After supply-chain managers were faced with grounded flights, closed international borders and lengthy inspections of ground transportation freight in the wake of the Sept. 11 terrorist attacks, and the vulnerability of the supply chain system became apparent, some companies, particularly in manufacturing, began rethinking just-in-time (JIT) manufacturing.
“I haven’t heard discussions about manufacturers making specific changes — yet,” said Jim Stringer, director of membership and educational services for the Mississippi Manufacturers Association. “Some manufacturers have said they might want to put away an extra day or two of inventory in case something happens again.”
Some supply chain experts have recommended tweaking the JIT inventory management system, such as using e-sourcing programs to identify alternative suppliers, instead of completely overhauling it. After all, JIT has been credited with the consistent improvement in the U.S. Census Bureau’s “inventory-to-sales ratio,” a key measuring stick for manufacturing efficiency, since 1990.
“The tragedy will force manufacturers to become more efficient and make better use of electronic commerce to optimize production flows and it will force manufacturers to have supply chains that are closer,” said Edward Pinero Jr., director of the Mississippi Manufacturing Extension Partnership. “Core supply chains will need to be domestic. I don’t think we’ll see manufacturers stockpile a few days’ worth of supplies. If anything, suppliers will relocate closer to the OEM.”
Tom Groom, director of human resources for Nissan North America, said the international automaker hasn’t changed its JIT delivery system.
“We’re doing business as usual,” Groom said. “The president asked us to go about our business and we are. We’re certainly keeping a watchful eye on what’s going on around the world but it’s unpredictable and something you can’t plan for.”
Fortunately, production did not stop at Nissan’s U.S. plants after the Sept. 11 terrorist attacks because of undelivered parts, Groom said.
“We had some parts that we were concerned about, but our material handling people and our products and production control people worked with the suppliers and we didn’t have to shut anything down,” he said. “The just-in-time system has some risks but it has lots of efficiencies and pays off if you can make it work. We keep fine tuning it and making it better.”
Some automotive parts are on a delivery-to-installation basis of less than two hours at Nissan’s U.S. assembly plants, and the same supply chain procedures will be utilized at Nissan’s plant in Madison County when it is completed and operational.
“Our seats are produced by a company close by and are tied in by computer to our product mix,” Groom said. “The supplier knows what types of seats to produce and when. They deliver every two hours and the seats go right to the line and are installed immediately. There’s very little inventory and very little slack in the system between their plant, our plant and right to the line. There’s a little bit of leeway if something is off by a half hour but it’s their responsibility to get it there no matter what.”
Companies that use smaller parts or difficult to find components would need to consider keeping safety stocks because they can’t always assume that delivery services will be operational, said Gary Smith, Ph.D., director of management and information systems for Mississippi State University’s College of Business and Industry.
“Within the delivery services themselves, shipments are being slowed down because of extra precautions with handling and inspections,” Smith said. “In some cases, companies can look into doing their own shipping to have more control and security. Items that are more subject to being affected by variables beyond a company’s control should possibly be looked at as candidates for safety stocks. Most companies can easily determine what items they may need to safety stock.”
When air freight was shut down for a few days, there was some disruption in the supply chain for Milwaukee Electric Tools, but not enough to shut down the company’s Mississippi plant, said David Creel, manager of the plant in Jackson.
Greg Gigot, vice president of supply chain management at Milwaukee Electric Tool’s corporate office in Brookfield, Wisc., said the manufacturer’s supply chain quantities are based on usage rates and lead times.
“As the lead time goes out because of delays, customs and other factors, we adjust our kanban inventory accordingly,” he said. (Kanban control uses the levels of buffer inventories to regulate production.) “Our target is to have all suppliers act as if they are next door to our plant. We ideally look for suppliers with a five-day lead time to supply our plants.”
Smith said problems with the JIT delivery system occur when using air delivery.
“UPS, Federal Express and even the U.S. Postal Service provide air delivery of smaller parts,” Smith said. “I would think that any company would have to rethink that type of delivery system if there is another shutdown like Sept. 11.”
Timeliness is not the only concern for supply chain managers. Security issues have been pushed to the forefront, especially in light of the recent anthrax scare.
Jim McClusky, spokesman for Memphis-based Federal Express, said the world’s largest express transport firm, delivering some 3.3 million packages daily, already had a “tight security ship” before the Sept. 11 attacks.
“After Sept. 11, we simply ratcheted up some security measures to enhance what we already had,” McClusky said. “A lot of those directives came from the FAA. In subsequent weeks, other recommendations have come down from governmental agencies. We’ve adhered to all those recommendations in addition to internal changes to protect the health and safety of employees and to protect the integrity of package or freight being shipped through the system to the customer. We’ve also increased direct communication with customers to alleviate fears they may have on the security of our packaging and we’ve offered them tips as well.”
Standard shipping insurance, the declared value of a package automatically built into the price of delivery, has not increased since Sept. 11, McClusky said.
“Businesses can raise the level of insurance on a shipment, particularly high value items, by paying a little more, but we haven’t noticed a significant increase or decrease since Sept. 11,” he said.
Contact MBJ contributing writer Lynne Wilbanks Jeter at email@example.com or (601) 853-3967.