From ‘just-in-time’ to ‘just-in-case’
Just-in-time means delivering exactly what the customer or the next part of the chain needs, on time. This logistic method of inventory control originated in Japan after the country tried to recover from the Second World War. Japan is densely populated and has to import virtually all of its raw materials. Goods are delivered as late as possible, but still just in time. Intermediate storage is minimised, as are the associated costs. The major disadvantage of just-in-time production is its sensitivity to disruptions. A small disruption in the chain can have major consequences. This can be prevented by real-time interaction between databases, provided that there is 100 percent reliability in terms of quality and delivery time of the products. Principles that fit in perfectly with Japanese culture. The result is that manufacturers who work according to this principle can produce more cheaply than the competition. Forced by this price competition, just-in-time has, with the help of McKinsey, gone global. Between 1981 and 2000, inventories at American companies fell by an average of 2 percent a year. Modern communications, reliable container transport, and ever-improving database software meant that global chains became longer and longer. This increased vulnerability, but in the race for the lowest costs, often only the cheapest chain remained. Price is more important than risk until it goes wrong.
Corona has turned the entire just-in-time chain upside down. This became most prominent in the industry where the principle was actually invented: in the car industry. Many car manufacturers are currently without the required semiconductors. These are relatively small but essential parts of a car. Actually, the failure of just-in-time was already visible earlier, namely through the acute shortage of face masks at the start of the corona crisis. Meanwhile, there is a shortage of just about everything. Raw materials, semi-manufactured products and numerous parts for which delivery times are starting to rise sharply. The corona crisis is unique in the sense that at the start, everyone assumed that demand would plummet, but it actually rose sharply for goods. The best example is the timber industry. A crisis normally depresses the housing market, so there are fewer stocks of wood/timber/lumber. Almost immediately, everyone started doing odd jobs or building extensions. As a result, timber prices rose so sharply that it put a brake on the construction of new homes, a market that was already tight.
Thanks to just-in-time, less capital remained tied up in the company. This was paid out in the form of dividends or by buying back shares. In addition, just-in-time also resulted in higher profits. The average supermarket has already sold the products on the shelf several times before paying the supplier. Not only Corona, but also the climate is increasingly affecting these vulnerable chains. The recent winter storm in Texas caused shortages in the petrochemical chains. It turns out that these substances are used in a surprisingly wide range of products. Sitting at home has also meant that many new pets have been purchased, making pet food suddenly scarce. As if the devil were playing with it, one of the largest container ships in the world also blocked the Suez Canal. The size of that ship had everything to do with the cost optimisation of the just-in-time chain. After all, big is cheap.