Tectonic plates change the Earth’s contours. We experience worldly modifications as earthquakes… scary at times and amusing other times. Unless you live on the west coast, tremors are not something we tend to confront often, yet their unseen movements form our continents, mountain ranges, lakes and oceans. Logistics and supply chains are very similar to tectonic plate shifts. We know they exist, but rarely think about them.
Over the decades, businesses have developed processes to increase cost efficient delivery of goods. For example, attempts to lower manufacturing costs led to offshoring manufacturing to countries such as China and Mexico. Over time, this gave those countries economic durability and allowed the U.S. to focus on higher level research & development undertakings.
Carrying inventory is an expensive proposition. This includes the inventory of raw goods to be used to manufacture products or finished products ready for sale to the final customer and everything in between. In order to minimize inventory carrying costs, firms developed “just-in-time” (JIT) inventory management. The idea is to carry only enough inventory to ensure the company runs smoothly with material to be delivered just-in-time for manufacturing or sale. As you can imagine, highly reliable supply chains are crucial to JIT given the global nature of product manufacturing and modern economics.
A little history, JIT was developed about 50 years ago by Japanese car manufacturers looking for any way to gain a leg up on U.S. car manufacturers, the dominant player until the early 1970s. JIT gave Japanese car companies the ability to offer more affordable automobiles and has moved beyond the automobile industry into almost every industry, creating and improving other industries such as logistics and shipping.
Fast forward to 2020 when COVID repercussions jeopardized the finely tuned global delivery systems. Like tectonic plates, we rarely consider supply chains, yet current hang ups forced us to recognize such mundane operations. To counter JIT’s supply chain reliance, companies are beginning to entertain “just-in-case” (JIC) inventory management. JIC maintains enough inventory for business to run smoothly with foreseeable impediments.
What does this mean? As mentioned, JIT was developed a cost reduction effort. Hence, JIC will likely add to the cost of products over time due mainly to storage and financing costs. At the same time, JIC can increase a company’s competitiveness (having material/products available), take advantage of bulk ordering and reduce lost sales from lack of product availability. A direct benefactor may be warehouse/storage space, financial firms (offering financing) and large companies that can shoulder the added expense.
As we enter the fourth quarter 2021, we continue to suffer from COVID ramifications. Like tectonic plates, logistics and supply chains are something we don’t think about until we are forced to recognize disruptions. Logistics and inventory management is a mundane, yet crucial aspect that companies shield us from. Given the supply chain entanglements, we’ve become a little more aware of the things that make modern life a little easier.
CRN-3877429-102021
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