Is Just-In-Time (JIT) logistics too risky?
Recent years have exposed the Achilles’ heel of Just-In-Time (JIT) inventory and logistics systems: the potential for unforeseen disruptions in the global supply chain.
JIT logistics leverages technology that provides real-time visibility into global supply chains, ensuring that raw materials and manufactured goods arrive just when they’re needed. First implemented by Toyota Motor Corporation in the early 1970s, JIT inventory can help to reduce costs, increase operational efficiency, and enable greater agility. However, the recent pandemic revealed an ongoing risk of relying on JIT strategies.
The inherent risk of JIT logistics management
Today’s JIT processes are a result of a decades-long evolution of global supply chains, with the objective of maintaining minimum inventory on hand to meet material demands. Over time, as production shifted to low-cost regions, JIT’s high-volume/low inventory system was successfully adopted in the production of everything from automobiles to t-shirts.
However, the emphasis on minimal inventory levels impacted JIT reliability at the beginning of 2020 as global supply chains started to show symptoms of ill health. Since global trade frequently involves operations in multiple countries that rely upon multi-modal transportation to collaborate, a broken link in JIT logistics can suddenly leave operations without inventory or productive capacity.
Temporary glitches are not much of an issue during times of smooth sailing. But protracted volatility, such as the COVID-19 pandemic, the invasion of Ukraine, and labor shortages, disrupts the JIT process. These recent disruptions were severe enough to create inventory shortages that impacted the global economy.
How can JIT adapt to greater volatility?
Global supply chain challenges led many organizations to re-examine their use of JIT inventory and logistics. Many industry leaders believe that Just-In-Time processes can adapt to volatility, which is fortunate news for those who leverage it for their business.
Multiple strategies can help companies adapt without requiring the business to completely overhaul their supply chain or abandon JIT altogether. Common supply chain adaptations include:
- Just-In-Case (JIC) inventory strategy;
- reshoring, near-shoring, or friendshoring;
- dual-sourcing and building redundant supply networks;
- building safety inventory of critical components;
- right-sizing inventory;
- investing in supply chain visibility (SCV) technology.
Some companies choose to mitigate risk by reshoring (bringing capacity home), near-shoring (bringing it closer to home), or friendshoring. Others may opt to shift to a more conservative approach, such as a Just-In-Case inventory system where businesses have extra stock on hand in the event it’s needed.
Another strategy to combat volatility is to diversify supplier relationships by identifying additional suppliers of key components. This can be as simple as dual-sourcing key inputs and building redundancy into supplier networks.
Some automotive manufacturers have built safety inventories of critical components to stockpile electronics used in today’s high-tech vehicles. Companies that secure an inventory of harder-to-source parts ensure that production will not be threatened when global events create volatility.
Right-sizing inventories can be implemented as a compromise between JIT and JIC. This may incur additional costs, but the strategy supports resilience in supply chain management without abandoning the benefits of JIT efficiencies.
Investing in supply chain visibility technology provides decision-makers with accurate real-time data that supports multiple strategies to enable greater resilience and reduce the risk of JIT inventory.
The future of JIT logistics
The future of JIT includes blockchain technology and other tech innovations that can increase security and efficiency while fortifying supply chains against unforeseen challenges. Businesses will also need to build stronger relationships with suppliers and key links across the entire chain. Leveraging technology and forging strong partnerships will help to understand downstream partners and offer additional decision-making capability.
The JIT landscape shifted significantly over the past few years, but supply chain decision-makers have plenty of options to adapt their systems to the new normal. Certainly, volatility has created difficulty, but this could be a blessing in disguise for those willing to adapt.
The vulnerabilities inherent in JIT logistics and lean production processes were always there. Recent challenges only brought them to the fore. There’s a good chance that AI technology and climate change will create further volatility in the near future, so now is a great time to examine how you deploy JIT strategies and identify opportunities to increase resilience.
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