Does coronavirus mean the end of Just In Time? And what might take its place in the global supply chain?
For decades, supply chains have been managed by the just-in-time principle, using lean systems that emphasize efficiency and seek to eliminate overages, waste, and storage throughout the system. JIT maximizes profits, but 2020 has revealed the weaknesses in these systems like never before. How has the global supply chain changed in the past 6 months?
The Effects of Coronavirus on Supply Chain and Logistics
Some of the effects of coronavirus were immediate and are being eased, some of them are only now having their full effect, and some will continue to impact the world for decades. Here are some of the biggest effects of the coronavirus on supply chains:
- Stocks and stockpiling. Everyone knows that many consumers responded to global lockdowns by stockpiling items at home, but many countries did as well. Concerned about possible food shortages, many countries slowed or halted food exports, particularly of grains and pulses. In the scramble for needed medical equipment like PPE and ventilators, countries competed against each other, often resorting to seizing shipments. As the virus further affected trade and the economy, many countries also began building strategic stockpiles of all kinds of goods and raw materials, in order to protect their own manufacturing and other sectors.
- Border and trade controls. As we saw, when countries close their borders, it creates long delays in shipments, even for in-demand goods. Planes and trucks were slowed and stopped, but container shipping was even more heavily disrupted. Almost a third of global container shipping originated in China, and the sudden plummeting of manufacturing and exports affected port traffic, trade in parts and materials needed for manufacturing, and every other trans-shipping method that moves these containers around the globe.
- Changing consumer demand. Shortages of consumer goods made headlines around the world, but it wasn’t necessarily that there wasn’t enough flour, toilet paper, or hand sanitizer to go around. The main cause for these disruptions was that the pipelines that make and deliver institutional qualities and quantities of these commodities were shut down, and an alternate, direct-to-consumer pipeline didn’t exist. There is no easy way for a company that makes toilet paper for airports, schools, and shopping malls to quickly revamp, repackage, and re-distribute their goods to grocery store shelves, even when they have the raw materials. Likewise the supply chains that deliver potatoes or meat to restaurants, catering companies, or cruise ships and airlines. The direct-to-consumer and commercial production pipelines are so specialized and so different that it wasn’t able to quickly respond to the sudden dramatic change in consumption patterns.
- Reduction in available labor. In response to Covid-19, many companies reduced or ceased operations, sending workers home for their own safety. Many workers lost time due to illness, quarantine, or the need to care for children who could not go to school or daycare. Border controls reduced or eliminated seasonal migrant labor that farms and fisheries rely on.
- Changing manufacturing patterns. Almost immediately after coronavirus hit, many companies began relocating operations away from China. So far India and Poland stand to benefit greatly from this dramatic shift, but it means a huge shift in the global systems that move goods around the world. We haven’t yet begun to assess the resulting impact on trucks, trains, ports, and planes as production shifts and relocates.
In other words, Covid-19 is a perfect storm that strains and tests every aspect of the global supply chain. JIT management methods left little margin for error, stock in warehouses, or inventory in stores. Suddenly, all at once, logistics companies had to deal with:
- Global labor shortages
- Regulations and guidelines that changed frequently
- Radically altered consumption and demand patterns
- Re-sourcing of supplies and raw materials to new countries and continents
Long-term Effects of Coronavirus on Global Supply Chains
One of the biggest successes of the coronavirus pandemic, and something that is tragically overlooked, is how quickly and how well the supply chain did respond to the pandemic. While many people focused on a toilet paper shortage, the fact that there were not widespread food shortages is nothing short of a miracle.
In many cases, this success is due to the rise of small, local companies that were able to respond to the crisis by exponentially scaling up production, or converting their business to meet a new need. Flour mills that had been nothing more than a local scenic attraction for decades suddenly started making flour again. Supported by government measures and increased consumer interest, small local farmers and food suppliers have benefitted from reductions in imports. As many large institutions rejected Chinese PPE imports as being ineffective and low quality, local companies stepped up to meet the need. In many cases, smaller companies were nimble and responsive enough to modify their products, methods, and labor force when larger companies struggled.
Ironically, this is the very nimbleness that JIT was intended to foster, without large backlogs and clutter of inventory and supplies. And yet it deprived companies, governments, and institutions with the information and resources necessary to respond to a crisis or anticipate and plan for shortages and systemic changes.
Despite the forecasts of some analysts, coronavirus doesn’t mean the end of JIT, but it will change it forever. Governments and institutions are likely to create new requirements that ensure ongoing access and inventory of critical supplies, from food to medicine to manufacturing. Startups like Cargobase are already meeting the need for flexibility and on-demand logistics, rather than inflexible global systems. And the growing sophistication and ready access to rapid prototyping and 3D printing divides moves just-in-time production directly into the hands of the end consumer, who don’t have to wait to for a supplier to create and ship necessary parts. What the world needs now are supply chain and logistics professionals who can reduce waste, increase efficiency, and generate profit, while protecting critical systems and having robust contingency plans. The world is moving away from just-in-time, and implementing just-in-case.