Many firms have responded to the globalization of business by developing international supply chains1 in which the various value-adding activities comprising a finished product are dispersed geographically in a number of countries.2 At the same time, many businesses have tried to understand and implement lean production systems, pioneeered by Toyota, that encompass goals such as just-in-time (JIT) delivery, low inventories, zero defects, flexible production in small batches, and close technical cooperation with suppliers. While the business press has championed both globalization and lean production as inevitable and valuable, there has been little investigation into the interaction of the two. Are they compatible? Or will they collide?3
Managers are, of course, aware of the logistical problems in operating international value chains, such as longer lead times and higher transportation costs.4 Some writers have challenged the benefits available from international sourcing and have raised strategic concerns, such as the potential for “hollowing out” the corporation.5 Nevertheless, many writers optimistically presume that technological advances in communication and transportation are quickly scaling the barriers of distance.6
In a study of a company in the personal computer industry, I examined the implementation of lean production in an international value chain. The study demonstrates that the rapid flow of goods and information required by lean production is costly and difficult to achieve. Lead times are longer and inventory levels higher in international supply chains compared to domestic examples. Longer supply chains are also associated with poor sales-forecasting accuracy and significant delays in resolving technical problems. The study suggests that managers systematically underestimate these costs because they tend to plan for a relatively stable chain and do not fully appreciate the complex, dynamic way in which various disruptions affect a geographically dispersed supply chain.
The study also suggests, somewhat tentatively, that some elements of lean production facilitate globalization. The reduction of defects and engineering change orders to very low levels helped to stabilize the computer company’s supply chain and enabled it to accelerate the transfer of production of new products offshore. Lean production may be more difficult and expensive in the international context, but it may still be worthwhile.