Supply Chain Shortages and the Future of Just-in-Time Manufacturing

Global logistics and inventory networks have faced unprecedented challenges in recent years, leading to widespread disruptions. Events such as the COVID-19 pandemic, geopolitical tensions and natural disasters have highlighted vulnerabilities in traditional production models. As organizations grapple with supply chain shortages, Just-in-Time (JIT) manufacturing emerges as a vital strategy for mitigating their impacts.

Explore the transformative potential of advanced JIT practices in addressing supply chain vulnerabilities and shaping the future of production in an increasingly unpredictable world.

Current State of Global Supply Chain Shortages

Difficulty obtaining hard-to-source components, skilled labor deficits and increased costs have pretty much been the reality for many industries. The years before weren’t so favorable either, especially amid the declining share of trade in goods between the U.S. and China. 

Consequently, risk mitigation is at the top of today’s business leaders’ minds. In a recent survey, 97% of global organizations highlighted restructuring their supply chains as a top priority for 2024. 

What Is Causing Supply Chain Shortages?

Supply chain issues stem from various factors, many of which have been brewing in the last five years. McKinsey’s 2022 report revealed that disruptions lasting one month or longer now occur every 3.7 years, costing the average organization 45% of annual profits. 

Sustained shortfalls in raw materials availability can create significant manufacturing backlogs. In line with the economic principles of demand and supply, scarce components eventually cost more to acquire, with rippling effects across the value chain. For example, Nickel, an essential electronic, aviation and military goods production resource, has been increasingly difficult to obtain. As a result, prices have exceeded $100,000 per ton, creating a cascade of problems. 

A growing spate of climate-driven catastrophes also contributes massively to the supply chain crisis. Earthquakes, floods, wildfires and hurricanes cause damage worth billions of dollars, eroding inventories and infrastructure. 

Transportation issues are another major concern. For example, the Red Sea crisis brought about by frequent attacks delayed maritime shipping by as much as 17 days and cost an additional $1 million in fuel costs. 

Inventory mismanagement rounds out the most critical culprits behind the current supply chain challenges. Inefficient inventory management practices, poor forecasting and inadequate warehousing exacerbate existing issues, diminishing manufacturers’ resilience.

The Role of JIT Manufacturing in Addressing These Issues 

JIT Process Diagram | Source: netsuite.com

Companies often maintain large inventories in a traditional manufacturing model to buffer against potential supply chain disruptions. However, this can lead to high holding costs and waste from unsold goods. 

JIT manufacturing, on the other hand, aims to streamline operations by synchronizing production schedules with demand. This approach requires precise coordination with suppliers, providing a framework for enhancing resilience. 

Fostering closer relationships with suppliers and emphasizing timely deliveries enable organizations to improve their responsiveness to changes in demand and minimize the effects of disruptions. For example, companies like Toyota have successfully implemented JIT practices, allowing them to adapt to market fluctuations while keeping inventory levels low quickly.

JIT and Supply Chain Fit

Implementing just-in-time manufacturing is not a binary choice where a company simply decides to adopt it or not. JIT encompasses a variety of practices that must be tailored from an internal plant setting to the broader supply chain context. 

The effectiveness of these practices depends significantly on the specific product being handled and the environmental conditions affecting each link within the supply chain. For instance, when a company encounters higher product yield or environmental uncertainty, its supply chain must become more responsive.

In such cases, having buffers in strategic locations within the supply chain may be necessary to shield downstream operations from upstream volatility. This would make a “pure” JIT approach impractical. Therefore, it is essential to consider how supply chain design relates to JIT practices, especially under the conditions that necessitate balancing supply and demand.

Benefits of JIT in Navigating Supply Chain Challenges 

Just-in-time manufacturing offers a range of benefits that play a crucial role in helping companies overcome supply chain disruptions effectively.

Reduced Inventory Costs

The Kanban methodology in JIT lean manufacturing enables a pull-based system where production is based on actual demand. By maintaining optimal inventory levels and focusing on producing what is required when it is needed, companies minimize waste, storage costs, and the risk of overproduction. Industrial service provider ERIKS has successfully used kanban cards and signals to reduce inventory levels by 25% without impacting product availability. 

Increased Efficiency

JIT practices streamline production processes and align them closely with demand, enhancing operational efficiency and reducing lead times. Dell exemplifies this by using a build-to-order model, which allows the company to produce computers only after receiving customer orders, reducing excess inventory.

Enhanced Flexibility

JIT allows manufacturers to quickly adapt to changes in customer demand, enabling them to respond more effectively to market fluctuations. Fast fashion leader, Zara, leverages JIT to produce small batches of clothing based on real time sales data, minimizing excess inventory and maximizing responsiveness.

Improved Cash Flow

With less capital tied up in inventory, companies can improve cash flow and invest resources elsewhere. For instance, Nike utilizes JIT principles to manage production runs based on demand, allowing for better financial management.

Better Demand Forecasting

JIT manufacturing’s emphasis on producing only what’s needed when it’s required encourages more accurate demand forecasting. The close relationship with suppliers fostered by JIT also facilitates better data sharing and collaborative forecasting, improving accuracy and ultimately reducing the risk of disruptions. 

Measuring the Success of JIT Manufacturing Implementation

Organizations can measure the success of their Just-in-Time (JIT) manufacturing implementation through the following key performance indicators.

• Inventory turnover ratio: Companies track how often they sell and replace inventory over a given period. A higher ratio indicates efficient inventory management and effective JIT implementation.
• Lead time reduction: Monitor the time from order placement to delivery. Shorter lead times demonstrate successful JIT practices, showing that materials and products arrive just in time for production.
• Production efficiency: Evaluate the ratio of actual output to potential output. Improvements in production efficiency indicate JIT is effectively minimizing downtime and waste.
• Waste reduction: Monitor the amount of scrap, rework or spoilage produced during manufacturing. A decrease in waste signifies JIT is helping to streamline processes and minimize excess.
• On-time delivery rate: Measure the percentage of orders delivered on time to customers. A high rate reflects the effectiveness of JIT in coordinating supply chain activities and meeting demand.
• Cost savings: Analyze reductions in holding costs, storage expenses and overall inventory costs. Successful JIT implementation should lead to lower operational costs due to reduced inventory levels.

Deploy JIT Practices to Address Supply Chain Shortages 

The challenges posed by supply chain disruptions have prompted many companies to reconsider JIT manufacturing as a viable solution. Leveraging these principles, businesses can enhance efficiency, reduce costs and improve responsiveness to market demands. As technology continues to evolve, companies that embrace JIT will likely find themselves better equipped to navigate the complexities of modern logistics networks.