Don’t Blame ‘Just-in-Time’ Production for Challenges in the U.S. Manufacturing Industrial Base

Constraints on the U.S. defense industrial base and concerns about limited manufacturing capacity have been ascribed to a production approach described as “just-in-time.” Just-in-time production has been identified as one of the explanations for why industry is not set up to immediately surge to refill the warehouses after weapons were sent to Ukraine for its self-defense against the Russian invasion. This Critical Questions piece examines what just-in-time production is and whether it is to blame for any challenges in the industrial base.

Q1: What is just-in-time production?

A1: Just-in-time production is the term used to describe a model where subcomponents, parts, and other materials are sent as outputs directly from the supplier’s production line to the factory floor location where they are immediately needed. Depending on production rates, delivery of parts can be as frequent as once every hour in high-throughput assembly lines. The parts are sent at the point in the production process where they are ready to be incorporated into the final product, meaning they require no additional adjustments after arrival at the factory. (For simplicity, this piece will refer to these inputs as “parts” and the final assembler as the “factory,” while recognizing that the various parts, subcomponents, and materials are also produced in factories.)

Just-in-time production, a foundational concept of lean manufacturing pioneered by Toyota, focuses on managing production flow. It is most pertinent to high-volume production lines more common in automobile manufacturing; for example, Toyota’s Georgetown Kentucky plant assembled 445,136 vehicles in 2022. This volume of production is relatively rare in defense production outside of ammunition. 

Q2: What are the benefits of just-in-time production?

A2: Just-in-time production offers several different types of cost savings. For example, the factory will need less warehouse space to store parts that are waiting to be used in production, and fewer workers are required to both manage the parts that are received and move parts from the warehouse to the production line. If a part is defective or the design of the final product is updated, there will be fewer parts sent to repair bays and less waste from the disposal of out-of-date parts that can no longer be used in production. Parts delivered by suppliers straight to the production line are less likely to be broken during phases of storage, repair, handling, and maintenance.

Q3: What does just-in-time production require?

A3: If a part is delivered directly to the factory production line rather than to the warehouse or stock, then the factory must be assured that the part is of the required quality to be incorporated into the final product. If the quality is not assured, the factory may need to rework parts to make sure they fit the final product, adding touch labor costs and perhaps engineering assessments. Modern manufacturing methods, including the use of computer numerical controlled (CNC) machine tools, mean that parts are much more likely to be manufactured exactly as specified, reducing or eliminating the need for stock as individual parts no longer need to be carefully assessed to ensure they meet quality standards.

Another critical aspect of just-in-time production is an integrated relationship between prime contractors and subcontractors. A best practice of supply chain management is working with subcontractors and helping them incorporate modern production methods in their own manufacturing processes. Prime contractors and subcontractors also need to be tightly integrated for heightened transparency; if subcontractors know exactly when, where, and how their inputs are being used, they can work to improve the quality of their outputs to align with the goals of the final product. For high-volume production, subcontractor factories are often located near the final assembly plants to reduce transportation costs and the impact of any potential transportation bottlenecks.

Q4: Is just-in-time production responsible for the lack of the ability to quickly surge defense production?

A4: Analysts concerned about challenges in surging production relating to supply chain constraints have pointed to just-in time manufacturing as the reason for the limitation. The hypothesis suggests that maintaining a stock of excess parts would allow companies to expand production rapidly. This simplistic understanding of manufacturing processes underplays both the expense of maintaining a warehouse full of the large number of inputs necessary for a production surge and the fact that ramping up production may also require more warehouse space, machine tools, and workers.

Q5: What are the benefits and drawbacks of just-in-time production?

A5: Production methods that limit excess capacity, including just-in-time, should be seen as a symptom of the structure of the broader defense acquisition ecosystem rather than a cause of current capacity challenges. The government’s approach to best value in contracting most frequently involves selecting the lowest-cost bidder among many competing offers. Contractors respond to this by making their production processes as efficient and cost effective as possible. The reduction of unnecessary slack, including the warehousing of parts waiting to be incorporated into the production process, helps reduce costs and therefore makes companies more competitive as they seek government contracts.

The Department of Defense (DOD) must balance trade-offs among many requirements, which generally exceed the available budget. Just-in-time production aligns with the low-cost production model that the DOD incentivizes to create room for other priorities. If the DOD decides to pay for companies to maintain excess production capacity—and warehouse parts—there would be other investments that it would not be able to make.

Q6: What are the solutions to the lack of defense manufacturing capacity?

A6: The structure of the defense manufacturing industrial base has evolved significantly since the days when excess capacity and warehoused parts could support a rapid surge of manufacturing. But a significant increase of production at scale was not instantaneous even under the old structure—it took five years for the “Arsenal of Democracy” to be engaged in World War II. That said, there are certainly options for increasing the flexibility of the industrial base, but all of these will require political will and funding. 

The short-term approach that has been widely discussed is termed “ally-shoring” or “friend-shoring,” a strategy involving collaboration with partners and allies to accelerate surge production by using any excess capacity they might have. While there are barriers to this approach, including intellectual property considerations on behalf of U.S. companies and the rigorous U.S. export control regime, it has the benefit of enhancing cooperation and interchangeability. The United States would also be able to divert additional resources toward advanced weaponry while foreign suppliers can target existing capabilities. This tighter integration may improve the ability and capacity of the United States and allies to unite in combat.

A higher-tech but still evolving solution is rethinking incorporating approaches to scaling production that include investing in new manufacturing approaches that facilitate rapid increases in output. More agile production methods enabled by robots with additive manufacturing features to build parts have potential to support surge yield. However, more fundamental research needs to be conducted to untap the full capabilities of these technologies.

Over the longer term, the U.S. government could develop an industrial reserve policy that pays companies to maintain excess capacity, which may include investments in warehousing critical, long-lead time parts. This policy may also need to be applied to lower levels of the supply chain as well. This strategy would be expensive, and if in more peaceful times funding was removed, the industrial base would return to its least-cost production model. A lower-cost solution would entail selectively stocking production inputs that are limited in supply or have significant restraints. This could also be used as a risk management solution for parts where potential adversaries control supply chains.

The bottom line is that just-in-time production is not to blame for production capacity challenges in the U.S. defense industrial base. Rather, these capacity challenges are a result of the broader least-cost incentive structure , which has limited investments in manufacturing surge capacity to allow investments over a wider range of defense requirements. A careful review of constraints in supply chains along with the development of industrial policy that supports investments in surge capacity within the confines of the current defense manufacturing ecosystem will help prepare the DOD to surge in the case of future conflict.

Cynthia R. Cook is director of the Defense-Industrial Initiatives Group and senior fellow with the International Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Audrey Aldisert is an intern with the CSIS Defense-Industrial Initiatives Group.