9-12 Months For Japanese Supply Chain Recovery…What Can We Learn in the Meantime? (Part 1)

My friend and colleague Paul Martyn recently penned a well-researched and thoughtful piece over on Forbes, where he suggests it may take our global supply chains 9-12 months to recover from the tragedy in Japan. Specifically, Paul believes that we'll need three to four quarters for Japanese production to fully come back online. He also believes there are three key lessons we can all take away from the tragedy. First, as he puts it somewhat sarcastically, but not entirely: Lean is dead. Long live Lean. In short, even though Paul does not believe that we'll "ever go back to the days of bloated inventories," he argues that we will "see a lessening of the rigidity of the rule of thumb that zero inventory makes the best business sense."

I'd like to politely debate Paul's underlying premise when he suggests "as a result, the practice of safety stock and holding inventory against commodity price fluctuation and supply chain disruption will provide relief from the fragility of the supply chain." One VP of Global Sourcing I spoke with last week told me he wished that he could inventory greater levels of raw materials/commodities at the moment (either in his facilities or those of his suppliers, depending on circumstance), but was unable to do so because of markets that are approaching allocation level. At this stage of the global sourcing game, "contracts are not worth the paper they're printed on," he told me. Hold a supplier's feet to the fire in Asia right now based on the letter of the agreement and they'll come back and "$crew you" because of commodity price increases and the fallout out Japan.

Yet Paul does raise a good point. I've long believed that the very practices we've pursued on the strategic sourcing and supply chain front around supplier rationalization and the leaning out of inventories can come back to hurt us in major ways when any type of disruption hits the supply chain. Yet building inventory alone and raw material safety stock is not the panacea. Holding excess inventory, especially in raw materials, is a form of speculation unless you're honestly concerned about material availability -- in which case it's not. And despite all the risks associated with moving to more just-in-time environments, I would not argue for a minute that procurement and supply chain teams should be in the business of speculation or fully backtracking on the strategies that have saved us billions of dollars in recent years -- not to mention unlocking similar numbers from a working capital standpoint. Perhaps having a few more suppliers and building greater redundancy is a better answer. Spread the love -- at least a bit. Don't hoard it, or concentrate it entirely.

Jason Busch

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