Tag: JIT inventory

OM in the News: Winners and Losers in the Supply Chain Crisis

“Some companies have spent their way out of logjams while others face another year of disruption,” writes Financial Times (Feb. 1, 2022). Splits are emerging in corporate America’s response to a supply chain crisis that is expected to last all year, heralding a wave of spending on new capacity, better data and support for weaker vendors.

Cadbury warned that supply ‘headwinds’ would grow stronger in 2022

Firms are complaining of shortages, delays and surging costs and are scrambling to procure semiconductors, waiting for components and suffering the effects of suppliers’ staffing gaps. GE said shortages of semiconductors, resin, parts and labor had affected its sales, while Caterpillar admitted that the challenges had been more significant than expected. The supply chain will be “the fundamental limiter of output” this year, said Tesla CEO Elon Musk, adding that the chip shortages it faces might not ease until 2023.

Companies including VF Corp (The North Face) said they had moved some production to suppliers closer to their biggest markets. Intel, Tesla and Texas Instruments just invested in new semiconductor facilities, saying these would give them more control of key components.
Companies with more domestic suppliers and those that had moved before the pandemic to broaden their supply chains were faring better than others with more complex, global logistics. Overall, it’s still the biggest companies that are able to buy their way out of the tough spots. Diverse strategies range from Sherwin Williams (the paint company) buying a resin supplier to VF Corp chartering “full-sized jetliners” to secure supplies. Some firms, like Lockheed Martin, are offering their suppliers financial help with cash infusions to keep them from going under and disrupting their supply chains.
The extended impact of Covid is forcing companies to question long-held beliefs about JIT production, including how few suppliers they depend on, how far critical components must travel and how little inventory they can hold.  Prologis, a property company, said that clients were saying that they would need 20-25% more warehouse space so they could carry more safety stock. “The engineers have designed supply chains around predictability and when that predictability goes away everything goes to hell in a handbasket,” stated the CEO.
Classroom discussion questions:
1. Why is JIT under fire?
2. Summarize the various strategies companies are using during this period.

OM in the News: Grocers Stockpile “Pandemic Pallets” Ahead of Winter

Grocery stores and food companies are preparing for a possible surge in sales amid a new rise in Covid-19 cases. Supermarkets are stockpiling groceries and storing them early to prepare for the coming months, when some health experts warn the country could see another widespread outbreak of virus cases and new restrictions. Food companies are accelerating production of their most popular items. These changes, a reaction to the sudden and massive shortages grocers experienced in the spring, amount to a shift from the JIT inventory management practices that have guided the retail business for decades, writes The Wall Street Journal (Sept 27, 2020).

Now, food sellers are stockpiling months, rather than weeks, worth of staples such as pasta sauce and paper products to better prepare for this winter, when people are expected to hunker down at home. Retailers are expanding distribution capacity, augmenting warehouse space and modifying shifts.

Associated Food Stores (a coop of over 400 stores) recently started building “pandemic pallets” of cleaning and sanitizing products so it always has some inventory in warehouses. The Giant and Food Lion chains already have holiday inventory in their warehouses. Those chains are also storing 10-15% more inventory than they did before the pandemic to ensure they won’t run out of fast-selling items. Still, some products such as cleaning wipes and canned vegetables remain hard for stores to obtain, partly because of continued high demand and because manufacturers are still trying to keep up.

General Mills said it hasn’t caught up with demand for Progresso soup, Betty Crocker cake mixes and Pillsbury refrigerated dough. It is increasing its production capacity, but the entire industry is still struggling to rebuild inventory on similar items. Manufacturers have given priority to making their fastest-selling products, which has helped some items recover inventory in recent months. Walmart is overriding its grocery-ordering algorithms to build up extra inventory now, after decades of becoming increasingly lean. Coke is  still making fewer varieties of drinks to meet demand for its top beverages.

Classroom discussion questions:

  1. Why a change from the JIT inventory approach?
  2. Why is there still a shortage of some inventory items?