Supply CHAIN SOluTIONS T
here are few certainties in life but one thing we can be sure of is that we are all hoping for, and
working towards, moving beyond the complications of COVID and getting not only our population but our businesses healthy again. We also know that, in this extremely difficult time, most of us have faced challenges that have taught us useful lessons about ourselves, our lifestyles and how we work. When it comes to the supply chain, the COVID experience has taught us that the existing model is extremely fragile, and that the longer and more complex the supply chain, the greater the risk of disruption. Successful people and successful businesses learn from the difficulties of adversity and become stronger, and as many industrial companies take a long hard look at their supply chains post- COVID, there are opportunities to strengthen the supply chain and build businesses back stronger. The businesses that have experienced
the greatest difficulties are those operating Just in Time (JIT), lean or similar delivery systems. Because these systems supply raw materials, components and sub-assemblies by ordering them only as-and-when needed by customers they have enabled industrial part suppliers to make huge savings, since they do not have to tie up capital by purchasing and holding large volumes of stock, or spend time and money managing the inventory of that stock. With such obvious financial benefits to be gained, JIT systems are widely used across industry, but making these systems work requires a responsive, robust and highly integrated supply chain that can be relied upon to provide the parts that customers order. As we have seen, in a time of global crisis such as the pandemic, very few things can be guaranteed. And it is not only COVID that has illustrated the fragility of JIT; in 2017, Hurricane Irma was estimated to have cost companies in the supply chain around $61 billion in lost revenues, with businesses affected taking an average of 33 weeks to return to normal trading conditions. JIT is economical and reliable for
both supplier and customer when times are good. But if JIT depends on the reliability of a supply chain that, as customers are now painfully aware, cannot always be guaranteed, how do we strengthen the supply chain so that it can also cope in times of crisis when life becomes a lot more unpredictable? What is needed is a rediscovery of the Just in Case (JIC) approach, where
companies hold large inventories; JIC may reintroduce the costs of stockholding but crucially it insures against the risk of fluctuations in supply and demand that can leave a huge dent in profits and put the business itself in jeopardy. Those who have switched away
from JIC to JIT may question this, since they have so often been told how inefficient and wasteful the stockpiling of parts can be. Indeed, in one company ERIKS assisted, analysis showed that an enormous 70 per cent of stored parts never moved, and that the true cost of this obsolete stock was a staggering £8 million. In truth it is not simply the concept of JIC itself that is often at fault here, it is the way it is employed. For example, we have seen cases where engineers have ordered in all of the machine manufacturer’s recommended spares instead of just the critical ones, and it is instances such as this that leads to the kind of vast and very expensive stockholding that ties up cash flow.
GettinG the best of both worlds
So should businesses simply switch from JIT to JIC? No. ERIKS believes that what is needed is a new supply chain
model that combines the best features of JIT and JIC. Such an arrangement can help OEMs balance factors such as cost and risk, and offers the capacity to smooth out fluctuations in short-term supply to protect the business from the effects of sudden, unexpected or extended disruption to supply chains. This approach has been adopted in the past and proven to be effective, but in future we are going to see it become far more popular, because the effects of the pandemic are so fresh in our minds and businesses have seen the impact of its disruption in black and white on their balance sheets. But what does blending JIT and JIC
mean in practice? In short, it means combining diversified supply chains with multiple sources and supply routes with local stockholdings, keeping options open even if some supply channels cannot deliver. We know this works because ERIKS’ own business model is based on a diversified supply chain. For example, ERIKS has multiple sourcing agreements in place with manufacturers around the world for standard products, and hold buffer stocks of all its customers’ critical components to ensure resilience against supply side shocks. And for specific technologies such as seals and gaskets ERIKS has local manufacturing centres that are capable of rapidly producing
32 SEpTEMBER 2021 | FACTORy&HANDlINGSOluTIONS
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