In our published research and in ongoing Supply Chain Matters blogs we have pointed out to clients and readers that in the post COVID “new normal,” supply network resiliency takes on more dimensions of active risk mitigation and management. The implication is that proactively managing supply resiliency involves a constant balancing of both efficiency and resiliency needs and a subsequent alignment among sourcing and procurement as well as manufacturing operations and inventory management teams.
Current business and general media headlines have provided an specific industry example of new dimensions of risk, namely the current shortage of semiconductor chips that is impacting the global automotive industry. In our last Supply Chain Matters blog reflecting on this disruption, we cited observations from a position paper from the Electronic Components Industry Association (ECIA) regarding this chip shortage. This paper observed that the auto industry’s intense focus on cost optimization manifested in just-in-time inventory management could and should have been balanced with a pragmatic view of a condition of a global-wide shortage of various semiconductor components contrasted with the extreme cost of an idled auto production line. In other words, traditional industry just-in-time practices must be attuned to risk, and that may include decisions related to augmented safety stock.
In the previous Supply Chain Matters guest blog contribution, Lean manufacturing for Today’s Customer-Driven Supply Chain, author Richard Lebovitz, a recognized thought and technology leader in Lean Manufacturing reflects on the history of Lean thinking, his Japan based training in Lean Manufacturing practices anchored in the Toyota Production System.
He reflects on the ongoing COVID-19 supply chain disruptions and the current reported split views of whether supply chains were too lean during the pandemic. In his manifestations of how Lean manufacturing will transform modern manufacturing, Lebovitz addresses revisions in classic just-in-time thinking. The notion raised is a realization that success is not about achieving a zero-inventory, but rather forms of product demand driven hybrid models that: “. can quickly scale up and down, adjust on the fly, and make the best possible inventory decisions for the business at any given time.”
Amid the current semiconductor component shortage impacting the automotive industry, we can apparently again look to Toyota.
A recent published report by Bloomberg is headlined, Toyota Broke Its Just-in-Time Rule for the Chip Shortage (Paid subscription or metered view). It indicates that in contrast to the rest of the industry, the automaker is not expecting a shortfall of semiconductors. In the company’s recent earnings briefing, Toyota’s CFO indicated that: “as part of its business continuity plans, Toyota- which makes more than 10 million cars a year- had secured ‘one to four months of stock if necessary’ for various components.”
Bloomberg reports that the company’s inventory levels have ticked-up for the last decade, including the global financial crisis and various natural disasters that have occurred in Japan and Thailand. These incidents caused the creation of a of an inventory analysis process that involves upwards of 6,800 parts termed “Rescue” that analyzes all tiers of the supply network. The company’s CFO indicated to analysts that this process includes constant communication with multiple suppliers at all levels.
What especially caught our attention was the statement that that Toyota’s average inventory levels over the last five years have been one of the highest in the auto sector. Yet, the auto maker has weathered the global COVID-19 disruption and has maintained decent profitability levels.
This report concludes with the statement:
“Looking to Toyota today, car companies may discern another lesson for the future: Lean supplies may help efficiencies under normal situations, but they aren’t enough to weather a storm.”
Finally, we call reader attention to a report released this week sponsored by Association for Supply Chain Management (ASCM) and The Economist Intelligence Unit titled: The Resilient Supply Chain Benchmark, Turbulence and the resilience imperative. This report dwells on the implications of global supply chains moving from over three decades of leanness, efficiency and cost control to the new challenge of having to now factor the balancing of efficiency and needs for resilience in various dimensions. The report can be downloaded on a complimentary basis by clicking on the title above and entering registration information.
This author was one of six expert panelists cited in this report.
Indeed, the “new normal” of business will require more dynamic balancing of efficiency as well as resiliency in the notions of supply risk defined in the notions of global demand and supply imbalance, supplier specific, transport interval or other dimensions. Information needs cannot be static and thus information integration technology is going to play a far more important role.
In this context, stay tuned for an announcement of a coming Supply Chain Matters Podcast session that will discuss these challenges that will be featured at the end of March.
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