Business

Time for Global Supply Chains to Scrap Just-In-Time

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The Just-In-Time (JIT) manufacturing technique took the international industrial world by storm over the past generation, but the pandemic has forced organizations to reconsider this philosophy amidst dramatic recent changes in international supply chains.

JIT is a style of inventory management in global logistics. It originated in Japan, where it was fully implemented in the 1970s at the Toyota production facilities, and spread to the US by the 1980s. In JIT organizations, items are supplied only when they are ordered and needed during the production process. Raw materials and/or work in process are not stocked and warehoused, but instead are constantly moving from the time they arrive in a facility to the time they are transported out of the facility. The goal of JIT is to succinctly manage raw materials and component part orders directly with manufacturing schedules in order to meet fluid demand, so JIT necessitates consistent production schedules with no machine breakdowns and a continuous process flow. In addition, JIT requires precise coordination and collaboration within the supply chain of the organization, as all logistical and operational areas from demand forecasting to outbound transportation need to be in perfect alignment.

Reduced response time is a key benefit of this technique, as products and component parts can be forwarded downstream in the supply chain to consumers and other vendors so that the product can get to market more quickly. A continuous improvement philosophy exists alongside automation and constant process flow, with the goals of avoiding overproduction and reducing holding and transporting costs within a facility. Instead of stockpiling work-in-process and/or accumulating waste, the warehousing and inventory space can instead be used for enhanced production capabilities, in order to eliminate any scrap in the production process.

JIT also includes the workers in the process, requiring trust among the various stakeholders within the supply chain. Labor can even constitute a flaw in the JIT process, for example, if employees are poorly trained. Inefficient labor, or any other inefficiency downstream in the supply chain, will set off the bullwhip effect, a phenomenon in logistics in which small fluctuations downstream in the supply chain prompt larger fluctuations upstream as the product moves to the consumer. Today JIT has morphed into a variety of industrial management techniques such as lean processes and six sigma philosophies.

Even before COVID, the trade war between the US and China increased global supply chain risk volatility for the global stakeholders involved (Fajgelbaum and Khandelwal, 2021). This trade war was initiated by the Trump administration in 2018 and has been continued by the Biden administration. US taxes on a variety of Chinese products entering the US incurred retaliatory measures for American products exported to China.

COVID has prompted an even more dramatic disruption in international supply chains (El Din et al., 2021). When COVID lockdowns began in March 2020, economists expected supply to be volatile, but not many foresaw the dramatic spikes in demand fueled by online orders by not only consumers but also B2B organizations that prompted increases in the equilibrium prices of those goods. El Din et al. (2021) surmised that this unanticipated demand increase has been an underreported but important fallout from the pandemic. The commotion that ensued when a container ship got stuck in the Suez Canal symbolized the gridlock and inefficiencies in maritime commercial shipping, depicting supply unpredictability that consumers understood more easily than demand volatility.

As for disruptions in the supply chain, an over-reliance on products with component parts originating out of China over the past generation had already strained the global supply chain because a single delay at a Chinese port could result in a bottleneck in production, causing delivery delays worldwide. The COVID lockdowns in China rendered factories idle, launching a domino effect of supply instability at Chinese ports. In the United States, ports in California were especially negatively impacted during the pandemic, prompting yet another domino effect of more volatility at ports around the world where Chinese goods were being shipped. Brad Hughes of Transportation & Logistics Practice at Clark Hill PLC, commented, “In my 40 years of living and working in Southern California, I have never seen container ships off the coast of Malibu, and yet there they are, because there is no more room for them in the parking lots that are the ports of LA and Long Beach” (National Law Review, 2021, para. 6).

