If you were to create a word cloud based on the latest news stories, aside from toilet paper (no pun intended), “supply chain” would appear near the top. For me, that has led to some interesting conversations. Including, explaining to my neighbors how Amazon delivers a package to their doorstep, to discussing the future of how raw goods and components will be procured for companies.
Speaking with my co-workers at Infosys Consulting, as well as with peers from industry and organizations like Penn State, we all agree we are facing a fundamental crisis that challenges us to revisit unquestionable and established norms.
For many decades, we all embraced the concept of LEAN. Now, people are starting to ask hard questions like: Did we lean too far?
The principle of Lean is to remove “waste”
The basic concept here is to cut the most waste possible while leaving enough to ensure things run under the best-case scenario. This is unfortunately where we have landed when it comes to Lean and the removal of inventory and supplies within our supply chains. We were all asked to reduce on-hand inventory, reduce holding costs, reduce storage capacity, and everything else in- between.
Today it’s more clear than ever. Too LEAN is where we landed and this model has left our supply chains vulnerable.
Supply chains are complex ecosystems that are sensitive to unplanned events like we are experiencing today with COVID-19. We must all take responsibility for where we landed and take action. We need to reevaluate inventory levels at all points in our supply chain with eyes wide open so that we can avoid a future crisis of this magnitude and prepare to respond in a way that maintains some semblance of balance and order.
A ripple effect across global ecosystems
We now have hard proof that the impact of a global crisis can quickly ripple across companies and cascade upstream and downstream. It affects the suppliers of our suppliers and the customers of our customers. It shocks stock markets and can cripples industries.
For those who are not as familiar with how supply chains operate – when you keep limited raw materials on hand and operate in a just-in-time (JIT) mode, that affects your ability to respond within a short window. Having no supplies is easy – it is impossible to make something out of nothing. Yet, not having enough supplies stops you from producing more.
Many companies have been asked to produce significantly larger volumes than their normal operations – and their response has been perceived to be slow. Why? Because it takes time even in a JIT world!
This is the same reason why we are seeing widespread delays in restock of grocery store shelves after people panic shopped. When there is no buffer of raw materials, producers have to go back to the beginning – to the plastic container manufacturer, the cardboard company, the sugar refinery, etc. before one can even begin to replenish store shelves.
A rethinking of our approach is required
The “proven” calculation models we have today are not going to help us going forward. When I was brainstorming how to remodel and achieve the right balance, I reflected on my first career upon graduating, which was in procurement with the Department of Defence in Canada. There I was introduced to the concept of Period of Tension (Pot) stock.
The concept of Period of Tension (Pot) stock is that it takes time to shift between normal operational levels to war levels. We are witnessing this in real life as companies shift from normal operations and product mix to alternative products and larger volumes.
But, you cannot risk being exposed during this transition period. You must be able to protect yourself as tensions increase and foes test boundaries.
I long ago forgot the model and the calculations. We were required to learn them so we could manually calculate if systems were unavailable to assist us. I am wondering if we should leverage the knowledge of our military peers and explore models like these.
Regardless of how we get back to normal, we must rethink what are optimal inventory levels and how to achieve this balance, so we are much better prepared for the next disruption.