Navigating Supply Chain Challenges

Sep 4, 2024

Lecture Notes: Understanding Supply Chain Challenges

Introduction

  • Recent shortages in products like toilet rolls, petrol, and microchips.
  • Production and storage exist but shortages still occur.

Traditional vs. Modern Inventory Systems

  • Traditional System: "Just-in-case"
    • Companies stored extra stock for emergencies or demand spikes.
  • Modern System: "Just-in-time" (JIT)
    • Developed by Taiichi Ohno from Toyota in the 1970s.
    • Companies order only what is needed just before it is needed.
    • Benefits: Increased profits, reduced warehousing costs, more capital.

Proliferation of Just-in-Time

  • Adopted across various sectors:
    • Supermarkets
    • Health services
    • Automotive and other industries
  • Goal: Achieve efficiencies similar to Toyota.

Fragility of Just-in-Time Systems

  • Supply Chain Disruptions:
    • No excess reserves, a single issue can halt production.
  • Demand Spikes:
    • No stockpiles to cater to sudden demand increases.

Impact of COVID-19 Pandemic

  • Revealed weaknesses in JIT:
    • Local level: Toilet paper shortages due to demand spike.
    • Global level: Increased online spending stressed shipping industry.

Global Supply Chain Dynamics

  • Interconnected nature of supply chains:
    • Example: Raw materials from Australia to China, then Germany, then global.
  • Vulnerabilities:
    • Port closures, administrative changes (e.g., Brexit) lead to delays.

Expansion Beyond Suitable Areas

  • Areas affected negatively:
    • Armed forces: Shortages during Iraq war.
    • NHS: PPE shortages during pandemic.
    • Job recruitment: Erosion of labor rights.

Potential Shift Back to "Just-in-Case"

  • Companies considering backup strategies:
    • Slight increase in inventories.
    • Backup suppliers.
    • Technological solutions for supply chain management.
  • Inevitability:
    • Climate crisis could enforce a shift back due to unpredictability.

Conclusion

  • Efficiency vs. resilience: JIT is efficient but less resilient.
  • Possible partial shift back to "just-in-case" for future stability.

Key Takeaways

  • Just-in-time systems are efficient but fragile.
  • Global events can expose vulnerabilities in supply chains.
  • Companies may need to adapt systems in response to new challenges, such as climate change.