The day before the twentieth anniversary of the 9/11 attack on the World Trade Center, Politico published “They Created Our Post-9/11 World. Here’s What They Think They Got Wrong.” In the closing sentence, U.S. Senator Joe Lieberman stated his “lesson learned” regarding America’s unpreparedness:
“You’ve got to be careful not to always fight the last war.”
That sentiment is undoubtedly true, but isn’t the reverse sentiment also true? Sometimes we move so quickly to fight the next war that we foolishly disregard the last one. Indeed, supply chain managers may be experiencing such a moment right now.
A Brief History
The field of supply chain management extends over much of human history. It was first practiced during the early developmental periods of agriculture, industry, trade, and military conquest. It later took great leaps forward during the periods of mercantilism and industrialization, and then entered the modern age during the transformation of the global economy after World War II.
Indeed, supply chain management was transformed with the implementation of lean manufacturing principles. First popularized in Japan by Toyota and other manufacturers, lean manufacturing engineers espoused the goals of zero lead times and zero inventory balances. They later developed business applications in other sectors, ranging from Zero-Based Budgeting processes to Zero Inbox email procedures.
Lean manufacturing proponents emphasize the benefits of running extremely sparse and slender systems that waste no resources, that only utilize what is required at the very moment that resources are needed, that demand full justification for every purchased item, and that maintain a continuous and smooth flow of materials and activities.
For decades, these appeared to be “no brainer” operating practices. Supply chain managers always presumed that they were common-sense principles …
… until the coronavirus struck and the climate changed.
Fighting the Next War
In March 2020, shortages ranging from computer chips to toilet paper began to plague the global economy. Suddenly lean manufacturing became the principle to blame! Why, asked critics, did we ever assume that shipments would always arrive on time? And why did we believe that employees would always report to their workplaces on a full-time schedule?
Consumers began to hoard face masks, toilet paper, and cans of soup. Corporations began to run short of electronics equipment, rare-earth minerals, and transportation vehicles. Indeed, for supply chain managers, inventory-on-hand appeared to evolve from a burden to a benefit. They began to perceive the “Next War” as one in which the primary risk was failing to move away from lean management principles.
Unfortunately, supply chain managers who share this perception are failing to learn from history. Toyota, for instance, never applied lean management principles to its entire supply chain. Instead, it only applied those techniques to the specific segments of its supply chain for which it was cost-effective to “run lean” on a risk-adjusted basis.
When Toyota first developed its Toyota City manufacturing hub, it offered as many local city locations to its suppliers as possible. The physical proximity of its raw material and industrial component suppliers reduced the risk of inventory shortages. Thus, if Toyota ran short of an important component, an employee could simply drive over to a nearby supplier for replacements.
However, the manufacturing hub only represented one segment of Toyota’s supply chain. Its automobiles still needed to be transported to Japanese ports, shipped to the United States, processed through Customs, and then sent to dealerships before they could be sold. At every step of this distribution process, Toyota stockpiled a reasonable amount of inventory.
Why? Because the risk of running out of vehicles was simply too high. A customer who couldn’t be served in a Toyota dealership could easily drive down the street to the Honda dealer. Conversely, when incomplete paperwork trapped vehicles in the U.S. Customs zone, Toyota administrators couldn’t simply drive down the street to a different Customs Office. In both cases, the risk of such events could be addressed by increasing vehicle inventories.
Pandemics, Hurricanes, and Wildfires
In today’s high risk business environment, incomplete Customs paperwork is clearly not the greatest worry facing supply chain managers. Pandemics, hurricanes, and wildfires are now far more likely to cause disruptions in the flow of manufacturing and distribution activities.
When such disruptions occur, it is easy to wrongfully conclude “I must avoid fighting the last war. Lean manufacturing had its day, but the world has changed. Supply chain experts cannot help me now, so I’ll simply build up excess supplies of inventory throughout my system.”
Why is that wrong? Because supply chain experts always knew that inventory stockpiles are desirable under certain circumstances. In other words, the last war never ended; only the battles — which now have names like Covid, Ida, and Caldor — are new.
It may seem odd to turn to your lean manufacturing supply chain experts for advice in a business environment where inventory must increase across the board. In truth, though, lean manufacturing experts have been practicing within this environment all along. Thus, supply chain managers shouldn’t disregard the lean manufacturing principle. Throughout the post World War II period, it has always been employed as a viable strategy at appropriate stages of the supply chain. That simple fact remains true today.