Is focusing on postponement manufacturing still a good strategy in an unpredictable Post-Covid, commercial future?
The Covid crisis has meant mixed fortunes for manufacturers and businesses who rely on them. In some cases the 'Just In Time' models which have bought so much efficiency and success to the sector, have been tested to destruction - as vital global supply chains simply ground to a halt.
Any hope for the second wave?
And now, the second wave has hit, and the UK government has relinquished its carefully rolled out tiering system with an un/expected month-long lock down. It’s a timely reminder that in these extraordinary times nothing is really certain or can be taken for granted.
These shifts in government strategy seen, to a greater or lesser extent across the world, have caused surges in demand for specific products, which have met with varying degrees of capacity and uncertainty in pricing.
Postponement for uncertainty?
In theory, postponement manufacturing is set up to deal with just this kind of uncertainty. Keeping a stock of ‘embryo’ products that can be configured at the last minute to meet the changing needs of the market place, is surely what we need in this time of unpredictable and fluctuating demand?
But as Reuters reported in their article ‘The End of Just In Time’, the agile supply chains that make strategies like postponement manufacturing possible seem to have met their match in the repeated global shocks of the Covid Pandemic.
And that’s unsurprising:
“even standard risk management methods would not have prepared supply chains for extreme volatility from black swan type events (like Coronavirus) but the reliance on aggressive JIT models clearly exposed companies to additional performance degradation.”
The security of 'Just in Time' manufacturing models have been well and truly challenged. The lack of stock and the inability to replenish those stocks on demand meant business confidence has been dented and custom lost.
The end of Just in Time?
As the FT remarked in this article in April this year:
“The Covid-19 outbreak has exposed the thin margins on which much of global business runs. Highly indebted companies, working from lean inventory, supported by just-in-time supply chains and staffed by short-term contractors, have borne the brunt of the sudden blow. They will now suffer the rolling, longer-term impact of its unpredictable consequences.”
Not only only this, but scientists are predicting that pandemic events will become more likely to happen in a globalised world. Meanwhile, global warming could trigger weather events that lead to ever more disastrous supply chain shut-downs.
Does this mean retreating from 'Just In Time' strategies? Will we have to go back to inefficient and costly stockpiling to mitigate against potential disruption and ensure we can always keep our customers supplied whatever the obstacles? Certainly, in some cases, the FT thought so:
“Some businesses must transform their supply chains from “just in time” to “just in case” models. “
It all comes down to supply chain management
There has certainly been an admission that some businesses have been asleep at the wheel when it came to emergency preparation for supply chain disruption. Research suggests that only 10% of supply chains felt fully prepared for COVID impact, and it showed in the way some JIT operations failed.
But, the expert view is that JIT is still the most effective commercial model for many manufacturing businesses.
We know that postponement manufacturing remains a hugely competitive way for OEMs to manage their ability to handle orders in an unpredictable market place. And the ‘unknowns’ in the market place right now are stacking up. Brexit, the long term effect of Covid-19, increasing extreme weather events, trade tensions between China and the West. These all represent challenges, but also opportunities.
So, the attention is turning to how we can adopt and adapt the model to deal with new realities.
EMS providers are in a strong position to help
Using an outsourced EMS provider for postponement manufacturing services is a sensible way of insulating yourself against risk when managing a JIT strategy.
These outsourced firms are highly adept at managing complex supply chains - and in the era of Covid have been ramping up their efforts to further mitigate against slow downs and shut downs.
They have the connections to keep widening their supply chain across regions, to re-shore where appropriate and the ability to lever economies of scale to maintain enough stock to manage in the event of a crisis.
And the research from MIT shows that with a bit of tweaking of the model, they can keep the cost benefits of JIT in place, and the wheels of industry turning in ways that benefits everyone:
"Postponement, when implemented with vulnerability in mind, can increase supply chain resilience.”