Supply Chain Strategies: Should we be swapping JIT for JIC?

The strain on global supply chains has exposed multiple weak links over recent years. Large scale infrastructure projects in China, Brexit, Covid-19 and now the war in Ukraine. These have all contributed to a shortage in timber, silicone, cement and titanium which have had a major knock on effect for the availability of commercial and consumer goods. Products like cars, electric goods, building materials and glass are to make but a dent in the list of items affected. Loyalists and those who had risen from the rise of Lean practices found themselves in long waiting queues for items their businesses and customers couldn’t afford to wait for.

Automobile manufactures like JLR, Nissan, GM, Volvo and Tesla were all hit hard by a chip shortage and in all cases were making financial losses as a result. However, the pain went much further for the Lean enthusiasts at Honda motors. In January 2021 they had to stop production temporarily which resulted in a four day closure of its Swindon site. This was a direct result of their reliance and faith in their Just-In-Time supply chain strategy. The strategy was designed to keep inventory as low as possible whilst keeping up with their production plans. With no slack in the system there was little margin for delays and once a global shortage became clear, the results were inevitable and by that time, unavoidable.

There is a comically ironic twist to this story that has produced serious lessons. Toyota motors, the creator of the Lean manufacturing system so many have relied on and the permanent home to JIT, was not impacted by the chip shortage, unlike many of their disciples. How did they escape? Toyota, identifying potential market restraints early and stocked up on essential supplies. They didn’t do this in a panicked and irrational state like all of those at the petrol pumps and supermarket toilet roll aisles last year. No, this was a calculated strategy to ensure the robustness of their supply chain. Increasing the amount of buffer stock far beyond pre-pandemic levels is more common than ever with faith in the JIT strategies extremely challenged. What companies are moving towards now is more representative of Just-In-Case supply chain strategies. The difference between JIC and common panic buying is that JIC is a valid strategic method. It relies on the balance between holding excess inventory and reducing their cash flow versus, part shortages and a reduction in production outputs. Both are very costly and to win, it needs to be done right.

In order to determine if a JIC strategy is right for your business you must analyse your supply chain and identify any weak links. Single source suppliers should be your start point, but you will also need to dig into your multisource suppliers too. Their supply chains may cross further down the line on a single supplier for their raw materials. A business cannot store all of everything so this analysis needs to be as detailed as it possibly can.