Like many industries across the US that necessitate labor, COVID exacerbated inefficiencies at ports. California ports especially suffer from an overreliance on manual labor, as unions and regulations have mucked up the efficient flow of products as a result of dockworkers’ and longshoremen’s (as they are traditionally referred) negotiating power and leverage (Berger, 2022). Miller (2022) reported that much of the incoming throughput at the port of Los Angeles originated from areas recently affected by COVID-related lockdowns. The ports at Long Beach and Los Angeles in particular were so desperate to keep backlogs from occurring that they had to mandate a container dwell fee to tax cargo (Page, 2022). In late 2021, the Biden administration was forced to step in to mediate a deal with various stakeholders that allowed the ports of Long Beach and LA to be open 24 hours in hopes of doubling the time in which cargo might be unloaded from container vessels to motor transportation.

In addition, the port of Los Angeles is currently experiencing an unprecedented 40 million cyberattacks every month, and with increased resources being devoted to this threat, it will take at least until 2023 until queued cargo is fully cleared (Lancaster, 2022). Technological advances such as automation at other ports around the world such as the Port of Rotterdam have kept them from being targets of hacker attacks, but unique facets of their regulatory environment have caused the California ports to face specific pressures from these groups and others such as anti-automation labor actors, further limiting their efficiencies (Bacon, 2022).

COVID lockdowns caused haphazard scheduling for industrial managers across the globe, as shifts on shop floors were difficult to fill. The skills gap, that oft-repeated term that refers to industrial jobs being available but with no qualified employees to fill the positions, was exacerbated with decreased labor options. Labor shortages, especially in the manufacturing sector, caused additional supply chain issues further inland, since the supply chain relies on an efficient process which can only run smoothly when workers are trained appropriately and work at their positions long enough so that there is no longer a learning curve. Labor shortages and the skills gap in industry exacerbated inefficiencies in the supply chain to the point that many organizations were unable to take on new orders due to lack of manpower.

The Society for Human Resource Management (2022) reported that according to the Bureau of Labor Statistics, 47.8 American million workers quit their jobs in 2021, by far the highest number on record for any year. Workers are less trained than ever because of the Great Resignation, a macro human resources term used to describe the mass exodus of employees who quit their jobs when COVID hit (Liu, 2022). The largest increase in resignation rates is among employees between 30 and 45 years old, with an average increase of more than 20% in 2021 from the prior year. However, resignations actually decreased for workers in the 20 to 25 age range (likely due to a combination of their greater financial uncertainty and reduced demand for entry-level workers). In addition, resignations are highest in technology-related fields such as industry. Fuller and Kerr (2022) noted that the conditions for those who voluntarily quit their jobs are here to stay and stated that in the US, “Worker shortages are apparent everywhere” (para. 1).

This never before-seen fluctuation in the US labor force is especially impacting the American trucking industry, especially impacting truck drivers and related workers such as warehouse employees (National Law Review, 2021). Due to the skills gap, the trucking industry was already facing labor shortages before the pandemic, as industry trends pointed to high rates of retirements and/or transitions into other jobs. Kelly (2022) stated, “We can receive all the goods from China and around the world, but if there are not enough truckers to deliver them to stores, we will continue to see empty shelves for a long time” (para. 3). The American trucking industry is at a record 80,000 drivers below the necessary number of employees needed in the country according to the American Trucking Associations. This shortage has been prompted in part by continued increased consumer demand (Yurkevich, 2021).

Unfortunately, the ports of Long Beach and LA, like most other ports, do not have enough truck drivers to move their cargo at all hours, impeding the efficiency of the new around-the-clock operations (Yurkevich, 2021). Another new issue facing the trucking industry is pressure to unionize. Big rig truckers blocked terminals and clogged throughfares for other truckers at the Port of Oakland in July 2022 in protest of a new state regulation making it difficult for small trucking organizations to operate, motivating them to unionize and decrease their workload in a gig economy (Griffith, 2022). These efforts had the effect of “snarling an already severely backlogged supply chain” (Hoeven, 2022, para. 1) in that location.

