American Consequences - May 2020


The coronavirus pandemic has virtually shut down dozens of economies, with movements of over a third of the global population restricted. 2. A LEAN MACHINE. What has made these supply chains even more vulnerable are strategies that rely heavily on “just in time” or lean inventory replenishment. That is, companies maintain only enough stock on hand for a short duration and rely on small deliveries made frequently to keep costs low. For example, many companies keep just enough inventory to last a few weeks, confident that products will arrive as they are needed. That system works perfectly well provided there are no disruptions. However, as companies in a wide variety of industries, including food, retail, high- tech, and automotive, have increasingly Even supply chains for foods like bananas are long and complex, as most produce comes from countries across the globe. Compounding the complexity is the problem of capacity, which is how much of something each company in a supply chain can produce. Rapidly increasing capacity is hard. Just think about the difference in hosting a dinner party for two guests versus 200. That is exactly why there is a shortage of hand sanitizer. Customers are buying huge amounts, but suppliers are not able to increase available amounts of essential ingredients, such as alcohol, glycerol, and hydrogen peroxide.

implemented this strategy, they no longer have the extra inventory or excess capacity to make up for production losses that are caused by a disruption. As a result, these businesses are highly vulnerable to even a short material- flow problem. When an earthquake shook Taiwan on September 21, 1999, it created a huge disruption for the computer-chip industry, delaying shipping times for some products by more than a week. Similarly, since lean systems removed most excess inventory, many medical supply chains were not able to respond to disruptions during the emergence of the avian influenza, or “bird flu,” in 2005. Yet those were relatively minor, regional disruptions. The coronavirus pandemic has virtually shut down dozens of economies, with movements of over a third of the global population restricted. This means a surge in demand for any product could easily result in shortages for days or weeks. Having a lean inventory is a strategy with many benefits and is designed to eliminate waste as well as cut costs. However, many companies may have taken it too far. In an era of global connectivity, a disruption anywhere can trickle down the entire supply chain. 3. MOVING MANUFACTURING OFFSHORE. Further exacerbating the problem is the strategy of offshoring, in which companies manufacture their products overseas in countries like China, Vietnam, and Malaysia in an effort to cut costs.


May 2020

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