Here’s a case study that reveals a lot about the state of global supply chains. A worker at an automotive parts factory in Vietnam gets sick with a novel virus. Local authorities quickly shut the factory. Thousands of kilometers away, at the HQ of a global car manufacturing giant, executives announce they’re cutting output by almost half. The reason: they can’t source vital components from key suppliers, including the Vietnamese manufacturers of a crucial element in the supply chain.
It’s not a hypothetical scenario. Covid-19 has wreaked havoc on supply chains. And manufacturers that rely on lean, hyper-efficient inventory processes have been especially vulnerable. The car manufacturer in this case is Toyota, which is especially ironic as Just in Time (or lean production) originates with the automotive giant’s revolutionary Toyota Production System.
COVID-related supply shortages quickly revealed weaknesses in the existing inventory processes.
Even the most cost-sensitive companies are changing their approach. As Bloomberg puts it: “at Walmart, whose bottom-line focus is legendary, U.S. inventory rose 20% last quarter as it doesn’t want product shortages come Christmastime.”
The Bloomberg report explains that the sea change in how businesses operate is also affecting business classes. Now, an MBA class discussion is more likely to centre around the risk of sourcing goods from a single country or on how technology can make supply chains more resilient.
As the limitations of ultra-efficient supply chains become clearer, many businesses are moving away from a just in time model to a ‘just-in-case approach’.
Of course, storing inventory, with more redundancies, is generally costlier and less efficient as long as things go smoothly. But then that’s what risk management is all about. Finding the balance will be one of the major supply chain challenges of the coming years.
It has become clear that for businesses managing supply chains in a complex, unpredictable world, risk management has to be a central priority.
Importers have a lot on their plate right now. Backlogs, shortages, congested ports, and the added bureaucracy of Brexit. And that means getting your goods to market needs more careful planning than ever before.
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