Further, a global energy crisis ramped up supply chain inefficiencies throughout 2022, exacerbated by sanctions associated with global energy amid the Russia/Ukraine conflict and questions involving the Russian Nord Stream energy pipeline. Maersk (2022, para. 10) observed that rising oil prices towards the end of the pandemic meant that “the cost of cargo movement could rise and cause further delays and backlogs for industries, creating long- and short-term ripples across supply chains”. High energy prices, along with inflationary pressures, can also prompt stakeholders to use inefficient, less costly means of transportation, furthering supply chain precarity. The cost of very low sulfur fuel oil (VLSFO) used to transport vessels with shipping containers, skyrocketed in June 2022, doubling in price from 2021 (Miller, 2022). Spikes in VLSFO prices have prompted the maritime industry to recalibrate their transportation algorithms so that no vessel is leaving a port with additional cargo availability, as accessibility of vessel availability has continued to fluctuate at ports such as Singapore (Six, 2022), where fleets with containers are in holding patterns due to VLSFO price increases. Rising inflation coupled with energy/oil volatility has further intensified inefficiencies in global transportation.

Container shortages are another recent issue plaguing the shipping industry, thus creating more risks in global logistics. A “shortage of empty containers observed since late-2020 (has been) unprecedented” (United Nations Conference on Trade and Development, 2021, p. 3). Containers in the global supply chain have been “held up in waiting ships, combined with pandemic-related delays in intermodal connections” (United Nations Conference on Trade and Development, 2021, p. 1). Container shipping rates rose to all-time highs by late 2021 (United Nations Conference on Trade and Development, 2021), even before inflationary pressures hit the world economy. Aggravated by rising oil prices, the containers themselves (TEU equivalents, etc.) have become very costly and more difficult to adequately supply.

In light of the global container shortage, May 2022 brought new delays at Chinese ports, prompting dry bulk congestion to increase by 30-40% (Bridgett, 2022). Common vessels stuck in long queues at Chinese ports include tankers, containerships, and gas carriers (Ship Hub, 2022). During this time, the backlog of vessels at the Port of Shanghai increased by a whopping 34% from the month prior (Jones, 2022), and ships from China to Seattle were taking four days longer than expected to arrive (He, 2022). Even if downstream supply chain partners are only indirectly associated with goods being exported out of China, this delay is impactful. Truly, a major lesson learned during the pandemic has been the importance of global ports and how they are the keystone of overall infrastructure for the entire global supply chain.

Many economic forecasts predicted a return to normal supply chains after the height of the pandemic, but fallout from the pandemic continues. In sum, port delays, labor shortages, trucking industry issues, rising oil prices, and container shortages persist, indicating that supply chain shocks that show no signs of abating as of summer 2022. When asked about the resolution of supply chain issues in July 2022, 66% of executives surveyed said that they anticipate needing more than a year to address all their supply chain issues adequacy (Plante and Patel, 2022). These factors have sustained the disruptions in global supply chains since the pandemic and contributed to the reemergence of Chinese port delays, a sure-fire sign that these disruptions are the indefinite new normal for the foreseeable future.

A sea change in supply chain management strategies has ensued, as practitioners and academics alike are scrambling to reconfigure best practices. El Din et al. (2021) noted that due to the container shortages and global supply chain shocks, it is incumbent on global logistics practitioners and academic researchers “to foster a sustainable shipping framework to curb the recurring shock” (p. 466). Barbieri et al. (2020) added that the pandemic has prompted organizations to recalibrate their global supply chain networks because “supply reliability and quality are critical” (p. 132) now more than ever. Wilson (2021) indicated the products in shortest supply were those that had “long and lean supply chains (which) struggled with the market’s volatility.” Donthu and Gustafsson (2020) said that the pandemic will force organizations to “make these firms rethink their supply chains” and force them to have “supply chains that do not break” (p. 286). Truly, this new supply chain volatility means that forecasting and risk assessment concurrently become much more difficult.

