One obvious learning that will come from this ongoing COVID-19 Coronavirus global-wide outbreak will be the ultimate stress testing of Just-in-Time (JIT) inventory management methodologies. With multi-industry supply chain teams continuing their response to many dual product demand and supply network disruptions that are surely going to occur over the coming days and weeks, Supply Chain Matters wanted to highlight this topic for thinking and consideration.
Just In Time Historic Background
The notion of just-in-time inventory management came into being during the 1960’s and 1970’s, when Taiichi Ohno of Toyota, first introduced this methodology to be a process component to the Toyota Manufacturing System.
Essentially the early phases of JIT, when coupled with a parallel Kanban inventory replenishment system, aligned the supply network timing directly with an automotive assembly line production process in order to increase the efficiency of inventory and resources as well as decrease waste. The process avoided the unnecessary build-up of inventory and fostered a Kanban where a designated bin of available stock (Kanban card) automatically initiated the need for supplier replenishment of a particular assembly station.
It was an ideal solution to automotive manufacturing where assembly lines run at a prescribed capacity and production pace. The process was anchored with the notions that key suppliers would provide inventory distribution centers within short driving distance or adjacent to the customer’s production facility, and that supplier inventory distribution centers were linked to regional component production sites. Supplier performance was highly focused on inventory fill-rate performance as well as early warning and resolution to any potential production disruption.
Over the years, just in time methodologies have advanced among a variety of industry settings among manufacturing and retail environments. Today, they have become the basis of regional and global manufacturing and distribution inventory flows and have provided significant cost savings and efficiencies for many businesses, large and small, in multiple industry settings.
CFO’s and CEO’s have subsequently embraced the benefits of just-in-time inventory management in normal times, but this is not a normal time, to state the obvious. This an an extraordinary development with far reaching implications for many industry supply chains.
We provide the above historic background to remind readers of the original design principles of JIT, which are predicated on a highly planned flow of various tiers of inventory components triggered by product demand or process replenishment needs. The notions of localized kanban inventory replenishment are now replaced by automated replenishment planning that spans global networks. and there lies the challenge. The process has since been augmented, and in many cases, automated with today’s more advanced supply chain planning and advanced inventory management systems that integrate and optimize product demand across the various tiers of the supply network.
The heart of the process rests with the establishment of inventory policies, safety stock, and other planning parameters that include component transit and lead times. When all occur according to plan, the process becomes almost self-managing. When one of many parameters are no longer reflective of current conditions, the process has limitations, especially when safety stock levels are not valid when conditions change each day. When inventory visibility is missing below tier one suppliers, processes run blind to a potential further disruption.
There is little question that the ongoing COVID-19 disruption is the ‘Black Swan’ event that literally disjoins all JIT parameters, and thus, is and will require the ongoing attention of inventory planners as well as high level sales and operations planning teams in the days and weeks to come.
As Supply Chain Matters has noted in prior updates, this disruption originated in areas of Wuhan China, and subsequently paralyzed local, and other China based manufacturing, distribution and transportation networks into and out of impacted areas. As China’s various operations begin to come online and eventually, resume to some sustained normalcy, other global regions are being impacted as the virus spreads globally. The impacts involve product demand, supply, logistics and transportation, or all three simultaneously. Plans and safety stock levels that are often predicated to historic data, are likely no longer valid. As the virus spreads, additional workers and consumers became sickened, government quarantines become mandated, and product demand and production and distribution facilities are consequently impacted.
The good news was that many industries had augmented safety stocks in anticipation of the usual shutdown of supply chain activity during the Lunar New Year period in early February. While safety stocks were planned for higher levels, the assumption was that the country’s production activities would resume to normal output in mid to late February.
As broader populations have become more concerned related to the spread of this virus, fear becomes prevalent, and that has led to what only can be described as panic buying of presumed essential products needed as populations are either forced to work from home or ordered to stay home among multiple countries. Literally, weeks, months or even a year’s worth of product demand have been consumed in days.
In certain specific industry settings such as healthcare, medical device, sanitary and cleaning products, product demand is far outstripping current demand, requiring rather difficult and likely painful allocation decision-making.
No doubt, the inventory management challenges are now significant for the very fact that information about demand, supply, manufacturing and lead times are fluid and subject to constant change. Once more, sequential planning processes that take weeks to incorporate needed changes are not going to be able to keep up without internal intervention. As noted in previous updates, if not careful, the bullwhip effect of inflated demand will echo across associated or adjacent demand and supply networks.
Areas to Attend To
It goes without stating that with inventory buffers that are literally evaporating, planning parameters related to orders, inventory, lead and transit times will need to be adjusted on a much more frequent basis. This is a tricky problem because planners know that over compensating parameters can cause planning algorithms to initiate additional problems.
It is thus very important that such changes be controlled by experienced master planners, with the guidance of sales and operations planning teams, and likely senior management in regard to which business scenario is either most appropriate, or most prudent to protect business financial goals.
If not done already, consider the establishment of a dedicated team to focus on changing developments and the most up-to-date information, which is critically important at this juncture.
Control needs to be focused with those familiar with process, applications and systems, as well as scenario-based planning methods that can quantitatively determine best, worst or likely scenario impacts to business outcomes, given certain assumptions. Supply chain inventory optimization technology, that optimizes inventory needs among various tiers of supply networks, coupled to scenario planning capabilities is the usual approach to such challenges.
There may well be scenarios where very tough decisions will need to be made, without a lot of time for additional analysis. That would include informing customers of likely realities of little or no supply in the short-term. Customers can then execute whatever alternative sourcing strategy they might have.
If teams become technically challenged, we suggest you either reach out to respective technology providers to lend their assistance and expertise, or to online forums where planners from various industries share their knowledge and expertise as to approaches. Specialized supply chain planning and inventory management systems consultants and integrators are a further resource for assistance in time of need. Seek out those persons who work with customers frequently on tuning applications for special circumstances.
Today, Cloud based B2B supply chain business networks, that once solely focused on the transmission of EDI transactional, purchase order and inventory messaging can now plan and alert to inventory bottlenecks or potential unplanned disruptions incorporating added analytics and real-time data. If time and budget permits, explore these possibilities.
Forms of on the ground data are now becoming essential, both now, and after the disruptions begin to subside. This is where technologies such as Internet of Things (IoT), sensor and other technologies coupled with real-time information will be beneficial.
The takeaway is that while JIT inventory management provided increased efficiencies for many industry supply chains, COVID-19 is the wake-up call that such processes need to be enhanced to be able to manage extraordinary unplanned events. Sequential planning, and processes that can not factor end-to-end supply chain visibility will not be able to get the job done in an easy and efficient manner.
Supply chain digital transformation and foundational digitally enabled response networks that embrace the connecting of physical to digital processes in various forms of process automation, online collaboration and synchronized decision-making will address such challenges.
In the meantime, invested supply chain talent, executive leadership and overall experience in many areas will collectively pave the way thru various ongoing challenges. There will always be a need for experienced planners , strategists and seasoned leadership to navigate advanced systems thru unique or sudden business changes.
The notion that ‘Black Swan’ events are only that of textbook case study, have been laid bare by COVID-19.
We welcome readers to share their observations and experiences in this area.
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