Rethinking 'Just in Time'

It would be fair to say that since the beginning of the Covid-19 pandemic the UK has experienced several temporary shortages of essential goods. The latest example is the recent fuel shortage at forecourts, felt most acutely in London and the south east of England, not caused by scarcity in regional and national storage centres, but by a lack of HGV and fuel tanker drivers to transport the fuel. 

However, it seems that due to a series of factors the UK will continue to experience, at least in the short term, multiple shortages of goods. Among them we can include carbon dioxide (CO2), turkeys for Christmas, new cars due to a global shortage of microchips, milk, meat, toys, trees, timber and cement.  

With this landscape in mind we may ask, how can we prepare for a future crisis? 

One thing to consider is that, as a society, the UK is not necessarily well-prepared for emergencies of this type. By way of comparison, the Swedish Government has taken a proactive approach to building resilience by creating a leaflet called 'If Crisis or War Comes' to prepare the population for unforeseen eventualities. This information could prove valuable as it reminds people to do the opposite of what we have seen at petrol stations over the past week - that the right approach for society is to keep calm when there is a moderate shortage of a product and not panic buy, as this inevitably leads to a critical shortage of that product.

From a private sector perspective, the business model that has been used for several years is based on the 'Just in Time' model, developed by Toyota in the 1940s to manufacture cars. The model is based on companies receiving raw materials as close as possible to when they are needed. Therefore, deliveries are taking place constantly around the clock and are dependent on complex international supply chains that can suffer severe disruptions for a variety of reasons, including pandemics, shipping delays and cyber-attacks, or combinations of all the above.

It is expensive for businesses (and ultimately for the consumer) to build more slack into the system, or redundancy capability, which provides more resource and more capacity by firms in the management of their stocks. 

However, a business model that could be considered in order to build more resilience and minimise risks in the global supply chain is called 'Just in Case'. This is more expensive and requires companies to commission extra supplies and hold extra stocks of products and raw materials. Additionally, the incentives for leadership teams and CEOs are not necessarily aligned with this model as shareholders tend to reward based on performance. Therefore, the rewards are based on the implementation of an efficient and cost effective Just in Time model rather than a more expensive Just in Case model. 

However, as a society we are left in a very real vulnerable position when supply chains are disrupted, as we have recently experienced. With this in mind it could be worth considering if it may be better for societies in the long run to depend on businesses that are implementing a more prudent Just in Case business model, so that customers are not exposed to the risk of not being able to access the goods they need to purchase. 

The implementation of this model will depend on CEOs being prudent, shareholders valuing the reduced risk (at an extra cost) and for companies to publish in their annual reports how they are preparing for supply chain uncertainty. This approach could be positioned as a competitive advantage for the company as it will demonstrate that they are better prepared for unexpected disruptions that have become a common occurrence since the pandemic and that can have a severe impact on our daily lives.