Henry Ford may have invented the assembly line, but his methods didn’t match up with that of Japan.

While others tried to replicate Ford’s methods (and his success), one Japanese company shook up the market when it built upon Ford’s system and, in the process, successfully made Toyota a household name. 

In 1990, three researchers wrote a book on the topic titled “The Machine That Changed the World” and conceptualised the term “lean production” for the masses. They showcased how Toyota eliminated waste and implemented “just in time” manufacturing to create the Kanban system, which forms the foundation of the lean supply chain that so many procurement leaders are still chasing. 

On paper, the central element of lean manufacturing and the lean supply chain is simple: eliminate waste. In practice, this should mean cutting out redundancies, minimising touch labour and seeking efficiency through automation and improved processes. However, in recent decades, this concept has been simplified to the point at which lean manufacturing and cheap manufacturing have become synonymous. 

This lean production mindset has led to a one-track conversation for businesses today that focuses solely on cost-saving challenges. But in today’s marketplace, companies need to shift their focus to broader topics beyond price to achieve sustainable success. 

The off-shore shortcut to a “lean” solution 

While there is plenty of proof that the lean methodology can be incredibly successful, most companies that tried to copy Toyota’s success took a significant shortcut. They managed to cut out their inventories and eliminate waste, but they did so by outsourcing to China, where reduced manufacturing costs appealed to growing companies.

This shortcut mostly worked for the past 20 years. Companies didn’t have extensive inventories to manage, nor did they have high costs. However, issues like workplace safety and shipping delays have not been absent – they were simply swept under the rug until a string of recent disruptions shook them out. 

Those disruptions, like Covid-19, have revealed the structural issues of this approach by unveiling the complexities and long turnarounds of overseas shipments and port clearances. The recent computer chip shortage is another powerful example that demonstrates the unhealthy level of supplier consolidation. 

Yet another disruption is the carbon crisis, which is pushing companies to increase their investments in sustainable manufacturing further. Now, the carbon costs and environmental impacts of offshore manufacturing are central to the equation, and this is offsetting the would-be cost savings of cheaper labour. As such, all of the structural consolidations we’ve seen in the supply chain over the last 20 to 30 years are coming into question regarding their long-term viability in the wake of new concerns, values and challenges. 

With all of these problems now at the forefront of the procurement conversation, it’s essential to discuss how we can outmanoeuvre them. How can we secure supply in the face of these structural issues? It begins with a shift in focus as companies look to prioritise certainty over costs. 

Aside from recognising that it’s a suppliers’ market and moving things onshore, the conversation about increased costs also needs to consider the pursuit of pressing responsibilities, like opting for fair labour and investing in diversity to align your supply chain with core company values. 

Now that more companies are rethinking the supply chain, bringing diversity and inclusion (D&I) initiatives into the conversation and finding ways to welcome underserved communities into the workplace, this shift presents both an opportunity and challenge. While there are many advocacy groups and resources in the US to help connect companies with diverse talent, there are still hurdles, especially in Europe and other markets. 

For businesses trying to implement D&I programmes, it’s a process that begins locally and must be tailored to the community around them. What’s more, it takes the right mindset to implement, carry out and promote such programmes appropriately and empathetically. 

In other words, getting every part of the equation to add up to success is no small feat. Achieving these goals, upholding these values and ultimately reducing the environmental impact of today’s businesses is a tall order and one that must be handled with great care. 

In action, change starts with procurement leaders engaging with finance teams and getting on the same page over priorities. It’s true that resiliency and low costs are on opposite ends of the spectrum, but achieving a balance means working with suppliers to negotiate as much flexibility and responsiveness as possible and working backward until you reach a compromise that fits your budget. 

To put it simply, the change we need comes down to taking the focus off the cheapest option and instead investing in partners and programmes that prioritise security, sustainability and humanity. It’s a change that needs to happen regardless of Covid-19, the Ukrainian crisis and any other roadblocks that come up. After all, the environmental crisis is already upon us – and there will be no delays in its timeline. 

As companies struggle with inflation and supply chain issues, they must pivot to tackle today’s pressing procurement challenges by bringing environmental, social and governance initiatives to the forefront of the conversation. Ultimately, it’s not easy to make this shift from the mindset we’ve held onto for so long, but the changes that will result from recent disruptions are bound to prove beneficial. 

Just think back to Toyota and how the brand’s decision to change Ford’s revolutionary assembly line approach further advanced the world. Now, market challenges like inflation are set to change consumer behavior, change how people value and buy things and potentially eliminate wasteful industries like “fast fashion” for good.

It might not be an easy adjustment for anyone. Still, by compromising on cost and putting modern-day priorities first, today’s procurement challenges could be the impetus for a new wave of improvements on a global scale. And it starts with a new conversation that questions the viability of continuing to prioritise cost over agility, control and human values. 

☛   Stephen Day is CPO at Kantar.