Dated : Aug 22, 2022
You have been in the business world for many years, or maybe you just graduated – either way, you are now an expert with all the “rules” that will help you put together the perfect Supply Chain.
Enter the year 2022. Suddenly, your business is in trouble. Your raw materials are not arriving on time. Your production has come to a stop due to missing components. Your work force is frustrated by production delays. But you have not changed your rules of engagement. Is that the problem?
The most over-used, but continuously applicable, term heard over the past few years is “Supply Chain Disruption”.
Factors including geopolitical issues related to global warming, political turbulence throughout the world, the Covid-19 pandemic, and the Ukraine-Russia war, have resulted in Supply Chain turmoil going into high gear.
Supply Chain disruptions are changing the rules of Supply Chain Planning (SCP). Many of our manufacturing and process improvements over the last few decades have greatly reduced our lead times, costs, and efficiencies. Are they still effective in today’s world? They certainly deserve a second look. We have selected three different SC concepts that have been successfully used over the past several years and discuss some of the changes that may need to be considered.
Traditionally, the concepts of JIT are quite simple (although not always easy to implement).
Although the cost, efficiency and cash flow benefits are certainly huge benefits of JIT, we also introduced many risks in the process.
The recent SC disruptions have augmented the risk factors due to the impact of both the demand and supply components of the supply chain. JIT inventory policies rely on optimistic levels of demand and supply variations. Demand in many cases has either hit unprecedented levels (cleaning and health supplies) or dropped over the cliff (restaurant and travel industries). Labor and material shortages have caused a serious impact on supply. The shortage of even one component could shut down a production facility. This steady stream of JIT supply, production and demand has virtually ceased to be reliable. Standard risk management methods were not enough to prepare for the extreme volatility that we have seen in the past two years.
Can we now afford to be “too lean”? Is JIT doomed? Or does it simply need to be transformed? Cost is an incredibly powerful driver; therefore, JIT inventory will not go away. Some of the inventory rules will however need to be relaxed. We need to consider a shift from JIT inventory to “Just-in-case” inventory, for example, especially for our critical components. We also need to revisit our key performance indicators. If your main objective is to minimize inventory, and you are measured on this objective, you run the risk of unprecedented levels of unpreparedness. A pandemic-type of occurrence will be virtually impossible to navigate through.
What are some of the transformations we need to consider to better prepare for the next disruption? Consider some of the following ideas:
To be continued
Part 2: Revisiting our Global Sourcing Rules
Part 3: A new approach to Vendor Selection and Supplier Performance Measurements