Other industries did the same, from auto making to health care. This finely balanced system works well while goods are flowing steadily. But the coronovirus black swan event blew it to pieces. For many items, supplies sold out in days, exposing the downside of the push to hold less stock in warehouses and operate fewer, fuller trucks.
Now abruptly, manufacturers, distributors and retailers have thrown that strategy into reverse, writes The Wall Street Journal (March 24, 2020). They are making as much food as they can, delivering it as fast as possible and adding staff, all to restock denuded shelves.
General Mills is trying to skip steps in a carefully calibrated process. It is delivering truckloads of Cheerios, flour and pasta straight to stores’ warehouses, instead of first sending products to its own warehouses, to eliminate a link in the supply chain. Retailers, meanwhile, are overriding the sophisticated algorithms that say how much of what products they should buy, after seeing how those models failed to account for the demand surge. Instead, retailers are talking directly to manufacturers and making decisions in real time. “JIT purchasing has been thrown out the window,” said one CEO.
Yet manufacturers run the risk of throttling up production too high if the crush in demand for some products proves to be temporary.
Classroom discussion questions;
- Relate this article to the discussion of supplier partnerships in Ch. 16 of your Heizer/Render/Munson OM text.
- How does this “black swan” event impact the bullwhip effect discussed in Supplement 11?