of the chip shortage under COVID, the classical JIT is blamed as the reason making it worse for carmakers. While Toyota learned lessons from the Fukushima disaster in 2011, Toyota dodged the 1st shortage bullet in the 1st half of 2021, but not forever. Now even the king of JIT, Toyota is “ditching” JIT to fight the chip shortage as NIKKEI Asia reported. The problem affects everyone, e.g. VW lost 100K cars, GM & Ford are missing billions as not enough chips for truck orders. But before we announce JIT’s “death”, let’s extrapolate what if JIT is just due for a disruption. What could be the “JIT Ver. 2” ✌️?
Next version thinking
So what could be a better JIT for this golden decade of EV, which may coexist with the COVID new normal & be more resilient to whatever crisis to come? To explore that, let’s steal a good mental model first.
The most important thing is a book that Howard Marks kindly shares his secret sauce of successful investment. The 1st ingredient is Second-Level Thinking(SLT). Because when you preemptive the consequent of current events and actions of the market, you will be one step ahead of the crowd. The market will eventually catch up & reward you handsomely. So what are the important consequents & how carmakers preemptive them now?
1. Minimum Inventory Necessary
“Everything should be made as simple as possible, but no simpler.” — Albert Einstein allegedly.
JIT helped Toyota reduces inventory costs and wastage to ship great cars at a lower cost. Therefore, most people simply think JIT is zero inventory. But if one applies SLT, a better JIT should aim for a Minimal Inventory Necessary(MIN) by dynamically adapting to the real-time changes. Arguably, this is not a new point, but rather a deeper understanding of the spirit of Lean and adapting to the increasingly changing reality ahead of the time.
By now, most carmakers are adjusting in the MIN way or the other to survive. It’s late but better than never. Furthermore, it creates opportunities for new players. For example, an old player, Intel will build 2 new fabs, which also makes chips for carmakers. And a new player, Foxconn bought a Macronix fab to enter the market in Aug.
So what’s next? Because it takes time to ramp up the production & supply. With many rushing in to fill the current gap, oversupply will eventually be the new problem later. By then, another pivot is bound to due.
2. Car computing revolution
In 2019, Volkswagen reckons disruptive innovations are needed for Digital cars & services. For example, a VW car contains 70 chips by 200 SW suppliers with countless interconnections. VW group even have 8 arhectutres. Such legacy is not a blessing when a “startup”, Tesla makes one HW 3 to rule them all. It reinvents the computer on wheels from scratch by taking all advantage of the latest HW & SW technologies.
Good that VW group plans to further invest $8B by 2025 on its subsidiary, Cariad for in-house software development including developing its own chip, just like Tesla or aka the Apple model. Good luck VW.
On the other hand, the industry may also take the lessons from PC & Mobile to change consumer computing & our life significantly. Both democratizing the power of computing by one kind of standardization. Which restructured the whole value network & grew the market 10x. PC has Wintel & Mobile has “ArmDroid”(ARM & Android). If a car wants to be a relevant touchpoint of consumer digital life, it has to transform, e.g. adopting a standard OS will decouple & simplify HW & SW dependency, so:
- Each player can innovate in parallel.
- Each OEM can shop around for the best deals for their unique situation instead of being locked in in their small wall garden supply chain.
- With an aggregated market, automotive may become a bigger and more attractive market for advanced technologies.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
