Tuesday, February 25, 2014

The need for 'Just in Case'

This weeks articles talk about the formation of new hubs to deal with Just in case distribution. As opposed to the Just in time methodology of inventory management which uses lean techniques to reduce storage costs, the Just in Case strategy deals with unforeseen circumstances that can lead to the disruption of supply chain logistics. Natural disasters like hurricanes and unforeseen events like labour strikes can cause massive loses to company that depend on the shipping industry for getting their products to them 'just in time'.

The West Coast Port shutdown of 2002 was one such incident. The 10 day shutdown caused massive loss to companies as their inventory could not reach them in time. This and other events such as hurricanes have prompted various companies to look for Just in Case distribution hubs as a counter measure.

Not all company’s however, were as badly affected by the West Coast port shutdown. In the article, 'Living in Dell Time’, we have seen how Dell turned around this unforeseen ‘catastrophe' into a competitive weapon. By moving quickly at the slightest hint of a shutdown, they managed to not only keep their inventory up and running but also capitalised on the logistical nightmare affecting its competitors. How it dealt with the entire event seems something out of spy movie. We can say that Dell’s on the feet thinking and its ‘unrelenting sense of urgency’ got it through the disaster. This was a learning lesson for many companies and Dell was praised for its efficiency.

The important question here is, can what Dell pulled off be done every time, or is there a need to look for a less risky alternative, which many of the companies are searching for in 'Just in Case’. There were a number of factors that helped Dell with what they achieved. The fact that they had an inkling of the probable shutdown 6 months in advance and the large number of resources at its disposal were a couple of major factors. Not all the company’s in the world have the kind of resources that Dell has. Even if they did, there are only so many Boeing 747’s that can be used instead of ships to carry inventory from across the world, which again, may not even be feasible for most of the smaller companies. Dell could do what it did, only because other organisations were ill prepared.

Many company’s believe that the same 'Just in Time’ that was a huge asset in reducing inventory costs is becoming more of a liability in the wake of such unforeseen disasters. They feel the need to move back to the traditional way of stockpiling inventory, at least in part. This is where Just in Case comes in. It is a contingency plan for when things go wrong. 

How company’s implement Just in Case in conjunction with Just in Time depends from company to company. One factor the company’s need to take into consideration is the loses incurred by storing additional inventory vs the loses incurred by inventory shortage in case of a natural disaster. They needs to find the optimal balance in using the two strategies for the maximum speed and efficiency while still being prepared to deal with an emergency.

The need for the Just in Case strategy is more prominent then ever.

1 comment:

Note: Only a member of this blog may post a comment.