Although the global COVID-19 pandemic looms large in our current consciousness, it’s hardly the first major event to create significant supply chain disruptions.
Consider the 1998 hurricane that affected Guatemala, Nicaragua, and Honduras. The massive storm wiped out 10% of the worldwide banana crop, putting both Chiquita and Dole in a difficult position. Additionally, the 9/11 attacks on the Twin Towers in New York City resulted in increased security and scrutiny around shipments coming into the U.S., delaying the arrival of many manufacturing components from abroad. Among those affected were U.S. auto manufacturer Ford Motor Company, who had to close five of their plants for several days.
To sum it up, global events have long wreaked havoc on supply chains. So while the size and the scope of the COVID pandemic has been more significant than any events we’ve seen in a long time, it’s not the first event to create logistics challenges.
However, perhaps the pandemic’s size and scope will act as a wake-up call, especially to those organizations who haven’t made changes after past disruptions. For example, a post-9/11 study from the Council of Logistics Management (now the Council of Supply Chain Management Professionals) reported that 9/11 didn’t have a dramatic effect on business contingency plans. According to the study, 60% of the firms surveyed had formal contingency plans in place before the attack, and that number remained essentially the same after the attack. In other words, even the dramatic events of 9/11 and the subsequent logistics fallout didn’t motivate many of the organizations studied to make significant changes to the way they operate.
Returning to our present situation, the question becomes: Will the COVID-19 pandemic change the way organizations plan for global incidents and, if so, how?
One of the changes that is predicted to manifest is a move away from just-in-time (JIT) strategies. In fact, 62% of respondents in a study conducted by the law firm Foley & Lardner LLP expect to see less focus on JIT manufacturing models going forward. Additionally, a study by McKinsey reported that 93% of organizations surveyed planned to increase the resilience across their supply chain. Among the strategies they pointed to were increasing inventory of critical products (47%), second only to dual-sourcing raw materials (53%).
Given these indications that many companies may be moving away from a strict JIT model, let’s take a look at the opposite end of the spectrum—the just-in-case model—and the pros and cons found on both sides.
Just-in-Case vs. Just-in-Time
The just-in-time model originated in Japan with Kiichiro Toyoda, who founded the Toyota Motor Company. Although it was first discussed at the Toyota factory in 1936, the idea started drifting over to the U.S. after the 1973 oil crisis, which didn’t affect Toyota to the same degree it did other manufacturers.
When operating under the just-in-time logistics model, you stock few parts or components, if anything. Instead, when a customer places an order, you, in turn, source the items necessary to fulfill the order from your suppliers, then manufacture the item. Within the JIT philosophy, the focus is on eliminating cost and waste.
Pros of just-in-time include:
- Less possibility of deadstock, since you’re using customer demand to drive production.
- Reduced inventory carrying costs, including storage and warehousing costs.
- More available operating capital. Instead of it being tied up in supplies and inventory, you have plenty of cash, ready to deploy.
Cons of just-in-time include:
- A need for precise coordination with suppliers to ensure that you can meet customer demand. Any small mistake in timing with your suppliers can directly affect your customer delivery dates.
- Increased vulnerability to external disruptions. Companies who employ just-in-time strategies can be dramatically affected by forces outside their control, such as an earthquake that shuts down your suppliers’ facilities.
In contrast, a just-in-case logistics model argues for maintaining extra inventory to provide a buffer—”just in case” something happens. The focus under a just-in-case strategy is eliminating risk.
Pros of just-in-case include:
- An extra buffer against events that might create disruptions. For example, perhaps there’s a UPS shipping delay that’s out of your control—something that’s become almost common during the pandemic. If you have extra supplies in your warehouse, you may not need to pause operations.
- Less vulnerability to supplier issues. As with the delivery delay, you still may be able to continue with production by using your stockpile, even in the face of a shutdown on the supply side.
- Ability to meet customer demand reliably—as long as demand lines up with your forecast.
Cons of just-in-case include:
- Less operating capital, since it’s tied up in supplies and inventory.
- Higher warehousing and storage costs to house and maintain your inventory.
- If customer demand suddenly shifts, the possibility of getting stuck with components and final products that nobody wants.
Additionally, just-in-case strategies simply don’t work for every business. For example, consider the food industry. Whereas a company manufacturing sugar could allow its product to sit in storage for a few weeks or months, a company making baked goods simply doesn’t have that luxury. Perishable food that sits—either on the supply side or on the finished goods side—will spoil, creating food waste.
So, given that there are pros and cons on both sides of the spectrum, how do you go about deciding on a model, one that’s built for the global events of the future?
Creating a Supply Chain Built to Flex—and Carry You into the Future
On a basic level, when your demand is predictable, a just-in-time strategy will work well for you. However, when your supply gets less predictable, a just-in-case model will likely be more appropriate.
Ultimately, though, you may want to think more in terms of a hybrid model. Rather than swinging from a JIT model all the way to a JIC one, you might instead maintain certain aspects of JIT while embracing some new JIC strategies.
For example, perhaps you decide to keep a back stock of your most essential items. For some, this might mean stockpiling some of those perpetual favorites that you know you’ll need year after year. Or, it might involve keeping a higher inventory of an essential component that you can’t source from anywhere else. You’ll have to start by defining what’s “essential” to your company’s processes and then what might be a reasonable stockpile to create that critical buffer.
If you start to go this route, you may need to reconsider your warehouse space. Depending on how much you decide to stock, you may need more room to store components and/or finished products. Some manufacturers are even considering additional warehouses in different cities in order to mitigate the risk of a city-wide event that could create disruptions.
You’ll also want to reconsider your relationships with your suppliers. The pandemic proved to be quite a testing ground for many suppliers. Now that you’ve seen how each handled the situation, it might be time to eliminate some—or diversify so that you’re not relying on a single supplier to keep your manufacturing process moving forward. (More on this in our recent article, “4 Supply Chain Risk Management Strategies for 2021.”)
Finally, rethink your contingency plans. Now that you’ve gone through a significant event, you have some powerful data to help you create a more resilient supply chain. Where were your biggest disruptions, and how can you build buffers against them, using JIC strategies? Let the pandemic be your opportunity to create a plan that carries your company through the next big supply chain disruption.
Discovering Key Lessons from the Pandemic
This is the second article in our Lessons from the Pandemic series on the supply chain and logistics strategies that resulted from this global event. Make sure to check out our first article in the series, “4 Supply Chain Risk Management Strategies for 2021.” Additionally, look for our next installment in the coming weeks.
Want to talk to an expert about preventing the disruptions you experienced during the pandemic? Our team would be happy to talk with you about balancing your JIC and JIT strategies to create a resilient supply chain. Just reach out for a free consultation.
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