So, according to new research, the ongoing disruption could be the death knell for the “just-in-time” (JIT) supply chain model. Manufacturers who once relied on the JIT model are now said to be finding ways to become more resilient and less exposed to future unforeseen risks such as pandemics.
The survey by industry group Make UK included 228 manufacturers, 35% of whom switched to domestic rather than international suppliers as a way to combat disruptions in international supply chains. says he is planning to A similar number (31%) said they plan to move some or all of their production to the UK.
It’s the same everywhere. A similar survey can be conducted in virtually any region and yield similar results. Even if the UK Brexit factor is taken into account.
But is the JIT model really doomed? After all, it has been around for over 70 years, and has served thousands of companies in that time very successfully.
Toyota spreads JIT production to the world
JIT (also known as “lean manufacturing”) began to gain traction in the 1950s. This followed a visit by Toyota President Eiji Toyoda to the Detroit automaker. Toyoda was appalled at the amount of waste and lack of innovation he saw.
When he returned to Japan, he was so shocked that he cut back on excess inventory and only ordered components and spares when needed. It overtook the American automaker that was the first to drive efficiency savings.
Toyoda has recognized that JIT manufacturing can reduce costs and increase efficiency, and little has changed since then. Firms only produce goods after buyers have ordered them, with the goal of keeping inventories low.
Another method is the standard inventory-based production model. In this model, companies order materials in bulk, produce as much as possible in one shipment, and repeat rinsing when inventories start to run low.
Apple’s Tim Cook is today’s high priest of JIT manufacturing.
The modern-day high priest of lean manufacturing is undoubtedly Apple CEO Tim Cook. Cooks hate inventory. He once told Forbes that he feels it’s “fundamentally bad.” “So who wants to buy spoiled milk?”
He joined Apple in 1998, when the company was in decline. Less than a year later, it was profitable thanks to the introduction of his JIT manufacturing model, which Cook oversaw during his IBM days.
His manufacturing plan sees Apple cut its supply chain vendors from over 100 to 24 and cut its warehouses in half.
Today, Apple can rotate inventory once every five days, and its ability to launch, manufacture, and ship millions of iPhones around the world like clockwork (virtually no excess inventory) is the result of JIT. It is considered a miracle.
However, as the Make UK report suggests, the JIT model is susceptible to both demand and supply shocks, and there have been several in the last two years.
This is why the Apple JIT miracle has been thinning in the ground lately, but not so much as the supply of microprocessors that run the company’s iPhones. Labor shortages have also hit Apple’s ability to sell inventory at lightning speed. As a result, the company missed its fourth-quarter target, with supply constraints slashing his US$6 billion from the topline.
Lean Manufacturing Exposed by Skilled Labor Shortage
However, the JIT model most affected by the pandemic is the grocery, general merchandise, and consumer goods (CPG) model. These are badly exposed.
Rajesh Shetty of the Boston Consulting Group told Reuters that “suppliers were unable to meet the sudden surge in demand for raw materials, and CPG was replenishing retailers fast enough to keep up with fluctuations in demand. No,” he explains.
He added that reliance on an “aggressive JIT model” “is exposing companies to further performance degradation.”
There’s no question that low inventory boosts a company’s bottom line, but running a business this way is a pivotal act of adjustment. From sourcing raw materials for manufacturing to timely delivery, everything must be perfectly synchronized.
Such a high-wire act is difficult at the best of times, but recent headwinds have caused some serious wobbles. Some have collapsed and died, including the myriad of small energy providers in the UK that have been wiped out by the sudden surge in energy prices.
Pandemic Won’t Kill JIT Supply, But Will Change It
But even years of supply chain disruptions are unlikely to be the end of JIT manufacturing, as predicted. But it will change its nature.
For example, Apple will start developing its own chips instead of relying on Qualcomm chips. The company hasn’t abandoned his JIT model that has made him one of the most recognizable brands in the world for less than a million years. Just try to reduce risk and increase resilience.
Similarly, other companies “reshore” production, making their JIT models less susceptible to adequate buffeting from supply headwinds.
And digitization, done well, can make supply chains much more agile and able to withstand severe and protracted disruptions in both JIT and traditional supply models.
No. JIT is not a terminal. It’s just undergoing procedural surgery.
