How the World Ran Out of Everything
nytimes.com
nytimes.com
One issue is that many companies still run their inventory management based on static rules like reorder points (if stock is below this quantity, reorder some more), and they have spent the last few years optimizing their static rules by observing out-of-stock and over-stock situations. They ended up with a very brittle system that reacts badly to sudden changes in the environment (such as variations in demand or supplier availability) even if they see these changes coming months in advance, because even if they know that the static rules are wrong, they don't have a process in place to decide what the new rules should be. How do you compute reorder points from scratch ? Do you even have the man-hours available to review all the reorder points in your supply chain, and to update them ?
Companies that use dynamic rules (they optimize their supply chain decisions based on demand and supplier availability forecasts, which are updated as often as possible) already have daily or weekly processes to react to changes in the environment. And while accurate forecasts are hard because of COVID, at least the decisions are consistent with the forecasts.
Another issue is that the crisis hits both suppliers and consumers. If you forecast that your suppliers might become unavailable soon, the right reaction is to front-load large orders (before they are unavailable) and to extract more margin from the inventory you could acquire (by increasing your prices), and I think many supply chains are already fairly good at this. But when the demand might also collapse ? You no longer know if a large order is reasonable (what if you can't sell, because there is no demand?) or if increasing your prices will let you capture more margin (price elasticity changes when buyer budgets change). It really becomes a bet on whether your upstream or downstream will see the largest drop.
But you practice JIT and there's no storage calculated anywhere.
Face it, everyone cost cut with JIT and exposed themselves to risk by never having a rainy day fund.
Of course, the financial impact of the two risks is not equal. Many supply chains aim at a service level that is higher than 50%: they reduce their exposure to out-of-stock risks by increasing their exposure to overstock risks, because they consider out-of-stock to be much worse than overstock. But where do you draw the line ? What is the correct ratio ? How large should the rainy day fund be ? Is it worth building warehouses and hiring the workforce to run them ?
Relying too much on just in time manufacturing has its own problems, but I think it's just plain hard as a single company to mitigate global catastrophic risk like COVID inflicted on the world. Relying on multiple suppliers might not help if every supplier is affected.
[1] https://www.bloomberg.com/news/articles/2021-05-29/china-s-y...
Sizing of the inventory would be based on how long you've decided you need to operate if all inputs stop. So maybe they "just" need to increase that sizing, rather than effectively relying on the delivering semi trucks for inventory storage.
I drive a semi truck, and sometimes a trip will be designated JIT, with a note that being late may halt production. Quite often these trips are to deliver tires to a distributor, and not, say, to a car builder. And I often think "Really?" Followed by "OK, whatever."