No doubt we’ve learned a lot over these four months or so. Maybe one of the larger lessons was the inherent fragility of our supply chains. The two sides of the seemingly same coin, globalization and just-in-time operations both showed weaknesses, albeit in a time of extraordinary circumstances. I think there’s a lot of companies walking away from the pandemic with a less than completely trustworthy feeling about both.
But how will these lessons be acted upon going forward? The easy answer is companies cannot rely on getting parts, materials and products from around the globe as they thought they could. For some, that will mean diversifying supply chains, but I’d think it also means most will start looking for ways to buffer their supply chain, as well. That means keeping certain amounts of stock on-hand or at least not on the other side of an ocean.
This cashing of materials may be a bit problematic for many, as we’ve had decades (at least in the USA) of living under lean manufacturing and lean supply chain doctrine that all but removed the notion of on-site inventory. So much so in fact, that many production and retail facilities were purposefully designed with the smallest amount of storage necessary to continue operations. And it’s not just the end users, the bulk of the supply chain has made similar adjustments, from suppliers to retailers.
It will be interesting to watch how painful the shortages of the last quarter or so are compared to the motivation to keep materials on hand in case similar events happen again. Will this drive firms to create inventory space in an effort to smooth any sort of speed-bumps or will they lean on suppliers to carry a larger amount of stock for them?
These questions might boil down to who will have to set aside more warehousing space. This will be answered by the power dynamics of supplier/buyer relationships. Will stores reduce their sales floor to increase storage? Or will it be vendors? Perhaps something even more left field could develop like docks and cross docks also becoming buffers or a new middleman industry of short term storage.
What I do predict is we’ll all have to dust off that supply chain book with the chapter about calculating safety stock – a chapter we all glossed over as we flipped as quickly as we could to get to lean operations.
Eric Fescenmeyer's Blog 