Just In Time?ByRaymond D. Matkowsky
Just in time inventory control was pioneered by Toyota, the Japanese car company, approximately sixty years ago. The idea was to allow companies to save on inventory costs. Some companies would stretch just in time policies to receive shipments just hours before use rather than days. It works best when deliveries were synchronized with manufacturing.
Covid-19 exposed the flaws in the system. It doesn’t have to be Covid-19. Any “Black Swan” event would have the same affect. There are too many people and companies involved, from the suppliers of materials, the shippers, and the local delivery truckers among many. Most people would not bet against a “Black Swan” event occurring in the future.
Suppliers have to have flawless delivery schedules. However, suppliers had reduced their workforce and material purchases. When demand surged unexpectedly, they couldn’t replenish their customers. When some things go wrong, the whole supply chain falls apart. When the supply chain falls apart everyone suffers.
With the appearance of a “Black Swan” (In this case: Covid-19), some are saying that the long dominance of Just In Time inventory control has come to an end. I doubt that will happen. Very few companies can make the switch overnight. However the system is in need of modification.
Increase Inventory?
Should you increase your inventory so you could keep operating? The answer is yes and no.
Most managers will not want to ditch Just In Time. The system has over sixty years of a constructive record. Most would not want to give up the savings it offers.
In the same token, you will have to give up some savings to insure smooth operations during times of stress. The question, of course, is how much savings you have to give up versus what you would lose during times of disruptions. Also, how smart are you going to be in deciding what savings to give up?
You could order and store enough inventories to keep running for one or two or three months. Presently, supply chain disruptions have exceeded nine weeks. You would go from Just In Time inventory control to Just In Case inventory control. This would solve your immediate problems and possibly be profitable. However, there may be different and more profitable solutions. Let me give you an example of one such solution.
What Is The Need?
Recently, I had been made aware of a company that applied some “brainpower” into their supply chain problem and did so before the supply chain disruption became critical. Also, this company does not manufacture any of the components it uses in the final product. It would be put out of business by supply chain problems if it did not do something.
The first thing the company did was to organize a committee and charge it with the task of determining the need for products and quantities to manufacture during a pandemic. The manufacturing of the rest of the product line would be suspended. Once these judgments were made, the company, taking increased delivery times into consideration, then ordered only the components needed. These components would be utilized as soon as possible. New orders would be placed as previous orders dwindled. Again ordering, they would take delivery times into consideration. The result was a modified Just In Time situation which allowed them to keep operating while holding inventories to a bare minimum.
Conclusions
Companies must determine what kind of flexibility they have during adverse conditions. It doesn’t have to be a “Black Swan” event. The same reasoning may also serve well during recessions.
Just In Time policies do require some modifications. Depending on the company needs and their customers needs, every business will have to tweak their policies in their own way. Once this is done many companies may proceed as they would under Just In Time procedures that are reasonably adjusted for shipping delays.
Do you have any comments or other suggestions, please share them with your fellow readers. Email me at rdm@datastats.com.
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