JIT [Just In Time] has been abandoned by many companies and replaced for JIC [Just in Case]. The covid pandemic, financial crisis and climate change has left its mark. Yet JIT is still the best strategy but deserved adjustment.
JIT was conceived when factories and suppliers were still fairly close together. As a result, the risk of out-of-stock was relatively low and the JIT principle could be implemented. Later, JIT was implemented in global supply chains. Markets became more accessible, trade agreements provided stability, and automation provided more transparency and real-time communication. Because of the previously mentioned disruptions, supply chains became less reliable. Companies switched to Just in Case. Given rising interest rates, labor and warehousing costs at many points in the supply chain, this is not the best strategy.
One of the problems is that companies are overreacting. For fear of going out of stock on any item, inventories are built up at many points in the supply chain. Also, many companies tie up with expensive procurement contracts to guarantee delivery. But the question is whether all parts/products are really that vulnerable.
In 2011, Toyota adjusted its strategy. 500 critical parts were identified. Based on a continuity plan, suppliers were required to adjust their safety stock. This was determined based on lead times and risk. One such part was semiconductor chips. This allowed Toyota to avoid out-of-stock situations without following a Just in Case strategy for all parts. It wasn’t until a year later that Toyota ran into trouble. But its competition, meanwhile, had been at a standstill for longer.
Re-design your JIT network.
What can be learned from the original design of JIT and the strategy is that companies should build a JIT network. Look at which segments can be linked as JIT and build a buffer between them. This does not have to be just inventory. It can also be production capacity, storage capacity that may be shared with “competitors,” or transportation capacity.
1) Map your global supply chain. And do this end to end. Many companies often don’t get beyond their 3rd tier. While disruptions often occur deeper in the chain with small specialized suppliers. Only then can you really map out where the risks are in your supply chain.
2) Once you have a complete map of the supply chain, determine which parts can be merged as JIT segments. Note fluctuations in demand, production cycle times and physical proximity of segments. So a few small suppliers in one country [China] will be fairly stable. If international transportation is already involved, [transportation] problems may arise. Then you need to buffer merged parts or collect those reliable parts on a fixed buffer. That way you link multiple tiers together while still keeping costs minimal by applying JIT in this segment.
3) Create your buffers. As mentioned, this can be storage, back up production capacity or even cooperation with competitors on that part of the supply chain. In doing so, do match the buffer to the upstream capacity versus the downstream segments. You can also use a buffer to serve multiple downstream segments. Or you use the buffer to serve multiple downstream flows. In case a flow gets stuck, that you can still serve your supply chain via the other route. [multi segment adaptation] The advantage of an upstream buffer for multiple downstream flows, of course, is more effective than creating a separate buffer for each flow. So identify the different flows horizontally to then look vertically for optimizations by using sources in common.
4) Improve cooperation with your suppliers. If your relationship is primarily transaction-based, you run the risk that the supplier will drive on price and sell to the highest bidder. Something that also happened during the pandemic. A buffer can partially offset this, but good relationships reduce uncertainty and risk.
5) Use 3rd party purchasing organizations to secure your parts. These purchasing organizations not only by volume, have a lot of purchasing power. They also have better access to different suppliers for the same parts. Jumbo recently also decided to join a European purchasing organization because it could no longer provide all product supplies independently. Something competing supermarkets had already done. Jumbo became out of stock on products where other supermarkets could still deliver.
6) Digital solutions provide further support to make your supply chain more stable. AI can help you with good analytics to spot timely disruptions. Blockchain technology can help securely capture sensitive information within your supply chain. Then it is only available to authorized participants. 3D printing can help make you less dependent on certain products, such as plastic parts.
When the going gets tough, panic is the worst advisor. Leaving JIT for Just in Case is an extremely expensive solution that does not solve the fundamental problem of disruptions. Better collaboration, building a JIT network and applying advised technology will help you develop a stable supply chain, though.