Is the ‘Just-in-Time’ model redundant in a post-pandemic world? That’s what we’re going to be breaking down today. It’s an economic and supply chain model that has stood the test of time, but has faced an existential crisis in the face of a pandemic, with reduced and restricted trade in a globalized world.
The ‘just-in-time’ model is said to originate in Japan, where executives at auto manufacturers like Toyota, Subaru and Honda aimed at cutting their overhead costs with excessive stockpiles, and instead ordered parts as they needed them, which would arrive – as the name suggests – just-in-time.
Supply chain management expert, Rich Weissman has told the ABC that “this has been a really strong evolution going from the 80s, 90s, the 200s, to take fat out of the supply chain, to tighten down everything,” he said, adding that in the past decade, organisations “really rely on analytics to fine-tune supply chains to make sure that supply and demand absolutely line up.”
“That’s where I think we’ve gone too far,” Weissman says, pointing out that the just-in-time paradigm has made global manufacturers more vulnerable to sudden disruptions that have wide-spread flow-on impacts.
“My supplier may be more than willing to deliver just-in-time, but if their supplier doesn’t deliver, or their supplier’s supplier doesn’t deliver, that creates the trigger for risk and for shortages and blows just-in-time out of the water,” Weissman says.
Weissman says in reference to the global shutdown and pandemic restrictions, COVID-19 “really tested the supply lines, and this is where we are today with, in a lot of cases, broken supply lines.”
“I still think we need a global supply chain,” he says, adding that “I’m just hoping that the pendulum comes back a little bit and there is some work to normalise the supply chains and normalise the inventory for now.”
The ABC’s report also quotes Mike Rafferty, who specialises in risk management at RMIT University. Rafferty says the just-in-time model, or ‘lean manufacturing’ has in the 21st century taken on a “distinct financial meaning,” with manufacturers looking to cut costs where possible.
This, up until recently is a system that has remained extremely reliable and cost-effective when the globalised world is running business-as-usual, but hit a massive wall when trade slowed down, and in some cases, stopped entirely during the pandemic.
“If a business takes on extra risk, it expects to be rewarded for it. Most of the risks that households have had shifted on them come with no reward.”
Rafferty explains that “many of those outsourced suppliers do their outsourcing in countries like China and Bangladesh, which have pretty appalling working conditions.”
“Some of this lean manufacturing is actually shifting the risks and costs of production to Third World countries with very low working conditions,” he says.
Giovanni Di Lieto, international business sexpert at Monash University has told the ABC that the just-in-time model is perfect for an organisation looking to cut costs, and is inextricably tied to the rise of free-market capitalism.
“I think we’ve been unconscionable as a system in running margins that were so thin on the ground,” Di Lieto says, explaining that “it’s high time that we try to find the best way to transition from a just-in-time socio-economic system to a just-in-case socio-economic system.”
“I teach international trade to students who are in their early 20s. I think they will be quite scarred by the experience of COVID-19,” Lieto continued to explain. “I think there will be a very different mentality.”
“This is going to really change our near future and for the next generation or two, for the next 50 years, change our approach and attitude to business making and to managing our supply chains,” Di Lieto concluded.
The ABC’s report also quotes Jim Stanford, director of the Centre for Future Work at the Australia Institute who says that the just-in-time model has had a massive impact on the global labour market.
“Just as employers have learnt to ruthlessly economise on all their other inputs to production and have them delivered just the right quantity at just the right time, they would like to do the same thing with workers,” he says.
“The COVID-19 pandemic has shown that the human just-in-time supply chain – insecure and on-demand work – is just as fragile and unreliable in a moment of crisis as those just-in-time chains that bring spare parts and widgets from all over the world.”
Stanford touches on an extremely important point, here. If the pandemic has taught the business world one lesson above all else, it’s that running global supply chains with a just-in-time mentality can be cost effective, yet extremely vulnerable to unexpected shocks in either the health or geopolitical scape.
This is a timely reminder that organisations all around the world should be more aware of the risks associated with a cost-effective means of operating like just-in-time. I wrote an article a few weeks back talking about the Australian manufacturing scene, and how we may very well see a resurgence of manufacturing on our shores as organisations look to work with domestic suppliers.
While they may struggle to compete with the insanely low prices of Chinese goods, these suppliers are a significantly less risky partnership for Australian organisations looking to trade with them, because in the case of a disastrous second-spike or an entirely new virus or strain of influenza, goods and services can be more easily distributed if they’re manufactured here.
And that, my friends, is some food for thought.
While it might be cheaper to purchase from overseas, what are the potential risks here as we move into a time with just as much trade uncertainty as the months we’ve just passed? Can you risk breaking promises to your customers because your organisation was too reliant on the just-in-time paradigm?
Thanks for your time, and I’ll see you in the next piece,
Kobi Simmat, Director & CEO of the Best Practice Group.