The problem is that we are trying to squeeze blood out of a rock. Demand exceeds supply, and it takes years to scale supply up. It doesn't matter if we are using JIT or not, the suppliers for the bottlenecks have all been working at 100% since essentially the start of the pandemic.
It’s not like people start dying on the streets, simply things are getting expensive and hard to get during disturbances.
Are there calculations demonstrating that JIT the risks of optimization are more harmful than helpful in the long run?
The dysfunction is the accounting games that companies are incentivized to keep stuff off of their books. Every company wants to look like a software company and avoid stuff like inventory. Some of this is absurd - many companies don’t “own” property, for example, they lease through entities that are sometimes only nominally separate.
Sometimes companies will outsource processes and fulfillment to layers of other entities, each of which do the same thing. Disruptions cascade - I had one issue last year where a supplier’s supplier had issues getting boxes, and a two week delay there delayed downstream fulfillment by 6 weeks. All because the people who ship the end product couldn’t deliver, and the “principal” outsourced the actual management of the process to a third party. If the principal controlled it, they would have gotten it done, as they were punished severely by the contract penalties. They bet on everything working out ok and lost.
JIT is a firm level decision, not a society level. It's up to each firm to decide how much of something they are buying.
> It’s not like people start dying on the streets
Well, that’s a good example: there was a huge rise in need for masks and other protective gear about 20 months ago and the supply chain couldn’t handle it. That was why people were encouraged to use makeshift cloth masks, to leave the surgical masks and respirators for medical personnel who had the greatest exposure.
Eliminating buffering cuts cost and can lead to lower prices as well. But at best it merely pushes the buffer elsewhere.
Another way of looking at it: leaving seatbelts out of cars would save money and really, most cars are not involved in accidents so are they really needed? Pass the savings on to the customer!
I like the way you put it, JIT simply pushes the buffer elsewhere. However, this seems like a very good thing to have because those who cannot afford running out of something can do a buffer themselves instead of blindly everyone keeps buffering.
The problem with that specific kind of stockpile buffer is that it can become quickly depleted. No mask stockpile would have been sufficient for the COVID pandemic.
From my layman's perspective, you need stockpiles and excess production capacity to weather a supply shock. It's sort of like backup power in a data center: you have UPS batteries (stockpiled power) to fill the gap until the generators (extra production capacity) can come online.
No, but I can see how someone would some to that conclusion by thinking narrowly in terms of pop free market dogma.
> Unfortunately, the people who like anti-price gouging laws appear to prefer shortages and misallocation of goods.
Price gouging is actually a worse misallocation of goods. It's still a shortage, but it just doesn't hit rich people as hard. If you have food stockpiles to barely feed everyone through winter, it's not a proper allocation to let the market price food so richer people can feast and some poor people starve to death.
Price gouging introduces a lot of (especially short term) inefficiencies as greedy parasites make profit-seeking decisions based on their greed and not social need.
Markets work very well in some contexts, but it's a mistake to think they work best in all contexts. Crisis shortages are not one of the contexts where they work well.
It sounds like you're assuming that increases in price don't increase quantity supplied. While this may be true in some contexts (e.g. completely unexpected global crisis), there are many cases in which it does:
- In a local crisis, an increase in price encourages shipping in goods from areas not in crisis. Why would someone take the risk of shipping for the same price they can get elsewhere?
- As the GP mentioned, the ability to raise prices provides an incentive for stockpiling goods. Why would someone incur the expense of maintaining a stockpile in exchange for no benefit in a case where the stockpile is needed?
I'd also argue that it's very unlikely for price increases to render all basic necessities impossible to afford, even for poor people. Consider water - even for someone living in poverty what percent of their budget would you guess is allocated to water? Maybe 5%? So even a doubling of the price of water (for context, price gouging laws typically restrict price increases to around 10%) would only increase that to 10%, leaving plenty of room for them to reallocate not-as-essential parts of their budget. For food perhaps the original percent is higher, but there's much more opportunity to substitute cheaper foods in a crisis situation.
One reason is that people don't operate exclusively in the market paradigm, but free market economics makes the (false) simplifying assumption that they do.
> - As the GP mentioned, the ability to raise prices provides an incentive for stockpiling goods. Why would someone incur the expense of maintaining a stockpile in exchange for no benefit in a case where the stockpile is needed?
If you think about that actual scenario, that makes no sense as a business decision. People aren't going to pay the costs of stockpiling something in the off chance they can benefit from price gouging during an unpredictable crisis.
What really happens is parasites try to drain the supply chain so they can flip the goods at a price-gouging markup. You saw this during the pandemic: dudes driving around buying all the hand sanitizers and masks they could, then keeping them in their garage away from where they were needed, hoping to make a big personal profit. All they did was exacerbate the shortages.
Anyway, what better way are you proposing to distribute goods?
Actually, I'm arguing that classical free market economics doesn't lead to the best (or even good) results over all scales. IMHO, advocacy for price gouging is sort of like insisting on using classical mechanics to model quantum-scale phenomena. Price gouging is properly understood as a market failure, in that some people respond to the price signals by doing socially counterproductive stuff (and the supposed socially productive stuff is mostly a chimera in that context).
> Anyway, what better way are you proposing to distribute goods?
Your question assumes I'd give one answer, when my point is it depends on context. In some cases that's dogmatic free market economics, in other cases it's literal central planning, but in most cases it's something in between. One thing is clear, though: crisis shortages are not the place for dogmatic free market economics.
I'm going to bump you just a little on this because your point is mostly right.
In the US, there were manufacturers ready to add extra shifts for producing masks, but nobody would cut them the check.
The point of JIT is also so that when something goes wrong in inventory you don't get saddled with a bunch of waste. The problem is that means that you need quick, accurate decision making for when the inventory situation does go wrong.
In this instance, all the players who could cut a check for masks were all paralyzed by their systems for various reasons (bidding/disclosure requirements, political ideology, etc.).
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There's also the "If I don't implement JIT, I'll get replaced with someone who will" effect in a lot of cases too.
This clearly holded for PC components, but rather not for, say, microcontrollers for conservatively developed products with a much longer service life and/or duration of sell.
Consider, for example, a stock of microcontrollers for an industrial machinery that
* will be used for 20 years by the customers,
* will be sold for the next 10 years,
* after these 10 years, for the remaining lifetime of the machine, the customer will still be able to buy spare parts.
Just think about evolution: species specialize for short(er) term benefits, but then conditions change and a lot of those specialists go extinct.
JIT is specializing for an extremely reliable and undisrupted supply chain.
Imagine a link-layer protocol without any buffers, no retransmissions or any kind of resilience, built on the most optimistic estimates; that’s essentially what the “business world” has built with their irrational philosophy based around “the market”..
So for VOIP "JIT" is a good thing and your "Inventory" levels need to be tuned at the receiver.
But isn’t it called tcp/ip for a reason?
(Edited because I forgot the big one) Have you ever used a name and not an IP address to connect to something on the internet?
Congratulations! You’re a UDP user!
I once built a prototype network stack on top of a udp library that simulated a physical network layer..
Doesn’t change the fact that tcp/ip was the network stack that enabled the internet.
But I was trying to sidestep that tangent by mentioning link layer protocols in my second paragraph.
The actual closings due to lockdown were only a couple of weeks in most industries. What really hurt imho was that orders were cancelled, production capability was scaled back, but demand came back faster than expected.