The End of the Just in Time Supply Chain MethodBy Jenn Fulmer Print
A pandemic and weather anomalies have revealed the fragility of the just in time supply chain method, all but assuring that we will see changes.
The idea of keeping supplies to a minimum is an attractive one in the manufacturing industry. With the size of machinery and space needed to store products before they ship, warehouse space is already limited. Because of this, many manufacturers employ a "just in time" method for their supply chain. However, thanks to the COVID-19 pandemic and the recent polar vortex, we may be seeing the end of this supply chain model.
- What is the just in time supply chain method?
- Advantages of JIT supply chain
- Problems with the JIT model
- How recent events have influenced the supply chain landscape
- What should replace JIT moving forward?
Developed by Toyota in the early 1970s and popularized by Dell in the 1990s, the just-in-time supply chain method, also known as JIT, is the process of only moving material right before it’s needed. This way, warehouses don’t have to store as much of the material because they only have as much on hand as they need. JIT supply chains are very difficult to maintain, but they can work when each stage in the manufacturing process is closely synced with the next one.
With other supply chain methods, organizations might have safety stock, which is a small surplus to help offset unexpected spikes in customer demand. With JIT, however, the business attempts to eliminate the need for safety stock by synchronizing its processes perfectly.
Clearly, the just-in-time supply chain model has several advantages, or it wouldn’t be so popular. However, not all of these advantages will apply to every business.
JIT saves money
The JIT supply chain model can save businesses quite a bit of money on storage costs. Because they keep only the amount of material they need on hand, businesses can work out of smaller buildings with less warehousing space. The same is true if you’re shipping finished products just as your customer is ready for another lot. You don’t have to waste warehouse space storing the finished items since you’ll be shipping them out immediately.
Not storing the materials also lessens the chances of them being damaged in storage-related incidents while they’re sitting in the warehouse. This keeps you from having to replace damaged materials and lessens your inventory costs.
Shorter production runs
With the JIT model, companies tend to use short production runs. With short runs, defects are spotted more quickly, and it’s easier to switch to a different product type if customer demands change. Because of this, you have to scrap less product and won’t have to worry about an entire batch of finished items coming out with defects.
Fewer obsolete products
Because the JIT model aims to only produce the products that will actually be sold, companies run into fewer problems with their items becoming obsolete before they all sell. With the just-in-time method, companies can more easily adjust to market pressures to adjust and adapt the product knowing they won’t have obsolete products left over.
The JIT supply chain method isn’t a perfect system, so your company will have to decide if the benefits outweigh the risks.
Supply chain interruptions
Unfortunately, even the most well-timed supply chain can have interruptions. Natural disasters, shipping incidents, or – as we witnessed last year – a pandemic can all prevent companies from getting the supplies they need when they need them. For businesses that keep safety stock on hand, this isn’t usually a huge problem. However, organizations that use the JIT method may end up with major inventory issues and production delays.
Pricing products can also be difficult with the just-in-time supply model. Companies want to be competitive, but they also need to make a profit. With the JIT method, businesses usually aren’t ordering enough materials or products to qualify for higher price breaks. To make the expected amount of profit, organizations may price their products higher than their competitors and lose customers. There's also the risk that prices may increase before supplies are restocked. Of course, it is possible to offset this risk with futures contracts or by signing long-term contracts with your suppliers that eliminate price fluctuations.
Companies that follow the just-in-time model of supply chain management only order the supplies they know they’re going to need. This robs them of the ability to be flexible when customers decide they need to increase the size of their order after production has already started. They either have to refuse the customer or ship part of the order while they wait on enough material to be able to complete the remaining portion.
Between the COVID-19 pandemic and the extreme winter weather in much of the United States, the supply chain industry has experienced major setbacks. The coronavirus caused the diversion of tons of raw materials for the creation of personal protective equipment (PPE). Additionally, demand skyrocketed for hand sanitizer, cleaning supplies, and toilet paper, making it hard for manufacturers to keep up with their clients’ needs.
While the polar vortex was an extreme case, inclement weather of any kind can disrupt the supply chain. Snow and ice, especially in places that aren’t equipped to handle it, can shut down roads and cause delays in shipping. The weather can also increase the demand for certain items, meaning suppliers have to increase production.
The challenges that the last year has presented have made the best case for why the just-in-time method should no longer be the norm. The supply chain industry is fragile, and suppliers need extra materials on hand to combat delays and disruptions. Additionally, they need to be flexible and able to shift production to a different product quickly without waiting on the extra supplies they need. To achieve these goals, manufacturers will need different supply chain methods moving forward. Additionally, some organizations may consider insourcing.
So, what should manufacturers replace JIT with? With the agility needed in the supply chain space, flexible manufacturing systems (FMS) are likely to start replacing a lot of the current supply chain methods.
Not only does FMS allow manufacturers to customize the products their buyers want, but it can also lower production costs. The process is designed in a way that allows manufacturers to quickly change the type and quantity of the product they’re producing, so they can easily adapt to customer demands.
Implementing FMS may be more expensive upfront due to the specialized nature of the equipment. However, the process reduces downtime because the production line can stay the same for each new product. This process also increases automation, reducing production time and labor costs. To combat problems like the coronavirus pandemic in the future, the level of flexibility offered by flexible manufacturing systems will be absolutely essential to keep supply chains running and get consumers the products they need.
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