For decades, retailers have focused on creating leaner supply chains using cost-cutting “just-in-time” approaches.
However, the COVID-19 pandemic has exposed weaknesses in lean supply chains and the just-in-time methodology, and supply chain inflexibility has failed both consumers and retailers.
What is the just-in-time method?
The just-in-time method is an inventory strategy used by retailers to save money on overhead expenses. Essentially, it involves only ordering materials and goods as they become necessary for manufacturing or sale.
Before this strategy gained popularity as a way to cut costs, retailers frequently stocked up on materials and goods in order to maintain a consistent supply that could keep up with spikes in demand.
Under normal conditions, a just-in-time approach can save money and reduce waste. But it requires accurate demand forecasting,consistent and reliable sourcing, and very high supply chain visibility — things that have all become much more difficult during this global crisis.
Why is the just-in-time method failing now?
The truth is, lean supply chains and just-in-time strategies are not very agile or flexible, and can collapse under pressure.
In the “new normal” of the pandemic, it’s more difficult to predict demand for many products. Grocery stores have been hit especially hard by unexpected sales spikes (in part due to panic-buying), and many suppliers and distributors have struggled to keep up.
In a globally distributed supply chain, this issue is compounded.
As demand skyrockets, manufacturers experience material shortages, reducing production capacity. Companies with little knowledge of their supply chain beyond the first tier have no way to know when their second-, third-, or fourth-tier suppliers will experience shortages. Many companies have found themselves without necessary products and without contingency plans or alternative suppliers to fall back on.
Flexibility is vital.
Disruptions to the global supply chain will continue throughout the COVID-19 crisis, and some will be more sudden and unexpected than others.
Experts believe that to stay afloat during (and after) the pandemic, retailers and manufacturers will have to take a proactive approach in order to respond quickly and effectively to these disruptions.
For many companies, this means backing off of lean, just-in-time strategies, and focusing instead on making supply chains more flexible.
This will look different for each company, but in general, turning toward flexibility will mean:
- Increasing supply chain visibility and thoroughly mapping suppliers at each tier
- Identifying and partnering with alternative suppliers wherever possible
- Adjusting inventory management to move away from the just-in-time method
- Expanding warehousing to allow for more overstock
With the right combination of these strategies, companies can build more flexible and resilient supply chains, and respond appropriately to inevitable disruptions.
Under normal circumstances, a lean supply chain with a focus on the just-in-time method can work well for cutting costs. But in light of the coronavirus crisis, it’s clear that this isn’t always the best outcome.
Retailers and manufacturers that choose to put more emphasis on visibility and flexibility will be much better-positioned to survive these strange economic times. And on the other side of the crisis, when the global supply chain faces other disruptions — due to tariffs, natural disasters, worker strikes, material shortages, or something else — they’ll be far more prepared to respond.
Explore your warehousing options near the ports of Los Angeles and Long Beach. Contact us.