Over the course of 2021, a growing number of headlines have predicted or even called for the demise of ‘Just-In-Time’, the system that evolved from Toyota’s approach in the 1970s with the aim of minimizing inventory and increasing efficiency. The underlying argument is that businesses would have fared much better during recent supply chain disruptions had their supply chains been less lean. Much of the advice is to increase ‘safety’ or ‘buffer’ stock, now being coined the ‘Just-In-Case’ approach.
The phrase Just-In-Case rolls off the tongue and resonates with companies and consumers in the middle of unprecedented supply chain challenges. But any interpretation of Just-In-Case as a broad increase in buffer stock to reduce the risk of out-of-stocks or production stoppages is likely to create challenges in working capital, free cash flow, and product obsolescence.
It is not that Just-In-Case or Just-In-Time are wrong but there is a time and place for each. The risk caused by lifesaving medical equipment being out of stock is very different from having two, not four choices of shirts to buy. Different products with different margins or different clients with different demands should change the equation. The risk to inbound supply changes, and so should buffer stocks. One size does not fit all. The time, place, and amount of buffer stock should dynamically take supply and demand risk into account. Companies that can harness data and analytics to dynamically and predictively ‘risk-adjust’ inventory levels will gain a significant competitive advantage in 2022 and beyond.
At the core of the ability to ‘risk-adjust’ a supply chain is visibility and goes far beyond real time visibility to assets. It is end-to-end, dynamic and predictive where possible and it includes visibility to strategic, operational and real-time risk. Companies who achieve this visibility will more fully utilize assets, workforces, and inventory reducing unnecessary buffer stock and creating the agility to react to changes in supply and demand, becoming more resilient. This should not require new platforms and processes but an adaptation of those that exist. Sales and Operational Planning is a good example. In mid-2020, Jim Rice of MIT’s Center for Transportation and Logistics described how adaptations to S&OP practices and platforms can be a potent defense against the effects of extreme fluctuations in supply and demand.
The willingness and ability to extend this visibility to upstream and downstream trading partners – transparency – will further increase capacity, agility and resilience.
Data and analytics
Whether for strategic design or operational planning and execution, the tip of the spear is data and analytics. Companies that can leverage data and analytics to assess strategic and operational risk to design and operate supply chains that are resilient, agile, sustainable, and financially viable will have an enormous advantage in 2022 and beyond. We call this the ‘Risk Adjusted Supply Chain’.
Expect board members and executives to have read the headlines about the demise of Just-In-time. So be prepared to deploy data to ensure that the pendulum does not swing too far the other way.