Changing consumer buying patterns and behaviours have led to an expectation that most of what we want is readily available. We have grown to expect rapid delivery, even next day, and sometimes same day.
To efficiently meet these expectations, the supply chain that fulfills all these orders has to be very fluid. Just-in-Time ( JIT) logistics strategies are designed to provide this fluidity by eliminating stagnant inventory and only taking delivery of products as they are needed.
JIT supply chains are amazing when they work. They do have a certain amount of in-built resilience, but when faced with multiple, simultaneous or closely-linked global disruptor events, they can break down.
Therefore, the supply chain needs a rethink. A redesign of Just-in-Case (JIC) strategies, with a greater focus on resilience first, is in order. JIC strategies focus on building up inventory reserves “just in case” it is needed. The primary benefit of JIC vs JIT is that JIT strategies use capital more efficiently and JIC strategies are less risky because they are more resilient.
The global supply chain has weathered a perfect storm over the past 12-18 months with disruptions snowballing into significant failures. The Covid-19 pandemic has kept logistics workers from doing their jobs and the stranding of the mega freighter Evergreen in the Suez Canal put a halt to 12% of global shipping. Computer chips shipped on the freighter still have not been delivered 6 months after the grounding.
In the UK, Brexit and Covid have forced an exodus of Eastern European Goods Freight Vehicle (HGV) drivers who are returning home, reducing the workforce that is needed to move products around the country. The supply chain in the UK is so dysfunctional that the Army has been mobilized to deliver petrol. While these disruptions may seem temporary, there are signs that returning to normal is still a ways off, if ever. The UK government announced the availability of temporary visas for HGV drivers but only a handful have been applied for.
These challenges are made more acute by a traditionally lean supply chain driven by Just-in-Time logistics strategies.
To withstand future shocks, greater consideration should be given to more conservative Just-in-Case strategies. This strategy focuses on keeping more capital in the supply chain and maintaining a minimal level of inventory on hand to meet any future challenges. Toyota, the innovators that popularized JIT, see the value in maintaining certain critical inventories. After the Fukushima disaster in 2011 that limited their ability to access silicon chips, the auto manufacturer stockpiled inventory to withstand any future shocks.
While the current situation is unprecedented, the probability of significant disruptions in the future remains high. Trends such as climate change, trade tensions between global powers, political strife driven by the rise of social media, and more interconnected markets are just a few that we know could present potential global risk.
When considering putting capital back into the supply chain, the next question is where do you place your reserves. The availability of vast amounts of data and cutting edge technology enables more sophisticated strategies to optimize the balance of risk reduction and return on capital. Growing datasets and more sophisticated AI and ML models can calculate risk and recommend strategies to reduce it in real time. The emergence of micro fulfilment centres also provides more flexibility on ways to store and access inventories. Higher inventory levels will lead to opportunities to build customer loyalty and capture market opportunities. Those that can do it well will attain sustainable competitive advantages.
The amount of data being created every day is accelerating at an exponential rate and will continue for the foreseeable future. Dave Reinsel, senior vice president, IDC's Global DataSphere pointed out, "The amount of digital data created over the next five years will be greater than twice the amount of data created since the advent of digital storage.” The ability to harness this data will be key to effective JIC strategies.
Leveraging cheap storage and a growing market of analytics tools, data scientists can create and deploy models that can spot disruptions sooner, evaluate their impact and make decisions or recommendations on how to best optimize inventories.
The promise of a self-optimizing logistics strategy seems idyllic, yet a number of fundamental barriers exist. The first is the lack of expert data scientists that can build the right models to meet current and future challenges. The second is trust in the quality of data.
Data science is a very technical field requiring very skilled workers. These skills are hard to come by and are expensive. To be successful at enabling a JIC strategy supported by data, you need to build a culture around data-driven decision making. This can start with bringing together the right tools and skills to create a centre of excellence.
An effective data science team has three components:
These team members need to work together and implementing the right technology tools can help them be more effective. Analytical and automation solutions can help less-skilled analysts perform more sophisticated analyses. Data quality strategies and data operations pipelines can improve data quality and trust.
With a data science centre of excellence in place, more experimentation in how supply chains are managed can occur. Managers and data scientists can leverage technology such as digital twins to see how changes in inventory levels and locations can change risk profiles. These virtual replicas - or simulations - of the end-to-end supply chains provide a platform to test predictive models and better understand how they might perform in the real world across the entire system.
More places and options to store inventory, coupled with sophisticated models, leads to a more flexible and resilient supply chain. Having inventory closer to the customer is also the best way to avoid shortages caused by supply chain disruptions. This is particularly the case in the UK where physical barriers limit routes into the country. The most fragile part of the supply chain is the last mile and micro fulfilment centres can provide more flexibility. Fulfilment centres that operate out of the back of an existing retail outlet or dark stores that have no retail space can make products more accessible to customers. Having the right systems to manage these outlets and the data to optimize inventory in each one can enable a more efficient and resilient Just-In-Case strategy.
The amount of data and sophisticated technologies available today were perhaps unimaginable when JIT strategies were first theorized. The world is also much more fluid and connected. Rethinking supply chain strategies today is well warranted.