Expect Just-In-Time Inventory Management to Thrive in New Security-Conscious World

Published: October 10, 2001 in Knowledge@Emory

After the two-day airspace lockdown that occurred in the wake of the September 11 terrorist attacks on the World Trade Center in New York and the Pentagon in Washington, D.C., it might seem likely that American manufacturers would begin to shy away from a system that requires them to hold no inventory and trust their suppliers’ ability to deliver their goods in process whenever needed. But Goizueta supply chain scholars hold a more optimistic view. They forecast that just-in-time systems will actually increase in importance, because the kind of long-term supplier relationship that JIT requires is arguably more secure than buying on the basis of price alone.

"Part of just-in-time that’s different from just-in-case is that you get to know your suppliers very, very well," explained Richard Metters, professor of decision and information analysis. The security guard may see the same driver driving in and out of a factory for 10 years, he said. It’s not even uncommon in a just-in-time relationship for employees of the supplier to work right on the manufacturer’s assembly line. "What has to develop in the just-in-time relationship is a co-destiny between the firms," he said. Elliott Bendoly, professor of decision and information analysis, agreed: "I think if anything we’re going to see a tightening of these [JIT] relationships."

Alex Citurs, professor of decision and information analysis, expects that in the future manufacturers will want to know even more about their suppliers – particularly about their suppliers’ own supply chain. The reason will not be so much to enable the manufacturer to assess the risk of sabotage, he said, but more to assess the likelihood of transportation disruptions.

Suppliers will comply with these requests, according to Citurs, in part because the current economic downturn makes it tough to say no. "Typically with a downturn in the economy, you would say that manufacturing firms tend to have a better chance to work out more favorable contracts with their suppliers," he noted.

Professors disagreed about whether foreign suppliers will be hurt by beefed-up security and customs inspections at U.S. borders. Metters said delays in customs may lead to more domestic sourcing. He also speculated that the aftermath of the attacks may change the way transportation patterns evolve for the maquiladoras, the Mexican factories along the U.S.-Mexico border. Since truck inspections by U.S. Customs officers undoubtedly take longer now than before the attacks – and because proposals to let Mexican trucks on U.S. roads are probably on permanent hold - he predicted an increase in bulk deliveries. "It’s going to be easier to load 20 train cars every couple months and have them go through one inspection," he explained.

Bendoly disputed the idea that border slowdowns would weaken relationships between foreign suppliers and American manufacturers. "I think we’ll see a tightening of relationships, whether they are national or international," he said. In his view, the key differentiators will be size and reliability, not location. Smaller and less established suppliers will be more likely to take a hit.

He speculated that in delivery companies, big will win out as well, since big companies will be more able to absorb the costs for security. In the package delivery business, European-based DHL may now have a harder time competing against the more firmly entrenched United Parcel Service and Federal Express.

Several Goizueta supply chain experts noted that constant availability is the most important quality of a JIT supplier, not speed. While in Japan, where JIT techniques were first developed, geographic proximity was a given, it is still the exception in America, according to Metters. Although fully 40% of manufactured good are delivered to factories on a JIT basis, only a small percentage are actually manufactured as needed, Metters said.

What happens more frequently in the U.S., because of the distance between plants, is that the supplier will ship goods to a warehouse where they are held until needed by the manufacturer being served. For example, a factory in Arkansas will produce components, then ship those units to a warehouse it owns in Detroit. Then from the warehouse, components may be trucked cross-town to an automaker’s assembly line several times a day.

Information technology will also mitigate the effect of any transportation slowdown, Citurs predicted. Already companies make adjustments in their production schedule to ensure they are not caught short in the event of bad winter weather. They should also be able to make adjustments for this kind of transportation disruption. In addition, Citurs noted, companies that produce several different products can sometimes juggle their line schedules. If they are missing a part used in one product, they can just make another product until the shortage ends.

One supply chain consultant agreed that even if there are transportation problems, logistics officers should be able to compensate by adding more lead-time into their supply schedules. "If you have an efficient process to start with, you just have to update your process," said Lars Ljungdahl, a vice president of Meritus Consulting Services/Solving International.

The main problem that Ljungdahl said he could foresee concerns not a slowdown, but a potential stoppage. If airfreight on passenger planes is ultimately prohibited, this could pose significant issues for semiconductor manufacturers and other industries that typically ship their products in small packages.

Bendoly predicted that online marketplaces may suffer as a result of the attacks. Most of the still-functioning business-to-business marketplaces differentiate goods largely on price, according to Bendoly, and reliability and security could suddenly seem much more important.

Recent events may challenge some companies’ internal inventory supply lines as well. Bendoly, who is studying fulfillment of online orders by traditional companies, said that he expected greater security needs may make it harder for such national companies as Staples, Best Buy, and Circuit City to fulfill online orders through local stores. The need for greater security "probably has thrown a wet blanket on their effort to insure the flexibility of their multi-channel operations," he said.

If so, it would take JIT systems a somewhat ironic full circle, since it was a vision of American consumer freedom that first inspired JIT’s inventor, Taiiki Ohno, a production engineer at Toyota Motor Company. By some accounts, Ohno was inspired on a 1956 visit to Detroit not by anything he saw on the assembly line, but by the supermarkets he visited. Japan did not have self-service supermarkets at the time; the ability of all the customers to get what they wanted with no waiting gave Ohno his vision for a new kind of factory.

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