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A Depressing Thought

Fallenmonk is on the right track with his piece, It’s Going to Get Worse, but there’s another element that makes the situation even worse and most people are unaware of it.

There is a concept known as “Just-In-Time” [JIT} inventory control that has been refined by Wal-Mart and many manufacturers that is considered by many to be the most efficient system for stocking a store or building a product.

The basic idea is that you don’t keep a large inventory that requires storage space and ties up cash. Using computer networks you track your usage and order goods based on what was used, so that what arrives on your loading dock is put on the shelves or production line, not in a warehouse.

Yes, it is a paragon of efficiency and cost-reduction, when everything works, but things don’t always work and a disruption leads to a build up of product that there is no place to put.  The inventory is in the trailers of semis and rail cars, and if those containers can’t be emptied to accept more product, everything comes to a grinding halt.

This is what happened after Katrina.  Hundreds, if not thousands of trucks were filled with merchandise that couldn’t be delivered.  That affected not only the Gulf Coast, but most of the country because those trucks were out of the supply chain.  There was a fuel shortage, a truck shortage, a warehouse shortage, a back-up at the other ports – the system was blocked.

Now throw in the infrastructure damage that made all of the East-West routes between Houston and the Florida Panhandle unusable and you have a mess that took a year to even out.  A fuel shortage alone will look much the same thing.  No fuel means everything backs up at the ports, and the local stores and factories will show the effects almost immediately because they have a very limited on-site storage.

Fallenmonk mentions how people can protect themselves from the problems, but business has “eliminated the fat” to the point that it can’t.  Factories and stores will shut down very quickly as they run out of products or raw materials, and loaded vessels will be stuck ports, unable to unload.

In nature animals put on extra weight in the times of plenty to survive the lean times to come.  JIT is the anorexia of inventory control.

8 comments

1 Fallenmonk { 07.17.08 at 1:06 pm }

Inventory management and logistics is what I do for a living and what you say is exactly right. We build our plans and place our deliveries in many cases to a four hour window on a given day. Start with just a few botched schedules and it cascades into a disaster right away. While I don’t do anything in the food industry they work on the same principles only having to deal with shelf life and refrigeration to boot. Nowadays so many people have become reliant on frozen foods and other convenience foods that require shorter lead times, refrigeration and the like that the potential for supply chain hell is compounded geometrically.

2 Bryan { 07.17.08 at 2:40 pm }

In the case of perishables, the fuel shortage means the refrigeration on the trailers can’t be maintained, so it spoils.

In manufacturing, a strike at one parts plant can quickly cause an industry shut down because no one has the warehouse space to buy in advance of a strike, and cost cutting means most things are single sourced. There is no back-up plan.

Hurricane veterans have supplies of food and water because we are aware that, in the case of my little town, a couple of bridges fail and we can only be reached by air or water. The North-South roads go over rivers, and the East-West over bayous and bays.

People really don’t appreciate how delicate out situation really is.

3 Kryten42 { 07.17.08 at 8:08 pm }

I was sent to Japan in the late 80’s to take a course (run by Toshiba, Panasonic and Facom) in JIT as the Japanese were pioneering the system (they have little land space for huge warehouses, so it makes sense for them). I didn’t like it. I could see that there were definitely places and parts of a system where JIT would be very useful, but other areas where it would not. But companies want the simplest, lowest common denominator. The attitude became one way or the other, all or nothing.

When I was managing engineering projects, I never designed with components that didn’t have at least two sources. Sure, it meant more work, but it also meant competition (with lower costs) and redundancy for when things went wrong with a supplier. I’d had a very bad experience with single source components in a project when the company supplying a particular part was taken over by a bigger company, and they stopped manufacturing the part. I try never to repeat a mistake.

KISS is all very well and good, and generally, I like simplicity a lot! But there are times when simplicity is begging for trouble.

4 Bryan { 07.17.08 at 8:33 pm }

Single sourcing and JIT are major problems for the current military. You can’t just call up a company and say you’d like to quadruple your order beginning immediately. That happened with body and vehicle armor.

The companies would need to hire and train more people, and locate more raw materials. There are no huge reserves of anything.

Hell, there were major developments shut down after Katrina because they couldn’t get CPVC water pipe to install bathrooms and kitchens. I had the guy who does the major plumbing for my landlord come and buy the half dozen 10-foot lengths I had for patching problems for the places my Mother manages, so he could continue working without resorting to copper.

People get used to only buying when they need something, and if the system breaks down, they are screwed.

I admit, it looks really great in a PowerPoint presentation.

5 hipparchia { 07.17.08 at 11:21 pm }

i hated hated hated jit, both as a buyer and as a seller. now i only have to worry about it in the context of hurricanes, which most of us have gotten passably good at insulating ourselves from.

6 Bryan { 07.17.08 at 11:47 pm }

It’s also responsible for the impossible task of finding “seasonal” items during the season. After they change the line, there are no extras in the back of the warehouse.

Try finding a garden hose in December.

7 LeftLeaningLady { 07.18.08 at 8:11 am }

I read Fallenmonk’s site and he has depressed me all week with this stuff. Now this.

I know my husband is going to freak out tomorrow when we grocery shop and I buy powdered milk, extra cooking oil and dried beans (which I will only eat if I am starving).

Sad times we live in, isn’t it?

8 Bryan { 07.18.08 at 12:46 pm }

The MBAs haven’t figured out they are living “hand-to-mouth” and making their companies vulnerable. My sincerest hope is that suppliers will finally say “enough” and burst the bubble. All that is being done is shifting costs back down the line.