With expert insight from Win Jeanfreau, Executive Director of iMpact Utah.
From bottlenecked ports in Los Angeles to labor shortages across almost every industry, the ripple effects of COVID-19’s impact on supply chains are evident and real. And unfortunately, there is no guaranteed return to business as usual anytime soon. So how can manufacturers adapt and stay competitive? Win Jeanfeau, Executive Director of iMpact Utah, offers key insights and takeaways for manufacturers looking to stabilize their supply chains and avoid disruptions in the future.
It has been said ad nauseam that the pandemic has brought about unprecedented times. But Win Jeanfeau, a successful entrepreneur who is no stranger to optimizing supply chains, points out that there is some precedent we can learn from—specifically, the 2011 Tōhoku earthquake and the resulting tsunami in Japan.
Much like the pandemic, the 2011 tsunami in Japan was an unforeseen disaster that devastated manufacturing supply chains. Toyota, the pioneer of just-in-time inventory (JIT), felt the effects in the loss of a computer chip maker that was difficult to replace. Recognizing the fragility of their JIT model, Toyota reevaluated their supply chain philosophy. As a result of that evaluation, strategic reserves for key elements of their supply chain (like the chip) were identified and upper limits increased. Toyota created a surplus of computer chips so they would be ready to respond should they lose such a vital component of their supply chain again.
Making JIT inventory more robust.
Toyota’s preparation following the tsunami has now paid off. While most car manufacturers have had to slow or halt production due to the computer chip shortage brought on by the pandemic, Toyota has thrived. “They’re the only car manufacturer that’s been able to make cars in the last year because they had all the parts and pieces in strategic reserve,” Win says. “Nobody else did.”
While disasters like tsunamis or pandemics have revealed the fragility of bare-knuckled JIT inventory, that does not mean JIT should be completely abandoned. Instead, Win refers to pre-tsunami JIT as being version 1.0 of a lean manufacturing approach. Now, Toyota has shown us version 2.0 of JIT—one that is more robust by implementing strategic reserves and empowering manufacturers like Toyota to weather the storm.
Strategic JIT reserves are comprised of the key elements in your supply chain that are more difficult to replace in the event of a catastrophic event. Ask yourself: in the design of your product, what are those things that are challenges in your manufacturing now? Look for more than one way of designing that item. Identify if there is a substitute for that item that is more readily available without causing a decline in the quality of your product. And this leads to Win’s next bit of advice—consider sourcing that item locally.
Implementing domestic vertical integration.
Another strategy for dealing with supply chain disruption is to implement, where possible, domestic vertical integration. In domestic vertical supply chains, manufacturers own it all, or at least the parts that matter most. Smaller manufacturers who can’t do that have begun to look for suppliers closer to home.
Domestic vertical integration has typically not been part of the initial calculations for manufacturers who are more inclined to pursue the shiny appeal of low-cost, overseas suppliers. But when measured by the risks to your supply chain, the true cost of relying on the panacea of Chinese suppliers is proving to be untenable. Win suggests that some manufacturers are now “realizing that a 20% increase in cost to buy domestically is probably cheaper than the time that it takes and the interruptions that can occur because I’m buying these things from China, or from Europe, or from Asia somewhere.”
In short, domestic vertical integration is about bringing your supply chain closer to home, and under more of your control, wherever you can.
If there is any silver lining to these supply chain disruptions, it is that manufacturers are learning how to make their supply chains more robust and less likely to falter in the face of catastrophe.
Implementing strategic JIT reserves and domestic vertical supply chains will inevitably lead to increased costs, and by some reports, we’re at least 3 quarters away from any kind of return to normalcy. But the challenge for manufacturers isn’t so much about how to return to normal, but rather, how to innovate and adapt. Win recommends looking toward advanced manufacturing approaches that can address supply and labor shortages. He names automation, “cobotics”, new synthetic materials, and 3D printing as promising avenues for growth in manufacturing.
Things may seem daunting now, but remember that making decisions under stress perpetuates bad decisions. “This is a great time to go to that chi place where, rather than responding to a pandemic, you begin to think of a world beyond the pandemic,” Win advises. “The more of us that start planning for that, the more likely that future will manifest itself.”
Visit impactutah.org to learn how Win Jeanfreau’s team can help your company survive, grow, and thrive.