Has the Just-In-Time system run its course?

Can you name a government/firm/enterprise that was prepped to meet the challenges of this pandemic with a streamlined supply chain? I cannot think of any, a few may have been close; however, given the scale and geographic reach, it would have been unique if it happened. Yes, Taiwan, South Korea or Singapore may be on that list. If you, dear reader, can think of a company which saw this coming and flexed its chain, we would love to learn more about it.

With so much being written about the influence of technology in the supply chain, a couple of years ago I wrote “Are supply chain professionals being distracted by the latest shiny object?” highlighting the SC professional’s penchant for gravitating towards the latest in supply chain technology without ensuring that foundational tools were in place. Can we meet our consumer’s demand through good times and bad? Whatever happened to those algorithms and machine learning tools which were supposed to save the world? Yes, technology is an enabler, but understanding the needs and your ability to fulfil them is more critical.

Almost without fail, when there is a natural disaster or a severe weather event, firms like Walmart or Home Depot are way ahead of FEMA (Federal Emergency Management Agency in the US) in meeting the needs of the affected population. Clearly even they didn’t foresee the widespread impact across the supply chain that this pandemic has wrought. Granted they, and several other companies, have efficient and streamlined supply chains and wherewithal to react fast and get products to end consumers sooner than most others. The challenge is their dependency on the manufactures of those products – which are normally produced on a set forecasting & production schedule and delivered to regional distribution centres. Amazon’s algorithms and Prime customer experience failed them – yes these are unprecedented times – and only weeks into it they are getting a handle on the complex logistics needed to get 3rd party sellers and marketplace opened to shopping. A logistics firm, such as 100+ year-old UPS, on the other hand, has plenty of experience flexing their network (heck they just did as recently as Xmas 2019) and delivering millions of packages to end consumers on a daily basis. The challenge for logistics firms, besides having goods to transport if all manufacturing is shut for prolonged periods, would likely have been the impact to their operations because of the “social distancing” constraints and ensuring the health and wellbeing of their front-line employees.

Have we taken this concept of cutting fat and efficiency in our chain too far? In other words, is an efficient supply chain the same as an effective supply chain? It has been painful to watch the woeful shortage of critical medical supplies and desperate pleas from frontline medical personnel for additional PPE. I am sure the C-levels, of some of these for-profit hospital systems, must have been very happy with profits generated because of minimal empty beds or delivering equipment, supplies and patient care just in time. Nothing wrong with providing a reasonable return to their shareholders, but what about other stakeholders? A debate for a different time, without sounding political, is to identify those thresholds on risks, safety and profit.

The question that I have been wrestling with is; has the famed Toyota Just-In-Time System for supply chain efficiency, used in sectors and industries around the world including healthcare, run its course? We will always need an efficient and streamlined supply chain – but how much flexibility should be built in to account for unforeseen events? Of course, there is no previous model that can be referenced which had the scale and impact of this pandemic.

The 2011 Japan earthquake and Tsunami compelled the large auto firms/suppliers to add additional manufacturing capability/location, rethink inventory on hold and even the way they source and produce a majority of the parts in a car assembly. There is little doubt that events of the past few weeks will force the Supply Chain experts to rethink existing models and design more flexible systems. But is there any guidebook for developing a design?

Before Keith Oliver – the British logistician – coined the term Supply Chain, the US formed the Strategic Petroleum Reserve (SPR) in 1975 as a result of the oil shock of 1973. The reserve had an inventory of 635 million barrels as of March 2020, equivalent to 30+ pre lockdown days of consumption or 60+ days of crude oil import. The Pandemic and All-Hazards Preparedness Act (PAHPA) was enacted to “improve the Nation’s public health and medical preparedness and response capabilities for emergencies, whether deliberate, accidental, or natural”. Unfortunately, as recent press reports highlight, the past 20 years pandemic preparedness has been in fits and starts without staffing or a coherent strategy. The stockpiles were either past their use-by date or depleted without being replenished.

The Cybersecurity and Infrastructure Security Agency (CISA) lists 16 critical infrastructure sectors considered vital to the United States. Included in these are health, food and energy among others. While the plans are all-encompassing and have a goal of protecting all sectors of the economy from hazards such as terrorism, infectious disease outbreaks, and natural disasters there are no specific notes on how this is supposed to be executed.

Here is a modest proposal, using the SPR as a guidepost, could we create a “reserve chain” or call it a “strategic reserve chain” in some of these sectors? What would it take to get this done? I am sure from 1973 till the SPR went live in 1975 required a tremendous amount of coordination among different federal departments and agencies. However, the SPR is a crude petroleum reserve and not a stockpile of petroleum products. The model for enterprises in other sectors would have to be modified to accommodate both infrastructure and products. Most enterprises would be taking their lead from CISA and their respective federal agency with their industry oversight. Perhaps this will be a call to action for the incumbents in these sectors to ensure that a defined percentage of their chain acts as a “reserve”.

Briefly, with either healthcare or food supply chain, create a reserve coordinated and housed in the states with the largest population and with the highest impact to the US economy. We could conceivably design a network of “strategic reserve” disaster-proof facilities which house these critical commodities and products through a “reverse-engineered” process – identifying the needs and usage of each of these commodities. Of course, if there is an expiry date for the usage of those products, much like the SPR, we could release it for use either within the US or work with other governments to distribute it to those in greater need.

Can we make it happen? Let’s get started.

This is a guest post from Raghu Ramachandran of 13 Colony Global LLC. you can contact Raghu at [email protected]

Source: Transport Intelligence, April 21, 2020

Author: Raghu Ramachandran