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Today's supply chains are too lean (Supply Chain Dive)

This article was written by Rich Weissman and published on March 24, 2020 by Supply Chain Dive. You can access the original article here:

Today's supply chains are too lean

The COVID-19 pandemic has highlighted the dangers of just-in-time principles.

We called it "The Bubble."

It was a large, white, inflatable geodesic dome that typically held three standard sized tennis courts. It served as an alternative inventory location for my employer, a manufacturer of large capital equipment, when we ran out of room in our warehouses.

During the early 1980s, the production schedule was booming due to strong customer demand, and inventory was our friend. Large amounts of wire and cable, power supplies, electric and electronic parts, and pallets of custom machined parts were tucked away wherever there was a free spot.

Buy, buy, buy. We used the "we’ll need it anyway" approach to inventory management. And it worked. Production lines hummed, suppliers were ecstatic and material shortages were almost non-existent. No one paid attention to the economic clouds gathering on the horizon.

And then it stopped.

Boom times ended and customers canceled orders. Yet the inventory continued to flow in faster than we could cancel or defer it. The Bubble filled and we even stored material outside the warehouse under plastic tarps.

Our corporate overlords decided new management was in order to deal with the slowdown. Within a week of their arrival, everyone in materials management received a copy of Robert Hall’s book Zero Inventories, along with an invitation to attend a seminar on Just-In-Time manufacturing. JIT was a Japanese operations management technique based on the Toyota Production System, used to eliminate waste, align production to demand and have suppliers deliver smaller amounts of materials more frequently.

The shock was sudden and severe, to my company and our suppliers. Manufacturers revamped production lines, eliminated batch processing and embraced single piece flow. Over time, we decreased inventory levels to better align with the new processes, and air was let out of The Bubble.

Problem solved — well, not really.

Zero inventories was not a reasonable policy for my company.

Poor planning, uneven customer demand, quality issues, design inconsistencies and fluctuating field service inventories created the need for reasonable amounts of inventory. But rather than keeping the proper amounts of inventory available, our suppliers were compelled to keep inventory on-hand for immediate release, creating pushback from some suppliers and higher prices to offset their risk.

While inventory levels were down, and financial performance up, it was a fragile truce between supply and demand, and between procurement and the supplier community. Inventory still existed, but it remained in suppliers' hands and off our books.

Fast forward to today, JIT has morphed into lean manufacturing with its resulting organizational streamlining. Global supply chains have been over-developed and increasingly synchronized, and S&OP strains to reach phantom equilibrium between supply and demand.

Procurement is under pressure to meet stringent cost targets. Any excess inventory or supply interruption is our enemy and could impact this quarter’s financial performance. We apply routine workarounds to keep costs under control, abating supply risks such as a spot shortage, a weather event, a supplier vacation shutdown or even some limited cyber risk.

But here we are today, dealing with the COVID-19 pandemic and all bets are off. We have discovered that our supply chains were not robust at all and far too finely tuned with the traditional workarounds failing. No matter the supplier relationship or contract, we have learned how fragile the process is in a global pandemic.

We have become too lean. We are out of inventory on emergency supplies, drugs, medical equipment, cleaning supplies and yes, the ubiquitous toilet paper. Our supply chains are failing, and production is slow to respond.

Everyone is learning what we in procurement knew all along: We are clueless to the extent, opaqueness and responsiveness of the extended supply chain. Even those manufacturing companies ramping up to meet the demand of masks, gowns, ventilators and hand sanitizer are finding shortages of raw materials.

Tight and overextended supply lines, lean manufacturing, outsourcing and overzealous inventory management have contributed to the crisis we are experiencing today. When the emergency passes, I think you will see companies add some fat to their lean processes, increasing inventory and adding additional domestic sources of supply for critical items.

Back in the days of The Bubble, we procurement folks never bought into the overzealous inventory management philosophy. We would often add some safety stock to our orders; our philosophy being "just-in-case" not "just-in-time."

Seems prudent today.

This article was written by Rich Weissman and published on March 24, 2020 by Supply Chain Dive. You can access the original article here:

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