Supply challenges | Companies facing just-in-time flaws

The just-in-time model of coordinating production based on orders rather than inventory has been around for decades. However, it has been hit hard since the start of the pandemic with the disruption of supply chains. This has repercussions for businesses.

The lengthening delivery times and stockouts at some suppliers are among the unpleasant surprises that have caused many concerns for most companies since the start of the pandemic. Struggling with these issues, Lumen is one of the companies trying to adapt.

“Our model is to deliver the next day everywhere in Quebec,” explains the president of the distributor of electrical equipment, Serge Leblanc, in a telephone interview. So when I don’t have the material, my clients are poorly served. ”

The company, which belongs to the Sonepar Group, established in France, decided that it needed more storage space.

Growing, Lumen, which specializes in cable cutting, already planned to add between 80,000 and 100,000 ft^⁠2 of surface area at its facilities inaugurated in 2016 along Highway 440 in Laval. Supply chain disruptions, however, prompted Mr. Leblanc and his team to go further.

“With all that we have experienced, we […] decided to go with 180,000 sq. ft.^⁠2 to give us even greater storage capacity, ”he says.

Developed in Japan in the 1950s and deployed in the automotive industry, the just-in-time approach has been perfected and extended to almost every industry over time. It consists of coordinating production according to orders. We buy the quantity of material needed at each stage of the process.

Producers receive the goods as they come, saving them time and money to store inventory.

“It’s an efficient model, but we were trying to stretch the elastic as much as possible to minimize inventory,” says Simon Stien, practice director at GCL Group, which specializes in supply chain advice and logistics. “Today it is difficult to make up for all of this. ”

The big automakers are a good example. Hit hard by the shortage of semiconductors – components found in electronic chips essential to the operation of certain modules – many have been forced to temporarily stop production.

Traces in the books

Storing components – when they are available – is one way to mitigate unpleasant surprises in today’s environment. But an increase in inventory is reflected on a company’s bottom line.

Mr. Leblanc says he made a “choice” to place his clients “at the center of his decisions”.

President of a private company, Mr. Leblanc believes that he would not have such great latitude if he ran a listed company, exposed to pressure from investors.

In addition, Lumen expects its activities to grow over the next few years. The space which will be devoted to the increase in stocks will accommodate, when the situation is corrected, equipment in order to increase production.

Not all companies are in this situation, underlines Mr. Leblanc. “There is a build-up of inventory to alleviate lead time issues in the supply chain,” observes Stien at GCL Group. But everyone started to order more and more, which increases the problem in the chain. ”

To change

According to the CEO of Manufacturiers et Exportateurs du Québec (MEQ), Véronique Proulx, “there is not a manager in the manufacturing sector who is not reviewing his procurement strategy”.

Despite the effectiveness of the just-in-time model, flaws had already started to appear about three years ago, says Stien. Before the arrival of COVID-19, supply chains were well established, recalls the expert. An unforeseen event, such as a strike at the port of Los Angeles, one of the gateways for containers from Asia, was enough to cause disruption, he notes.

At home, strikes by stevedores at the port of Montreal as well as railway workers from the Canadian National Railway Company (CN) in the fall of 2020 also quickly caused turmoil.

A balance still difficult to find

Relocation of production, diversification of suppliers, contingency plans and larger stocks: there are ways to mitigate the risks of the just-in-time model. The challenge is to find the balance between efficiency and resilience.

Associate Professor in the Department of Operations and Logistics Management at HEC Montreal, Marie-Ève ​​Rancourt believes that the pandemic has made companies realize the importance of having contingency plans.

However, it is unclear whether all the old habits will be reassessed.

Giants like Intel and Apple have untied the strings of their purses to repatriate the manufacture of certain parts to the United States. In Intel’s case, it is semiconductor production. However, companies that are big enough to make these kinds of decisions are not taking the streets. “It’s very expensive and today, we don’t have the manpower to bring all this back to North America,” says Simon Stien, at GCL Group. We must also rely heavily on automation. ”

In the opinion of the CEO of Manufacturiers et Exportateurs du Quévec (MEQ), Véronique Proulx, there is “no single model” to adopt in the current context. Some will opt for warehousing, while those sourcing primarily from Asia may try to find suppliers located closer geographically, she says.

Initiatives have already been deployed to try to repatriate part of the production. In the United States, President Joe Biden’s US $ 2 trillion infrastructure plan provides $ 300 billion to support the US manufacturing sector.

In Quebec, the Legault government has on more than one occasion expressed its desire to see companies manufacture more in the province.