CFOs Rethink Just-In-Time Supply Chain Cost Savings

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CFOs are re-examining production just in time after the pandemic left many companies unable to meet customer demand due to supply shortages.

Until some form of balance is achieved again, CFOs should rethink the use of just-in-time, says Debbie Fogel-Monnissen, CFO of the Institute for Supply Management. The pandemic has made it clear that the total cost of the supply chain, which includes safety stock to increase resilience, is more important than short-term gains alone for maximum inventory disposal.

Companies that don’t have a resilient supply chain, she says, even if the economy recovers, could miss opportunities for growth or even suffer permanent damage to brand loyalty if consumers can’t get what they want, when they want it.

“The pandemic has caused rapid changes in demand and supply – a shock to the global supply chain ecosystem that upset the previous balance, says Fogel-Monnissen. “Just-in-time, by its nature, requires predictability and the pandemic has interrupted that cycle. “

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Consulting firm BDO has urged manufacturers to reassess their just-in-time inventory strategies and consider developing alternative sources of supply or inventories of critical materials or products.

“The manufacturing industry is at a crossroads,” says BDO in a production report released in March. “On one side are the persistent headwinds that manufacturers will face as a result of the pandemic recession. On the other, emerging opportunities for growth and innovation that organizations cannot afford to ignore. 2021 will be a balance between mitigating risk, managing ongoing uncertainty and seizing new opportunities. “

The authors say the keys for CFOs in manufacturing companies are to balance investments that increase connectivity and resilience to mitigate disruption with longer-term transformation plans to meet changing customer expectations.

3d printing

Looking at how his company is changing its approach to just-in-time, metal and carbon fiber 3D printer maker Markforged CFO Mark Schwartz says that for years just-in-time has dominated, thanks to its ability to keep businesses agile and without capital. being immobilized in the inventory.

However, he says, companies have discovered over the past year and a half how fragile just-in-time operations can be, with broken supply lines and other supply chain issues.

Going forward, says Schwartz, he sees promise in a new generation of just-in-time operations that take advantage of the type of manufacturing his company specializes in, 3D printing.

“Enabled by 3D printing, this new approach brings operations closer to home and avoids potential delays by printing parts directly on site where they are needed,” he says. “Not only does this dramatically reduce stress on companies’ inventory, it can reduce supply chain costs and the time it takes to get the part you need, while avoiding having to tie up capital in the process. storing stocks in warehouses. “

Near-shoring

Rene Ho, chief financial officer of Taulia, a supply chain solutions company, says the just-in-time disruptions have caused a domino effect throughout the manufacturing and selling process.

“To overcome some of these challenges, more and more companies are exploring near-offshoring options, maintaining higher inventory levels, and using innovative inventory management solutions to ensure that production is not disrupted and maintain their competitiveness, ”says the manager.

The CFO sees a shift in the relative bargaining power of buyers and suppliers globally. This, along with components that are either more expensive to produce or associated with higher storage costs as inventory levels rise, makes CFOs think differently.

“Essentially, working capital is tied up in the supply chain longer,” explains the CFO.

Rapid problem detection

The idea that just-in-time created problems in the pandemic that CFOs must resolve afterwards is not universal.

While shortages occur faster in just-in-time, problems are also detected faster, says Thomas Roemer, senior lecturer in operations management at MIT Sloan School of Management and executive director of the MIT Leaders for Global program. Operations. One of the main goals of keeping inventory low and relying on just-in-time has always been to find and resolve issues faster, he says.

“I doubt that conventional heavy-inventory systems have had enough usable inventory in the system to fill prolonged periods of scarcity,” he says. In any case, “this heavy inventory load would have made them uncompetitive a long time ago.”

The MIT expert argues that long lead times and non-transparent supply chains, with layers of outsourcing and offshoring, are much more to blame for pandemic shortages than just-in-time per se.

“After all, things have been running for so long without ‘wasting’ time working with contractors,” he says.

In other words, although outsourcing has been associated with just-in-time, it is not a necessary part of it.

CFOs need to understand, he says, that outsourcing and offshoring are strategic decisions in which procurement costs are only one factor.

“Factors such as flexibility, responsiveness, transparency and various other factors must also be taken into account,” he says.

The good news, says Roemer, is that the CFO’s job remains both interesting and secure. After all, automation can easily make decisions based purely on cost. What it can’t do is the kind of strategic thinking of the CFO who looks at factors other than cost when designing supply chains.

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