Daily Management Review

American Firms Shun Just-In-Time Supply Chain Strategy For "Buy Everything You Can"


Stephen Bullock gave up on the idea of obtaining raw materials and pieces only when they were needed on his manufacturing line eight months ago.
Instead, Bullock, CEO of Power Curbers Companies, a manufacturer of heavy equipment used to create concrete sidewalks and other infrastructure projects, urged his purchasing manager to "simply buy whatever you can" and stockpile the surplus.
After nearly two years of a pandemic that has clogged supply chains around the world, U.S. businesses are scrambling not only to meet current demand but also to replenish inventory shelves.
According to the US Commerce Department, inventory investment contributed 4.9 percentage points to the fourth quarter's 6.9 per cent annualized growth in GDP.
During the pandemic, spending switched from services to products, causing supply lines to be stressed and warehouses to be emptied. GDP increased at a slower 1.9 percent rate in the most recent quarter, excluding inventories.
This surge in demand, along with supply shortfalls, has spurred a wave of inflation that reached levels not seen in nearly 40 years last year. The Federal Reserve will now consider raising interest rates in March as a result of this.
Bullock, whose firm is based in Salisbury, North Carolina, said supply chain issues have gotten worse, not better, in recent months.
It only made sense, he added, to abandon the "just-in-time" inventory strategy in favor of building up supply to buffer stockpiles, referring to a method that attempts to buy components and materials just before they're needed - to reduce the cost of keeping supplies. In the era of globalized trade, just-in-time has been a standard that has been adopted by corporate America - until COVID-19 threw it off. Since the outbreak, several businesses have discovered that the system has left them trapped, with orders that ordinarily take weeks taking months to arrive.
Bullock's current goal is to acquire commodities such as steel wherever possible.
"We've had to get creative in where to put all of it," he added. "We're using all the nooks and crannies to house those incoming items."
Some companies' results are being harmed by supply chain issues. Tesla Inc.'s stock fell on Thursday after the electric car maker said that it would delay the release of new vehicles until next year due to supply chain issues that could extend until the end of the year. General Electric Co. reported a drop in quarterly sales earlier this week due to supply chain bottlenecks.
To deal with the supply shortages, businesses have become more inventive.
While waiting for supplies of scarce computer chips, Rockwell Automation Inc. Chief Executive Blake Moret said his company has boosted the amount of "work in progress" to keep workers assembling things. Just before the product is sent out the door, the chips are inserted.
According to Moret, Rockwell has "slightly" boosted its inventory levels, but not enough to have a significant impact on overall inventories, thanks to a push to automate factories and warehouses during the pandemic.
The Milwaukee-based company upped its fiscal year profitability prediction on Thursday after reporting a 40 per cent increase in orders in the first quarter compared to a year ago. "We're at the start of a multi-year economic expansion," Moret remarked.