Just in Case

The Sept. 11 terrorist attacks shattered many Americans' sense of security. They also shattered many supply chain managers' devotion to the strategy known as just-in-time inventory (JIT), a near-religious belief that parts and products should show up just moments before they're needed so that on-site inventory is near zero.

The terrorist attacks caused a temporary shutdown of air traffic nationwide along with longer waits for security inspections of trucks at border crossings. It was a major disruption of the country's normally smooth-running transportation system—and a wake-up call for supply chain managers, who scrambled to find alternative transportation modes and even today find that border crossings that formerly took hours now can take days.

A week after the Sept. 11 attacks, 39% of supply chain managers called the disruptions dramatic, 52% reported a slight impact and 9% saw no effect on deliveries, according to a survey by Purchasing magazine in Newton, Mass.

To some extent, businesses have always had to deal with supply chain disruptions such as labor strikes that prevent the delivery of critical parts. But the extra security measures resulting from the Sept. 11 terrorist attacks may have a farther-reaching and longer-lasting effect on supply chain systems.

Some companies announced that they were going to "change from just-in-time to a just-in-case inventory position," says Scott Stephens, chief technology officer at the Supply-Chain Council Inc., a Pittsburgh-based industry consortium. That means adding more "safety stock" to cope with delivery delays—a sharp departure from JIT principles.


Management Strategies

Redesign the supply chain to balance efficiency with resilience.

Prepare for higher transportation costs and longer delivery times.

Have a worst-case contingency plan for every country in which you do business.

Focus on fewer but more reliable suppliers. Cultivate deeper collaboration with them.

Make near-real-time visibility into the supply chain your top priority for the next 12 months.

Stop any "intergalactic" supply chain projects. Focus on smaller, tactical projects with high returns on investment.

Increase your adoption of supply chain process improvements and technology.

Source: Gartner Inc., Stamford. Conn.


But the change goes deeper than that. Experts say that in the midst of a long global war on terrorism, companies will want supply chain systems that give them greater visibility into what's happening at suppliers and where goods are at any given time, in case they have to make fast adjustments. They'll want supply chains that balance efficiency with flexibility, resilience and reliability.

"Rather than focusing on wringing every last ounce of inefficiency out of the supply chain, companies are now seeking to ensure continuity of operation," said analyst Bruce Bond in a bulletin from Stamford, Conn.-based Gartner Inc.

And that's where the IT department comes in. Its new mission is to build "advanced planning systems and decision-support software that enable the supply chain planners to plan for a wider range of conditions," Stephens says. "You'll see a greater emphasis on real-time sharing of demand, inventory and shipping information. If we can react quicker to a disruption, then we carry less inventory, or we have to carry less safety stock."

Companies that already had robust supply chain management software say it helped them take fast action after the Sept. 11 attacks. John Stock, vice president of distribution and logistics at HON Industries Inc., says the Muscatine, Iowa-based office furniture maker used a capacity and supply chain planning application from SynQuest Inc. in Atlanta to cut its delivery lead times on rush shipments from two weeks to five days immediately following the terrorist attacks [News, Oct. 1].

Even if a company has the best software in place, the new supply chain environment, which is full of uncertainties, requires changes in the business rules underlying the systems.

"We have to recognize that our supply chains tend to be vulnerable to internal and external threats, so we have to develop techniques to mitigate the risks and exploit the opportunities," Stephens says.

So is the JIT principle dead?

"Zero inventory and JIT never made total sense. The goal isn't zero inventory," says Jeff Kavanaugh, vice president of supply chain management at Inforte Corp., a strategic technology consultancy in Chicago. "If you get there, great, but it's because you've worked something out with your supplier.

"The goal is to make a lot of money while serving your customers," Kavanaugh explains. "If you can make money by having inventory there, always ready, you would. If you can make more money by pushing inventory off to your supplier, you would."

The job for IT managers is to provide business managers with more data and analytical tools so they can make better, information-driven decisions rather than knee-jerk reactions when a crisis develops, Stephens says. "In times of uncertainty, people want something [like data] to bank on," he says.


Ripple Effect

The shutdown of air traffic and extra security at border crossings after Sept. 11 led to the following supply chain challenges:

Ripple Effect

Source: Press reports, Sept. 13 through Oct. 18, 2001

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Copyright © 2001 IDG Communications, Inc.

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