Our previous article outlined how different companies are implementing more rigorous internal processes to manage Supply Chain Risk but with varying degrees of success. These changes are primarily driven by the global sourcing and supply challenges, including COVID-19, Anti Free Trade Efforts, Climate Change, and a push for Sustainable Supply. The one thing that has become abundantly clear in working with our clients is that some of their current Supply Chain Risk Management processes are not robust enough to meet many of today’s challenges and likely future potential challenges.
The just-in-time inventory system (JIT) was a popular trend in the last decades with obvious cash, service and obsolescence benefits. In integrated global economies, this strategy has left many companies open to supply and demand shocks. Companies employed this inventory strategy to increase efficiency, decrease waste by receiving goods only as they needed them for the production process, and reduce inventory costs. JIT has always required producers to forecast demand accurately, requiring sophisticated logistics to manage global supply chains.The COVID-19 pandemic has exposed the shortcomings of the (JIT) management strategy that aligns raw-material orders from suppliers directly with production schedules.
In response to the pandemic, U.S. manufacturers enacted their standard ‘recession’ playbook, shutting down factories and warehouses, cutting costs and preserving cash. The unemployment rate shot up in the early months of the COVID-19 crisis in the U.S., and payroll numbers showed that more than 20 million jobs were lost in April 2020 alone.
Because of the atypical nature of this recession, companies were unprepared for the sharp rebound in consumer demand that followed almost immediately and continues today, clearly shown when tracking Industrial production against personal consumption.