How Toyota really use inventory

Many people mistakenly think the Toyota way is about holding zero inventory. Finance directors in particular love to quote it in meetings. And in a way they are correct. In a perfect world we should not hold inventory. Inventory hides inefficiency. Inventory is comfortable for the planning department who don’t have to pay for it. Inventory makes life easier as you always have stock on hand to cover mistakes. All that is true.

But the reality is inventory exists because we don’t have perfect information. Inventory exists because we have Minimum order quantities with suppliers. Inventory exists because there is a lead time to resupply. And very often inventory exists because we are afraid of unknown risks.

This interesting article shows how Toyota actually uses Inventory to hedge against risk: “Why Toyota had a big pile of chips when semiconductor shortage dealt others a bad hand”. If you are reading this in March 2021 you may be aware of a growing shortage of electronics. The Covid pandemic has hit supply chains hard and one area particularly impacted has been the supply of semiconductors. In the motor industry this is having a serious impact because modern cars are full of semiconductors.

Yet Toyota has seemingly been able to carry on with minimal impact on their supply. The reason. They held inventory! Shock! Horror! What an un-Toyota thing to do.

Well not really Toyota have always been pioneers in Supply Chain Management. And who understands the Toyota way better than Toyota. As a Supply Chain and Planning Manager with over 25 years of experience this doesn’t come as a shock to me. But I do think I will bookmark this article and use it in future meetings when a client enthusiastically sits down opposite me and tells me they want to introduce Just in Time and get rid of all their inventory, just like Toyota.