Is time up for ‘Just-in-Time’?
For more than 60 years, supply chain operations have been dominated by the ‘just-in-time’ phenomenon.
It started in car manufacturing. Apparently, Eiji Toyoda, CEO of Toyota, paid a visit to Detroit and was unimpressed. American car manufacturers were at the height of their powers in the 1950s, but all Eiji saw was an incredible amount of waste and inefficiency. He went home to Japan and started what would become known as ‘Just-in-Time’ or lean manufacturing. Toyoda and Toyota cut down on excess inventory, ordered the parts they needed when they needed them and only kept a bare minimum in the factory. The lesson of getting rid of waste and only ordering what you needed when you needed it would soon spread and ‘Just-in-Time’ became the dominant manufacturing ethos for everyone.
The problem, of course, is that the system is extremely vulnerable if something goes wrong. Lose a key supplier or have a significant quality issue and the knock-on effect is tremendous. Have a pandemic? Well, as we all saw, that quickly became disastrous.
‘Just-in-Time’ has undeniable efficiencies but, in a time of crisis, it also leaves us woefully exposed. With so much manufacturing capacity in China, when China implemented the world’s first lockdown, the supply shock hit the rest of the world almost immediately. The lack of PPE gear being available to Australian, European and American hospitals is an obvious example. Supermarket shortages caused by panic buying is another. It wasn’t that these things weren’t available from a manufacturing point of view, it was that ‘Just-in-Time’ supply chains couldn’t get them to us and no one had stock on hand to get them through the mess.
It’s made everyone re-evaluate their operating model.
Politically, you are now seeing governments push to take back control of manufacturing. Making things offshore is suddenly nowhere near as attractive as it once seemed. It may well still be cheaper, but we now also see it as a lot riskier. Companies around the world, across all industries, are now re-thinking their sourcing models. Risk, and how to spread it more effectively, is very much at the top of the agenda.
COVID-19 has taught us that our accepted way of thinking doesn’t require much of a challenge to quickly become unacceptable. The risks of ‘Just-in-Time’ are now more apparent. The cost of failure has become all too obvious. The pandemic is a stark reminder for everyone that a ‘Just-in-Time’ strategy relies very heavily on an open, free-flowing and error-free supply chain.
So, is time up for ‘Just-in-Time’? Not yet. Cost still has a big part to play and from a cost point of view it still has a lot to offer. But what I do think we are going to see is an evolution of ‘Just-in-Time’ to incorporate a bit more ‘just-in-case’. We will see bigger buffers than we used to when it comes to inventory management. We will see a reappraisal of ‘what we need’ when it comes to ordering quantities and timeframes. We will see a better ‘Just-in-Time’ system.
For that to happen, organisations and governments will have to relook at the vulnerable parts of their supply chains and create more alternates and backups than they have previously had. Efficiency is still important, but resilience is just as important and being able to redirect your supply chain in a time of crisis quickly can no longer be an afterthought.