A nonprofit publication of the Kentucky Center for Public Service Journalism

Keven Moore: The pandemic has exacerbated the risks of ‘just-in-time’ supply chain management

It was my belief that the recent labor and supply chain shortages weren’t affecting me as much as others. But then while sitting in the drive-thru lane of a well-known fast-food restaurant, being told that they were out of french fries and having to wait more than 25 minutes for my order, it became very real to me.

Across the nation, consumers are feeling the effects of an unprecedented supply chain crisis. Prices for everyday essentials like milk, meat, gas, and other consumer goods have skyrocketed, and public officials are warning people to start buying their Christmas gifts now. Yet, our supply chain issues go far beyond the Christmas shopping wish list. Just about every industry I work with has been negatively affected, and relief doesn’t appear to be coming anytime soon.

(Photo from Wikimedia Commons)

There are many causes of the supply chain shortage, but they all stems from COVID-19 disruption, paired with a boom in demand and shortages of workers, equipment, and space to store and transport the goods. Two of the largest U.S. ports saw a 30 percent increase this summer in the number of goods imported while processing the cargo with 28 percent fewer workers.

How did we get here and what the long-term impact changes this will have in our future?

As a “semi-prepper” who tries to maintain a 3-to-4-month supply of food and toilet paper on hand, I have always had an issue with ‘just-in-time’ manufacturing, recognizing that when combined with the vast and complex global supply chain, it would eventually fail.

In talking with several of our clients these past few months, many have been dramatically affected by the crisis. Despite their labor shortage issues, restaurants owners and operators are having to package their foods with whatever they can procure for that week, and some dishes have had to be removed from the menu, with the cost of “to-go” products increasing dramatically, if they can be found at all.

A local electrical sub-contractor working on a large addition and renovation project for a local hospital underway for well over a year had nearly finished the job, but is unable to complete the project because a generator is on backorder and is not projected to be delivered for another 11 months. Their final payment is held up due to contractual obligations even though 95 percent of their labor costs have already been paid.

We have all heard of the computer chip shortage for new vehicles and computers, but there is a long list of other material shortages from auto parts to building supplies to aluminum, copper and steel products, plastics, and resin. Complicating matters is the practice of over-procuring supply in anticipation of additional shortages.

Another business owner who has experienced significant revenue losses since the supply chain crisis began has started to rethink his business. He said back in the 70s and 80s he and his father used to warehouse much of their supplies and goods, but over time they switched to ‘just-in-time’ ordering, doing away with large warehouses to save money, ordering supplies as needed. Now he is considering going back to a hybrid version of the two once the supply chain crisis comes to end, intending never to be caught off guard again.  

In the 1920s, Ford had developed vertical integration, and controlled all the things needed to make a car. Ford owned and operated all aspects of the entire process, including docks, warehouses, mines, and steel mills that fed the assembly lines. After Henry Ford’s death, the company sold off its docks and steel forges determining it was more efficient to leave the business of steel, rubber, and shipping to the companies that knew those businesses best.

Toyota Motors North America Headquarters in Plano, Texas (Photo from TMNA)

Toyota Motors took auto manufacturing to the next level and pioneered the ‘just-in-time’ manufacturing process as they slowly crafted this idea to eventually lead the auto industry by the 1980s. The idea was built on the premise that reducing waste, eliminating redundancies, and operating with precision are key to succeeding in the marketplace.

In this model, extra inventory equals wasted resources. It is built on the premise that a supply chain is always on, always available, and always responsive. By having suppliers deliver parts to the assembly line a few hours or days before they go into a vehicle, Toyota didn’t have to pay for what they don’t use. They save on warehouse space and the people to manage it. It was revolutionary for its day, but in hindsight risky.

Toyota was able to adapt to fluctuating market demands and bolster bottom lines through inventory reduction. In Kentucky, the ‘just-in-time’ concept of stockless production created thousands of jobs and dozens of nearby satellite companies to help feed the Toyota machine in Georgetown.

Over time the rest of the auto manufacturing industry soon followed suit to keep up with Toyota Motors and the idea spread through many industries, including Walmart, which soon developed its version of the just-in-time model, enabling the company to dominate the worldwide consumer goods marketplace.

Keven Moore works in risk management services. He has a bachelor’s degree from the University of Kentucky, a master’s from Eastern Kentucky University and 25-plus years of experience in the safety and insurance profession. He is also an expert witness. He lives in Lexington with his family and works out of both Lexington and Northern Kentucky. Keven can be reached at kmoore@higusa.com

Since the COVID-19 pandemic, the appeal of just-in-time manufacturing may be waning. During the pandemic, ‘just-in-time’ supply chain management has led to shortages of almost everything. The COVID-19 pandemic has re-ignited the debate about the merits and drawbacks of highly coordinated global supply chains in manufacturing.

‘Just-in-time’ may be a well-meaning strategy to save money and avoid the stockpile, but the fact is it adds unnecessary pressure on every link in the chain. When one link in the chain breaks, every industry downline is affected. The pandemic has cast the spotlight on the importance of inventory management costs at all stages, not just bottom-line savings.

Because of the pandemic, many manufacturers are now gun-shy in making moves to go back to the century-old concept of vertical integration. Many industries have are attempting to gain more control of the inner workings of their supply chain by moving responsibility for core components from long-standing vendors to inside sources.

According to an article on education website Chegg.com, the hyper-efficient auto supply chain symbolized by the words ‘just-in-time’ is undergoing its biggest transformation in more than half a century. Today, Toyota is stockpiling up to four months of some parts. Volkswagen is building six factories so it can get its own batteries. And Tesla Inc. is trying to lock up access to raw materials. When the newest kid on the block, Tesla, is making such a shift, others take notice considering how well the company’s stock has performed on the NASDAQ.

The ripple effects of the COVID-19 pandemic over the past 21 months have shown us that manufacturers and suppliers can no longer think about the supply chain the way we used to. COVID has exposed the weaknesses of ‘just-in-time’ supply chain management and experts are looking to transform the pain of that experience into new ways of thinking about relationships in the complex global marketplace.

As a risk control and safety professional who displays a strong adverse reaction to risk, with ‘prepper’ tendencies, I would have to agree. Those who survive adapt quickly and prepare for the worst.

Be Safe My Friends!

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One Comment

  1. SHELLEE VISE says:

    I think someone has done this on purpose
    I’m mentally disabled and I really don’t appreciate who ever caused this problem
    This ships stuck in the port are not what the Untied States of America does
    I’m beside myself

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