Global luxury goods conglomerate LVMH (Louis Vuitton) operates in a highly competitive fashion industry with high supply chain costs for production and distribution. LVMH’s performance has also been negatively affected by the influx of counterfeit products in global markets, especially goods made in underdeveloped countries with lax intellectual property enforcement. LVMH is an example of an organization that might benefit from a complete restructuring of its supply chain. The reshoring movement, a simplification of the supply chain where organizations produce where they are centrally based, involves automation capabilities, which are essential to avoid high labor costs, and is a likely supply chain recalibration for organizations like LVMH.

Economic pundits predicted that political pressures for increased minimum wages at American fast food restaurants would be a death-knell to their profit margins, but European-inspired computerized touch-screen ordering requires fewer workers. Similarly, technological enhancements in automation in production for products like Louis Vuitton handbags, as well as rising fuel costs for transportation, are prompting reshoring efforts that don’t necessitate a full-fledged global logistics approach.

Amid the changes in the external environment that show no signs of waning, JIT appears to be an antiquated philosophy. Wilson (2021) noted that “concerns centered around the over-reliance on JIT are being raised” (para. 13), and El Din et al. (2021) deduced, “The current container crisis shows that the Just-In-Time (JIT) approach of manufacturing and inventory system is becoming less effective given the uncertainty in the industry” (p. 465). West (2022) noted that COVID’s impact, along with an overreliance on global organizations in the supply chain, “combined to increase the risk and raise worries regarding just-in-time practices” (para. 6).

In particular, specialized technology-driven goods such as semiconductors are most susceptible to bottlenecks in the JIT process. Their supply chains should be reconsidered, especially those originating from Asian ports, because “providers for specific critical goods or services (have) created vulnerable bottlenecks” (Meester and Ooijens, 2020, p. 4).

Further, the United Nations Conference on Trade and Development (2021) claimed that an additional risk issue comes from government availability and access by private firms to real-time data for products from Asia. The lack of accessible, timely information needed for efficient supply chains has thwarted international container shipping strategies and capacity management strategies. For industries with supply chain partners in countries with authoritarian regimes where information is difficult to access, “Policymakers need to promote transparency and encourage collaboration along the maritime supply chain” (United Nations Conference on Trade and Development, 2021, p. 4).

West (2022) surmised that “with much of the developed world having shifted to off-shore manufacturing and just-in-time supply chains, it did not take long after COVID-19 appeared for global supply chains to become overstretched and frayed” (para. 16). Brakman et al. (2020) mentioned that “the most salient feature of modern globalization, international just-in-time production and delivery, will be adjusted” as a result of COVID’s fallout and recommended a more apt “just in case” methodology as a replacement for JIT: a shift from single sourcing to multiple sourcing, with an accumulation of backup stockpiles of parts. Asian planning horizons are generally larger than those in the West, but without a doubt, planning horizons need to be loosened in all areas of the world. As such, it’s more important than ever to build risk-mitigation strategies into supply chain strategies (Donthu and Gustafsoon, 2020). Looking ahead, if these new strategies are employed, warehouses and backup inventories will be essential to forestall bottlenecks in the process. Not all supply chains will be sustainable, and many industries will reshore as a result.

Recent supply chain shocks have been a wake-up call to JIT-centric organizations, as the consequences from COVID continue in the global supply chain. Increasingly, global organizations are at least indirectly affected by Chinese port delays upstream in the supply chain. In a perfect process, all the materials would arrive on schedule and there would be no bottlenecks in the organization’s supply lines. However, if there is one lesson to be learned from the pandemic, it is that it is necessary to adapt to unexpected issues. JIT has utilized precise algorithms to help organizations to make profits, but even organizations with the best forecasts have encountered empty shelves since the onset of the pandemic. Industrial organizations would be wise to leave JIT in the past, even if it necessitates factories taking on work-in-process and scrap in the future.

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Authored by James J. Tanoos

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About the author

Saman Iqbal

Saman is a law student. She enjoys writing about tech, politics and the world in general. She's an avid reader and writes fictional prose in her free time.




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