Inventory Models For A Post-Pandemic World
If Just-In-Time Is Broken, How Can We Balance Efficiency And Continuity?
29 April 2020 // One of COVID-19’s unanticipated supply chain effects has been to reveal the shortcomings of just-in-time inventory models.
Earlier this month, the Wall Street Journal (subscription required) reported surging warehouse demand as companies caught without adequate goods near consumption sites in the crisis work to adapt.
“Rapid adjustments will give way to longer-term changes in how companies manage their supply chains,” the story explained. “This will likely include more robust e-commerce operations and more “safety stock” positioned around the country as businesses soften their lean-inventory strategies.”
The WSJ piece emphasized consumer products, food, pharmaceuticals and temperature controlled goods as particularly affected. In our own practice, we have seen similar shortages and “rapid adjustments” even with tech infrastructure and telecom clients.
And, really, who can blame the industry for not considering this true, black swan event?
This mess has been a long time in the making. Over the past several years, companies have squeezed millions of dollars from their manufacturing and distribution processes as they sought to minimize inventory and transportation costs while maintaining product availability.
That’s a tough balance, because cost and availability are often in conflict. Position generous supplies of every SKU near your customers, and you’re going to have a lot of cash tied up in inventory. Skimp on that stock, and you’ll have unhappy clients. (You may also end up spending a lot more expediting shipments and putting out fires.)
Improved visibility helps mitigate some of the risks of complex chains of custody and reduced stock. At Morgan, we’re fans of digitizing and coordinating data from across the supply chain—so much that we created an award-winning, cloud-based platformfor just that purpose.
But there’s more: Supply chain managers have developed lots of strategies to sidestep the conflict. For instance, vendor-managed inventory keeps goods onsite but off the OEM’s book. It can be an effective way to buffer supplies, but the cost of that extra stock is borne by someone, even if it’s not you. So, eventually those dollars make their way back through the supply chain in the form of upcharges from suppliers.
Just-in-time theory, an outgrowth of the famous Toyota Production System, holds that the best process is one in which value is constantly added to goods. They’re never sitting at rest in a warehouse. Instead, they arrive at each point in production as workers are ready to work on them or move them. In the end, those goods reach customers exactly at the moment of purchase and consumption.
That ideal is a great vision and one with which we agree. Waste should be relentlessly identified and eliminated. But, what happens to the ideal when sudden disruptions change timing in transit? Like, say, a global virus pandemic? Suddenly, nothing is where it needs to be, and the mechanisms to get it there are all broken.
Morgan’s pioneering Inventory On Demand™ service helps to bridge the gap between the ideal world and common-sense buffer levels. With this inventory solution, Morgan buys goods from factories or suppliers on behalf of clients. Then, we own those goods in transit as they are moved efficiently towards their destination—using consolidations and slower transportation modes where possible. Morgan can even own buffer stock near consumption sites.
Inventory On Demand™ doesn’t solve every problem. If you’re trying to keep goods off your balance sheet for extended periods of time, it’s really just another form of supply chain finance.
Still, 30 days or more of buffer time can make the difference between making a customer happy or making them go elsewhere. It can mean ocean rates instead of air. Or heavyweight consolidations instead of small shipments.
And, when events conspire to rock your world (or the whole world’s world) for a few weeks, those extra materials you have on hand without the burden of ownership can provide breathing room to make adjustments as you keep filling orders.
Heard On The Dock
“There's a lot of inventory that made its way across the ocean and needs a place to go.”
--Karl Siebrecht, Chief Executive Officer, Flexe
(Wall Street Journal 4/13/20)
While You Were Shipping…
More Recent Stories You May Have Missed That Caught Our Eye
Heroes of the Highways. (Overdrive Online) The White House held a special ceremony this month celebrating America’s truck drivers as essential to nation’s coronavirus response. “Truckers are playing a heroic role in helping America cope during this crisis,” said Transportation Secretary Elaine Chao. “And truckers will play a critical part in helping our economy recover once this crisis is past us.
A Fork In Transportation’s Road? (Commercial Carrier Journal) While carriers of critical goods in sectors including technology, biotech, pharmaceutical and food are busier than ever, other trucking companies see their business collapsing. The CCJ’s weekly carrier business conditions survey for the week ending April 18 showed a 3.51 average nationwide. The index uses a 10-point scale where 1 represents “the worst week ever” and 10 is “the best week ever.”
A Hazy View of Visibility. (Journal of Commerce; limited free access) The COVID pandemic has exposed shippers’ visibility limitations, as they scramble to figure out where goods are and how to route them in a dynamic transit environment. Yet, any newfound appreciation of visibility may have to wait for new investment. “I think it’s a combination of ‘I can’t think about that right now because my inbox is on fire,’ and at the same time it’s really showing you where your gaps are,” Audrey Ross, logistics and customs specialist at Orchard Custom Beauty, told a JOC webcast audience on March 26.