The Just-In-Time supply chain theory conquered the world – has it gone too far?
The Just-In-Time supply chain theory has conquered the world — but has it gone too far?
It's the management theory that controls your life, though you've probably never heard of it — or given it a moment's thought.Economists say it has a role in determining what goods and services you receive, when you receive them, how you're employed, even if you're employed.It also influences how you manage your household budget, business experts argue, and perhaps explains why there was no fat in your personal account when COVID-19 hit.It's called Just-In-Time and it's made some corporations and business moguls very rich.But critics say the toll it's taken on our economy and society has been too great and we now need an alternative to avoid future shocks.Made in JapanJust-In-Time (JIT) started in the Japanese car industry in the 1960s, as a simple supply-chain management reform.Executives at Toyota sought to cut overheads by doing away with in-house storage. Instead, they began sourcing parts on a strictly "as-needed" basis.American companies embraced the Just-In-Time concept after Toyota showed it worked in Japan. (Getty: Kurita KAKU/Gamma-Rapho)The change made sense, given that suppliers and manufacturers were often closely located in Japanese industrial centres, and other automakers began to follow suit.After Japan's car manufacturers found global success in the 1970s, American companies began emulating the Toyota approach. "This has been a really strong evolution going from the 80s, the 90s, the 2000s, to take fat out of the supply chain, to tighten down everything," says supply-chain management expert Rich Weissman.He says in the past 10 years companies have come to "really rely on analytics to fine-tune supply chains to make sure that supply and demand absolutely line up"."And that's where I think we've gone too far."Professor Weissman argues that globalisation, combined with the JIT philosophy, has increased the opacity of inventory lines and made them more vulnerable."My supplier may be more than willing to deliver Just-In-Time, but if their supplier doesn't deliver, or their supplier's supplier's supplier doesn't deliver, that creates the trigger for risk and for shortages and blows Just-In-Time out of the water."The theory is supposed to cut the need for warehousing goods. But sometimes this leads to supply shortages. (Getty: Kmatta)He says the current coronavirus crisis should prompt a rethink."It really tested the supply lines, and this is where we are today with, in a lot of cases, broken supply lines," he says.Mike Rafferty, a risk specialist at RMIT University, says JIT, or "lean manufacturing" as it's also known, took on a "distinct financial meaning" as companies began to offshore production."Many of those outsourced suppliers do their outsourcing in countries like China and Bangladesh, which have pretty appalling working conditions," he says."So, some of this lean manufacturing is actually shifting the risks and costs of production to Third World countries with very low working conditions."As a result, some of the world's largest corporations, like Nike and Apple, have applied Just-In-Time to the extreme, operating entirely through external entities.Production is undertaken via an extensive network of outsourced suppliers."Factory-less goods producers" is the way Dr Rafferty describes them.From management theory to political ideologyTo its detractors, Just-In-Time is more than just a supply chain or outsourcing issue.Giovanni Di Lieto, an international business expert at Monash University, says it comes as no surprise that JIT's influence beyond the manufacturing sector coincided with the rise of free-market capitalism, à la Ronald Reagan and Margaret Thatcher.It fitted perfectly with the neoliberal emphasis on small government and limited public services.As a result, Dr Di Lieto says JIT quickly became the philosophy of modern government. The fragility it brought to corporate supply lines soon became a feature of the public sector.Nowhere did that become more obvious, critics say, then in the early stages of COVID-19 when countries across the developed world suddenly faced shortages of basic medical supplies and hospital beds."I think we've been unconscionable as a system in running margins that were so thin on the ground," says Dr Di Lieto."It's high time that we try to find the best way to transition from a Just-In-Time socio-economic system to a Just-in-Case socio-economic system."People have turned to making face masks after struggling to find them in stores. (ABC News: Peter Gunders)Just-In-Time has also had a significant effect on labour markets, says economist Jim Stanford, the director of the Centre for Future Work at the Australia Institute.He argues the philosophy helped change the concept of employment and underpinned the growth of both the gig economy and an increasingly casualised workforce."Just as employers have learnt to ruthlessly economise on all their other inputs to production and have them delivered in just the right quantity at just the right time, they would like to do the same thing with workers," he says."The COVID-19 pandemic has shown that the human Just-In-Time supply chain — insecure and on-demand work — is just as fragile and unreliable in a moment of crisis as those Just-In-Time supply chains that bring spare parts and widgets from all over the world."Dr Stanford even holds JIT partly responsible for the crisis many aged care facilities have faced over recent months."You had very insecure workers desperate for money carrying the coronavirus from one facility or one residence to another," he says."That is absolute disaster as far as public health is concerned." Dr Rafferty says the increased casualisation of employment has also seen ordinary workers forced to take on many of the costs that were once met by employers."If a business takes on extra risk, it expects to be rewarded for it. Most of the risks that households have had shifted on them come with no reward. In fact, they are much more costly," he says."So, what we tend to find now is that households are struggling to balance both more volatile incomes and quite high fixed costs of living because more and more of household consumption is around contractualised payments like utilities, health insurance, car insurance."Moving beyond an obsession with cost-cuttingBoth Dr Stanford and Dr Di Lieto believe a renewed emphasis on providing workers with guaranteed employment stability should be the basis for any move away from the JIT philosophy."I think we do need a kind of reconstruction plan with a full employment vision as the target, as the goal that we would work to," Dr Stanford says."That is the kind of vision we're going to need, on a par with reconstructing Australia after World War II."Professor Weissman argues that fixing the fragility in current supply-lines shouldn't mean the end of globalisation."I still think we need a global supply chain. I'm just hoping that the pendulum comes back a little bit and there is some work to normalise the supply chains and normalise the inventory for now," he says.That said, he's sceptical about long-term reform."My feeling honestly? In two or three years I think things will be back to the way they were." Dr Di Lieto is far more optimistic."I teach international trade to students who are in their early 20s. I think they will be quite scarred by the experience of COVID-19," he says."I think that there will be a very different mentality."This is going to really change our near future and for the next generation or two, for the next 50 years, change our approach and attitude to business making and to managing our supply chains."And that, in turn, could have significant flow-on effects for society.RN in your inboxGet more stories that go beyond the news cycle with our weekly newsletter.