Prior to Covid-19, a lean, just-in-time global supply chain model was ideal. Fast-forward through shelter-in-place measures, geopolitical strife, the “great resignation”, catastrophic weather events, etc. and you may be wondering – how did the JIT supply chain model fare?
In this post, we’re analyzing the state of just-in-time supply chains before and after Covid-19. Keep reading to find out how you can build a lean yet resilient supply chain to support you through whatever the future has in store.
What are Just-in-time Supply Chains?
Just-in-time (JIT) supply chains are a type of inventory management system where raw materials, parts and other resources are ordered and delivered as needed by the manufacturer. Ideally, the JIT supply chain streamlines production flow and eliminates redundant costs associated with maintaining large inventory stockpiles. When used correctly, this supply chain strategy can reduce lead times, improve quality control and increase efficiency.
These lean supply chains are built around delivering the correct quantity of materials and components at the right time to meet customer demand, all while minimizing storage costs and waste.
By providing a continuous stream of materials, manufacturers bypass the need for large inventories, reducing warehousing costs and freeing up capital for more productive uses. The resulting quick delivery times enable manufacturers to adjust production output in real-time according to shifting market conditions.
Smaller inventories, accurate forecasts and continuous communication between suppliers and customers are vital elements of JIT systems. By reducing the amount of inventory that needs to be stored, they significantly reduce warehousing overhead costs.
Advantages of Just-in-time Supply Chains
Just-in-time supply chains become popular due to their ability to reduce cost and increase efficiency. The most notable advantages to this type of supply chain structure are as follows:
- Cost savings: Saves money by reducing the amount of inventory storage space, time, labor and resources necessary for replenishment.
- Quick delivery: Greater efficiency leads to faster delivery times.
- Reduced waste: Eliminates overproduction and waiting time, minimizes product defects and promotes more efficient processing.
- Increased cash flow: Better inventory management means less capital is tied up in excess inventory.
- Faster response times: Shorter turnaround times and fewer processes make the supply chain more agile.
- Customer satisfaction: Faster fulfillment times makes orders more likely to arrive on time, which improves the customer experience.
Just-in-time Supply Chain Risks
Like any supply chain model, JIT supply chains have their downsides.
For starters, they’re especially vulnerable to disruption by external factors like natural disasters, labor strikes and geopolitical upsets. And because they rely heavily on demand forecasting, poor forecasting can lead to costly inventory shortages or surpluses.
It’s also important to note the role suppliers play in JIT’s success. If you don’t have reliable suppliers that consistently provide quality goods in a timely manner, a just-in-time supply chain structure will not succeed.
How Covid-19 Impacted the Just-in-time Supply Chain Model
Just-in-time supply chains are especially vulnerable to events that trigger a major shift in customer behavior and Covid-19 transformed customer demand overnight. Because manufacturers were unable to forecast this change, they did not have the supply necessary to meet shifting demand. A typical supply chain would have a reserve of materials/inventory ready to adapt to this shift.
JIT supply chains rely on suppliers to meet their needs in real-time. Covid-19 triggered major disruptions in supplier networks including shortages of both materials and labor, cutting off their ability to meet the JiT manufacturer’s needs. This resulted in major shortages and delays at all stages of the supply chain.
After an onslaught of supply chain disruptions, it’s no wonder manufacturers started seeing the JIT model as a liability.
Prior to the pandemic, supply chains attempted to procure materials and components for the lowest possible cost. The origin didn’t matter as much. Order fulfillment times were easily predictable via supply chain management and ERP software to predict order fulfillment times.
Once the pandemic hit, predictability went out the window. Supply and demand were completely out of balance. Manufacturing disruptions at every step of the supply chain triggered bottlenecks at ports. And with inflation raising costs, the just-in-time model became too much of a liability.
The Case Against Just-in-time Supply Chains
Not everyone is in support of continuing the just-in-time supply chain model.
Gad Allon, Ph.D., Wharton professor and director of the Jerome Fisher Program in Management & Technology, believes:
“Just-in-time [JIT] is great for reducing costs and building a lean supply chain has provided fairly good control over value. But a laser focus on lean may mean that the supply chain is not aligned with the strategy of the firm.”
While reducing inventory and building a lean supply chain has its benefits, the supply chain must remain in alignment with its overarching strategy. Lean is not the “north star”, but rather a means to an end. Manufacturers must stay prepared to shift gears when faced with potential disruptions.
How to Make Just-in-time Supply Chains More Resilient
Here’s how manufacturers are taking action in response to the port bottlenecks and other supply chain disruptions:
Many manufacturers tried onshoring vendors for supplies they typically source from overseas. While sourcing overseas reduced costs before, inflation and revenue lost due to delays outweighed the benefit. Covid-19 made manufacturers more willing to pay higher prices for faster, more predictable delivery.
Another common alternative is the vertically integrated supply chain. Companies utilizing this structure are either acquiring companies that already produce the necessary raw materials or building facilities to produce the materials in-house.
Many manufacturers are diversifying their vendor base. Instead of sourcing from a couple of vendors, they are forming relationships with additional suppliers to diminish the risk of delay.
Increased Supply Chain Visibility
Data has become increasingly vital to supply chain survival post-Covid-19. More manufacturers are prioritizing complete supply chain transparency, with analytics on every step from vendor relationships all the way to the customers. The increased visibility can improve supply and demand forecasting and optimize inventory management.
The Future of Just-in-time Supply Chains
While Covid-19 did mark just-in-time supply chains as a liability, they aren’t going anywhere anytime soon. Companies are always looking for ways to reduce costs and increase efficiency, which is why many are using the pandemic as a wake-up call for upgrading their tech stack.
Software capabilities are only growing. New tools like predictive analytics and AI-driven automation promote resilience by enabling faster response times and more accurate supply and demand forecasting. In the future, just-in-time supply chains will utilize increasingly advanced software to remain agile and resilient in the face of disruption.