The Collapse Of The JIT Supply Chain In 2020

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At the beginning of the COVID-19 pandemic, Supply Chain Dive published an article on just-in-time (JIT) supply chains entitled Today’s supply chains are too lean.

“Global supply chains have been over-developed and increasingly synchronized, and S&OP strains to reach phantom equilibrium between supply and demand,” the piece argues – long before global supply-chain disruption hit its peak.

Seventeen months later, and some people believe we might have witnessed the death of the JIT supply chain.

What is JIT

Japanese automaker Toyota pioneered the JIT manufacturing model, which was initially hailed for its industrial efficiency. The process saw parts, products, and components delivered to Toyota’s factories only as and when they were needed, minimizing the company’s need to stockpile excess inventory.

This approach to manufacturing quickly caught on across multiple industries, enabling companies to reduce both their waste and warehousing costs, and pivot to accommodate changing customer demands. With less money being spent on storing and preserving excess inventory, brands could instead invest in technology, product customization, and developing a broader range of goods.

The collapse of JIT supply chains

The unprecedented events of the past year have seen organisations around the world scrabbling to acquire the products and components they desperately needed following decades of limiting their inventories and establishing highly lean supply chains.

Over time, retailers have drastically reduced their in-store inventory levels, which meant they were entirely dependent on frequent deliveries from suppliers and not readily able to adapt to fluctuating consumer demands. It’s hard to forget the endless footage of empty supermarket shelves as fears of supply chain collapse led consumers to stockpile household essentials like toilet paper, hand sanitiser, cleaning supplies, and other groceries.

Automakers across the globe were also forced to halt their assembly lines due to a shortage of computer chips, which are largely produced in Asia. As the New York Times points out, this is particularly ironic given that it was the auto-industry that first invented and adopted the JIT model.

Meanwhile, healthcare supply chains struggled to acquire personal protective equipment (PPE), ventilator components, nasal swabs for COVID tests, and other drugs and medical equipment. During the pandemic’s early stages, healthcare professionals and other frontline workers struggled to acquire adequate equipment and protective gear. As existing health care suppliers struggled to sufficiently ramp up production, manufacturers from other industries repurposed their operations.

One of the biggest problems with the JIT supply chain model is that any excess inventory remains in the hands of suppliers. Should a highly disruptive event, like a global pandemic, drive increased demand for certain products, suppliers have the power to decide where to send their limited stock. For organisations that had long relied on single-source suppliers, alongside favouring the JIT supply chain model, this served as a harsh reminder of the value in contingency planning, developing meaningful and trusting relationships with their most critical suppliers, and storing excess inventory.

The future of JIT supply chains

Some are doubtful that there will be any long-term shift towards just-in-case (JIC) supply chains and organisations will quickly revert to their old habits. While the risks associated with the JIT supply chain model and complex supply chains have been well documented in recent years, the cost efficiencies and flexibility associated with JIT supply chains are simply too enticing.

It’s more likely that the chaos of the last 18 months will compel organisations to take their risk mitigation and contingency planning efforts a little more seriously. Supermarkets and other retailers, for example, will likely invest additional resources into e-commerce and automation, which would see the development of new, more localised fulfillment centers and increased inventory.

Speaking to the New York Times Mr. Shih from the Harvard Business School said “The real question is, ‘Are we going to stop chasing low cost as the sole criteria for business judgment?’ I’m skeptical of that. Consumers won’t pay for resilience when they are not in crisis.”

 Alex Hadwick, writing for Reuters Events, shared this sentiment: “There simply isn’t enough margin in many supply chains to do away with JIT and its overall efficiency. Therefore, massive inventory buffers aren’t suddenly going to make a return.”

Instead, organisations will likely opt to simplify their supply chains, near-shore or re-shore their operations, and implement more robust contingency planning to mitigate against future risks.

About Author

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PASA (Procurement and Supply Australasia) is the leading provider of information, education and networking opportunities to procurement professionals throughout Australia and New Zealand. PASA supports the largest community of engaged procurement stakeholders in the region, through its renowned series of events, publications, training, awards and PASA CONNECT membership network. PASA is a trading name of BTTB Marketing Pty Ltd. BTTB Marketing has operated under the BTTB, CIPSA Conferences and PASA names for over twenty years. https://procurementandsupply.com/

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