Although hardly any companies were working exclusively with a Just-in-Time or Just-in-Case strategy, the coronavirus pandemic has triggered a shift in the balance. After years of Just-in-Time being the preferred approach to inventory management, Just-in-Case is now attracting ever-more attention. But is that really the best solution to survive the current crisis? Or are there other ways to create supply chain reliability and safeguard business continuity in these uncertain times? Here, we examine the options.
Just-in-Time vs Just-in-Case
Just-in-Time inventory management has evolved into an art form over the years. When it is executed effectively, it results in little to no stock, a strong cash position and sufficient working capital to finance the other business activities. As long as there is delivery reliability and good alignment with suppliers, components and semi-finished products can be sourced from all over the world. But, as the coronavirus crisis revealed, this model is also extremely fragile; a delay anywhere in the chain can bring the entire process to a standstill. To minimize that risk, many companies have now decided to hold more stock – but even that’s no sure-fire solution amidst the current uncertainty. After all, a Just-in-Case approach ties up working capital and takes up valuable warehouse space. Now that there is such volatility on the demand side too, the supply chain is under pressure from both sides.
Is diversification the solution?
Spanning multiple countries and often even multiple continents, today’s supply chains are longer and more complex than ever. The coronavirus crisis has illustrated just how big the impact of disruption can be. The situation was already tense due to the trade war between China and the USA, the threat of import tariffs for the EU, and the Brexit situation. That’s why countless manufacturers had started making moves to switch to alternative suppliers in Cambodia, Vietnam or the Philippines – but that didn’t help to address the distance problem. Besides that, the new suppliers were still in the process of finding their feet in the well-oiled supply chain machine. Then, the coronavirus situation escalated so quickly and dramatically that many simply didn’t have time to scale up or down and the supply chain ground to a halt.
For many companies, recruiting new suppliers is just one way of safeguarding a healthy future. To guarantee business continuity and keep their companies afloat, various manufacturers have adapted whole sections of their production lines and supply chains in a short space of time as creative responses to changes in market demand. Just two examples include switching from the production of alcoholic spirits to hand sanitizing gels (e.g. Hooghoudt). Or from mattresses to medical face masks (Auping). The lessons learned in this process pave the way for innovations and improved supply chain agility.
In the meantime, other manufacturers are seeking the answer in even greater efficiency and digitalization, albeit from a different angle. The focus used to be on optimizing operational efficiency and uncovering weak spots. Nowadays the emphasis is increasingly on the use of data to identify opportunities and risks in the end-to-end supply chain. Companies are less and less willing to accept data gaps, a lack of real-time visibility and paper-based waybills. In other words, the coronavirus crisis is intensifying and accelerating the digital transformation that was already underway.
The coronavirus crisis has not only revealed the vulnerability of most of today’s supply chains. It also highlighted that globalization has gone too far in some respects. The quest for ‘faster and cheaper’ has created excesses. Such as a Dutch dairy producer importing fruit from South America as a yoghurt ingredient, while that same type of fruit is being grown on home soil for export to Russia. As IDS freight manager Robert Mulders previously observed, manufacturers are increasingly concluding that it makes more sense to source some products closer to home. So it can’t hurt to look at the supply chain from a ‘penny wise, pound foolish’ perspective.
Focus on resilience
A production model based on low costs and minimum inventory enables companies to compete on price. That ultimately leads to a ‘winner takes all’ situation. That model has long been accepted as the dominant market strategy. However, the coronavirus crisis demonstrates that competing based on dependability, resilience or adaptability is a more future-proof approach. There is no simple solution. The challenge is to strike the right balance between more inventory, digitalization, a broader supplier base, sourcing closer to home and new sales opportunities.
At IDS, now more than ever, we work together with our customers to help them make their supply chains more resilient. Contact Arno Spoek for more information.