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Limiting goods in warehouses improves that ratio. Investors reward companies that produce growth in their return on assets. “There’s no kind of disruption risk term in there,” he said.Įxperts say that omission represents a logical response from management to the incentives at play. Alicke added, while failing to account for trouble in their business plans. Many companies acted as if manufacturing and shipping were devoid of mishaps, Mr. “The way that inventory is evaluated will change after the crisis.” Still, one of the authors of that presentation, Knut Alicke, a McKinsey partner based in Germany, now says the corporate world exceeded prudence. It promised savings of up to 50 percent on warehousing if clients embraced its “lean and mean” approach to supply chains. “Companies that run successful lean programs not only save money in warehouse operations but enjoy more flexibility,” declared a 2010 McKinsey presentation for the pharmaceutical industry. “Then, you have some shocks to the system.” An Idea That Went ‘Way Too Far’ Shih, the Harvard Business School trade expert. “People adopted that kind of lean mentality, and then they applied it to supply chains with the assumption that they would have low-cost and reliable shipping,” said Mr. That has amplified the damage when something goes awry - as when an enormous vessel lodged in the Suez Canal this year, closing the primary channel linking Europe and Asia. Some companies were especially exposed to such forces given that they were already running lean as the crisis began.Īnd many businesses have combined a dedication to Just In Time with a reliance on suppliers in low-wage countries like China and India, making any disruption to global shipping an immediate problem. Steep increases in demand made pet food scarce and Grape-Nuts cereal all but disappear from American store shelves for a time. “You have a confluence of forces,” he said. Andrew Romano, who runs sales at a chemical company outside Philadelphia, has grown accustomed to telling customers they must wait on their orders. Winter storms that shut down petrochemical plants in the Gulf of Mexico have left key products in short supply. We are at the logical conclusion of all that.”
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“In a race to get to the lowest cost, I have concentrated my risk.
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Shih, an international trade expert at Harvard Business School. “It’s sort of like supply chain run amok,” said Willy C.
In a time of extraordinary upheaval in the global economy, Just In Time is running late. As the pandemic has hampered factory operations and sown chaos in global shipping, many economies around the world have been bedeviled by shortages of a vast range of goods - from electronics to lumber to clothing. From fashion to food processing to pharmaceuticals, companies have embraced Just In Time to stay nimble, allowing them to adapt to changing market demands, while cutting costs.īut the tumultuous events of the past year have challenged the merits of paring inventories, while reinvigorating concerns that some industries have gone too far, leaving them vulnerable to disruption. Over the last half-century, this approach has captivated global business in industries far beyond autos. The Japanese automaker pioneered so-called Just In Time manufacturing, in which parts are delivered to factories right as they are required, minimizing the need to stockpile them. In the story of how the modern world was constructed, Toyota stands out as the mastermind of a monumental advance in industrial efficiency.