"Just In Time" Becomes "Just In Case"

Similarly to most people after quarantine, lean manufacturing isn’t quite as lean anymore. As vital inventory failed to arrive when it was needed by manufacturers across a wide range of industries, serious shortages and delays resulted. Due to the increased lead times caused by border closures and other delays, manufacturers stocked up, attempting to ensure that they had more than enough to complete the task at any given time, which is the polar opposite of the “just in time” lean manufacturing system that had been in place.

Just in Time manufacturing presupposes a world with little frictions: open borders, predictable demand, and low transportation costs. This is no longer a viable option. Inventory serves as a type of protection against unanticipated delays. And, despite the fact that insurance is expensive, firm executives appear to be eager to pay for more of it. The balance of efficiency and self-insurance, between Just in Time and Just in Case, has swung significantly in favor of the latter. Larger stocks also mean more room for future inventory cycles.

Speed and efficiency are now at odds with security and resilience. When Just In Time fails, it causes problems all over the world: ports become overburdened with containers, trucking companies become overburdened with orders, factories become buried under a backlog of goods, and frustrated consumers are unable to obtain new cars, refrigerators, or electronic equipment. In a poll of senior supply-chain executives conducted by McKinsey & Co. in July 2020, 91 percent said they had had problems with suppliers, and 93 percent said they wanted to improve supply-chain resilience. Now, the Ukraine conflict is reiterating the same lesson: having a first-class supplier in China or Eastern Europe is meaningless if supply routes are likely to be disrupted by war or plague.

Pivoting from Just In Time to Just In Case involves establishing back-up suppliers; looking for suppliers closer to home; forming partnerships with critical component suppliers; or increasing inventories. According to a McKinsey poll conducted in November 2021, 61% of companies boosted their inventory of crucial products and 55% ensured that they have at least two sources of raw materials. Warehouse expenses are rising as the industry grapples with labor, material, and space shortages.

The fixation with being 'thin' will give way to a tolerance for being 'fat.' Manufacturing systems will be designed with a lot more redundancy. As corporations tie up capital with inventories or spend money on insurance in the form of back-up providers, price pressures will increase. Companies will cut supply chains when they determine that relying on Asia for critical parts is too risky.

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Sources: https://www.usccg.com/blog/is-the-just-in-time-jit-manufacturing-model-dead/; https://www.economist.com/finance-and-economics/2022/06/02/the-return-of-the-inventory-cycle; https://www.moneycontrol.com/news/opinion/the-world-is-moving-from-just-in-time-manufacturing-to-just-in-case-management-8261661.html