Just-in-time is on the rocks but not sunk yet
DURING Japan’s rise, its companies developed the just-in-time method of manufacturing, allowing greater efficiency of production. Following the devastating Tohoku earthquake earlier this year, manufacturers across the world – including Toyota, which pioneered the just-in-time production system – suffered, and continue to suffer, from disruption to their global supply chains. Many companies have bounced back better than expected but, if political and natural disasters don’t abate, the UK may benefit in the long-term.
OUT OF DATE
The pinnacle of the Japanese model was held to be just-in-time manufacturing, where materials and components are delivered immediately before they are needed. However, recent events have demonstrated that this approach also allows natural disasters and political conflict to cause greater short-term disruption to supply.
David Noble, chief executive of the Chartered Institute of Purchasing and Supply, points out that, in response to the economic downturn, many companies have moved to just-in-time production methods. He says: “Global supply chains are so interconnected now that a crisis in one country can have a surprisingly large impact on other countries, even when there is little direct trade. Knocking out one supplier can bring the whole supply chain down, causing devastating results.” He explains: “Recent disruption such as the chaos caused by Iceland’s Eyjafjallajokull volcano and the Middle East crises has highlighted the need for businesses without a ‘plan B’ to put their supply chain risk mitigation strategy into action. These cases – and the Japanese earthquake and tsunami – demonstrate the importance of a robust contingency plan as supply chains become more global.”
A ROBUST RECOVERY
Excepting BT resin, which is used in circuit board assembly and where Japan produces 90 per cent of the global supply, Japan’s disasters have caused less disruption than some feared. Sarah Schwab of Corporate Executive Board says: “In the immediate aftermath of the Tohoku earthquake, a poll of executives in our network found 63 per cent reporting that it would disrupt their supply chains. Despite these initial concerns, from what we’ve seen the impact on global supply chains has been largely restricted to a few industries, namely automotive and electronics.” Ryusuke Ohori, chief investment officer of JP Morgan’s Japan Research Driven Process team notes that even within Japan the recovery was quicker than expected: “Despite Japan’s legislative gridlock and the lack of top-down political leadership, Japanese manufacturers have proven their resilience thanks to bottom-up decision making by the people who know the actual manufacturing sites the most.”
SAFER CLIMES
Still, as strategic rethinking replaces crisis management, the UK could find more interest in its manufacturing. Mark Lee, head of manufacturing at Barclays Corporate, thinks the UK could benefit from what he describes as “the most significant period of global political turbulence and natural disasters in recent history”. Lee says “the new-found domestic popularity of the UK manufacturing sector has also speeded this change as more and more manufacturers think of on-shoring or buying into their supply chain to protect supply and mitigate both supply and price risk.”