Innovative supply-chain strategies that seemed so perfectly attuned to current purchasing patterns have turned out to carry a lot more risk than their creators could ever have imagined.
Take just-in-time delivery of parts to the factory floor. As a means of slashing standing inventory, and lightening that classic drag on the balance sheet, JIT looked great on paper. Indeed, the strategy has resulted in far higher levels of efficiency in factories and supply lines, especially when married with Lean concepts for eliminating waste. But what happens when a factory goes down, a supplier fails, or demand for product suddenly explodes? An inventory-light operation has precious little buffer stock, or alternative sources of supply, to fall back on.
Similarly unintended consequences can strike a retail strategy that has committed itself to an expansion of product types, offering consumers a dizzying array of sizes, colors, styles and ingredients. The result is a hugely complex supply chain that is far more vulnerable to sudden shifts in demand or interruptions in product flow.
Now throw in a global pandemic, causing sporadic factory shutdowns, supplier failures, spikes in demand for some products and plunges for others, and all of those best-laid plans are laid suddenly to waste. “Manufacturers can’t synch their supply base to get the right parts when they need it,” says Richard Lebovitz, president and chief executive officer of LeanDNA, a vendor of software for analytics and inventory management.
Among the fallout from the coronavirus pandemic is a major disruption to the workforce. Manufacturers coming back up to speed need workers on the factory floor. At the same time, they’re struggling to coordinate operations with those employees who continue to work remote, making it difficult to sync physical production with planning and procurement. As a result, the “war rooms” that companies set up in times of crisis are having a tough time functioning.
As supply lines become clogged, inventory builds up in the factory, which no longer has the room or resources to store large amounts of components and parts. Yet the lack of availability of a single item, no matter how minor, can bring production to a halt. It becomes critical for factories to acquire visibility of upstream supply, then prioritize production of what buyers need most at any given moment. So much that previously seemed set in stone — production scheduling, machine utilization, min-max levels, safety stock — has now become fluid.
The very nature of the problem is constantly changing. In the early days of the pandemic, manufacturers sought to increase their purchase of raw materials in order to shore up gaps in procurement. But as those supplies dwindled, the focus shifted to work in progress and on-time delivery. “As things are coming back on line, it’s about prioritization and the resync of parts to fulfill orders,” Lebovitz says.
More effort is being expended on collaboration with suppliers, but factories are still having a hard time communicating their precise needs, due to a lack of clear direction from downstream customers. As a result, key suppliers have little idea of which parts are actually at the factory, and which are out of stock. As for the factories themselves, they’re needing to reprioritize parts shortages every day, even as they lack information about when those items will be delivered.
Too much inventory is also a potential problem. Lebovitz says factories and suppliers need to engage in complex calculations based on “value and criticality to delivery.” That includes assessing which orders need to be pushed out, split or cancelled. Suppliers, meanwhile, are coping with a flood of such messages, perhaps amounting to several hundred a day, from which they must determine the handful of parts that are most important to deliver.
The real picture, of course, is even more complex than that, given the multi-tiered nature of most global supply chains. And with each successive level of sub-supplier, the challenge of gaining visibility, control and regular communications becomes more difficult. LeanDNA’s customers have worked across four levels of suppliers, Lebovitz says, a need that is common to complex manufacturing sectors such as automotive and aerospace.
It would be a mistake to assume that the adjustments being forced upon manufacturers and suppliers are in any way temporary. The pandemic has altered certain practices forever. JIT and Lean will remain key elements of efficient supply-chain strategy in the years ahead, but companies chastened by this latest crisis are likely to supplement them with a certain amount of safety stock and more flexible inventory-management strategies. “It’s not so much let’s build up more stock,” says Lebovitz, “it’s let’s be better about how we analyze consumption rates, and resize safety stocks and order policies to make sure we’re keeping the right level of what we need and don’t need.”
Some employees will continue to work remote, necessitating better internal communication within manufacturing organizations. In all cases, more automation of basic processes will be essential.
“Companies are starting to find that it works,” says Lebovitz, “but there’s the need for more digital transformation — to be more online, with less paper and spreadsheets. People will be forced to be more productive, and work with data in a collaborative fashion.”
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