Enhancing Supply Chain Efficiency Through JIT & Process Refinements

Photo by Crystal Kwok on Unsplash

A Supply Chain is a network of organizations, people, processes, and resources involved in the production and delivery of products or services to an end consumer. This network involves a flow of goods which can involve procurement of raw materials, manufacturing, storage, distribution, delivery to customers, and recovery of goods. But, Supply Chain is more than just moving products or services from point A to point B — it is a strategic keystone that has the power to elevate business. Due to the many moving parts of a Supply Chain, it can be difficult to get it right, but this balance is essential for businesses to stay competitive and adjust to the changes happening in the business world.

Challenges Encountered in the Supply Chain

The intricate nature of supply chains often encounters multifaceted challenges that can result in financial loss, reduced efficacy, strained relationships with customers and suppliers, and other consequential impacts. Among the primary challenges faced are:

1. Overstocking: When businesses hold excess inventory and tie up capital in goods which can increase storage costs

2. Understocking: Inadequate stock levels to meet demand which can lead to lost sales and dissatisfied customers

3. Long Lead Times: Delays or shortages in production and/or transportation can prolong the reception of materials ordered from suppliers

4. Demand Variability: Fluctuations in customer demand can be difficult to predict (especially after a pandemic), leading to overstocking or understocking

5. Fragmentation: Having a supply chain spread across multiple suppliers can make it challenging to manage the process

6. Increasing Transportation Costs: Due to the pandemic and inflation, fuel costs increase which leads to higher costs for suppliers

7. Digital Transformation & Automation Challenges: Utilizing technology to track, improve, and automate parts of the supply chain is essential, but it can be a learning curve to utilize new technology and processes as well as a steep cost

The Role of Just-in-Time (JIT) Practices in Addressing Supply Chain Challenges

One of the most significant developments in supply chain management to address many of the challenges in the model is the adoption of Just-in-Time (JIT) practices. JIT is a philosophy and management strategy that focuses on reducing waste, improving efficiency, and optimizing processes to majorly mitigate challenges and risks that are traditionally faced in the supply chain model.

Key Principles of JIT Practices

Traditional supply chain management, or a “push strategy”, relies on ordering supplies based on forecasting and stock piling large levels of inventory for use. This strategy can result in higher costs due to capital tied up into stock as well as reduced flexibility. In contrast, JIT inventory management minimizes inventory by using a “pull strategy” which drives orders based on customer demand. This strategy can reduce cost by reducing tied up inventory stock, improve flexibility and responsiveness, and enhance quality control.

JIT Benefits vs Traditional Inventory Management

Process Improvements to Get Closer to JIT

Improve Demand Planning: Utilize historical demand data to predict what future demand may look like. To further improve demand forecasting, collaborate closely with customers and suppliers to understand real-time demand. This may involve the following strategies:

1. Improving accuracy of data input and stored in systems that communicate upcoming inventory needs. This may involve data clean up, data enhancement, and/or updating or replacing systems. In our Supply Chain project work with a current client, we’ve seen that their system for inputting and managing project materials has many inaccuracies and a lack of approval processes which results in inaccurate materials ordering. The value we brought was to help them identify and document these gaps, where they are coming from, and how to update and maintain their systems to produce accurate bills of material for projects.
2. Analyzing supplier relationships and reliability to cut ties with unreliable suppliers and foster stronger collaboration with reliable suppliers.
3. Creating redundant supplier avenues to ensure need can be met if one supplier experiences an unexpected difficulty, and/or better accounting for changes that may impact demand such as seasonality factors or covid impacts.
4. Improving and encouraging cross-functional team collaboration. It is important to gain insights from the various teams that work within the supply chain — such as sales, production, finance, etc., and encourage a culture of open communication to enable sharing of insights, ideas, and concerns. We’ve seen in our current project work that the lack of cross-collaboration of teams not only creates huge negative impacts to the supply chain as a whole (over-ordering, hoarding materials, inaccurate forecasts, etc.) but also can hugely impact the progress of internal initiatives to improve the supply chain gaps. For instance, during inventory audits aimed at obtaining an accurate count of materials in contracting yards and retrieving unnecessary items, we’ve observed that insufficient communication with other departments, like Finance, can bring work to a halt. This occurs when other departments lack a comprehensive understanding of the initiative and later find out that their buy-in and sign off was needed for the inventory pullbacks. This not only leads to delays in enhancing the supply chain but also generates disruptions that complicate ongoing supply chain activities, necessitating a more extensive cleanup later on.

Reduce Safety/Inventory Stock: Reduce the amount of inventory/safety stock being held onto to reduce tied up capital, free up warehouse space, and create greater flexibility. This may include some of the following:

1. Perform audits of current inventory at all or some of the highest value inventory locations to get a more accurate understanding of what is in inventory, to dispose of unusable or irrelevant inventory, and to utilize inventory that may be needed but was unknown about or sell back inventory that is in excess. Even if your organization cannot support a full audit of all inventory at all locations, an incremental/smaller scaled approach can be taken. For example, we’ve helped organizations perform inventory counts at locations that hold the highest 90% value of inventory to help gain the most impact from an initiative to improve supply chain while allowing resources to be concentrated towards a more narrow focus when it is not yet possible to do a full wall-to-wall inventory count procedure. Using an approach such as this, we were able to add value by creating and driving inventory recovery in 30 days that audited hundreds of millions in inventory and reconciled about 40% of inventory that was incorrectly documented in their inventory system.
2. Analyze current ordering trends to discover where excess ordering may be occurring and which inventory items may be less in demand compared to their incoming flow rate.

Optimize Packaging & Transportation: Streamline packaging and shipments and increase efficiency of transportation to support a more efficient and cost effective JIT supply chain model. This could include some of the following:

1. Optimize deliveries by consolidating shipments to a singular location and getting as close to delivering one shipment per site when possible. This will reduce shipping costs and transportation needs.
2. Analyze transportation routes and fulfillment distribution. This could include strategically planning transportation routes to minimize travel and fuel costs and/or setting up a system in which specific fulfillment centers cater to a specified region consistently.
3. Implement contingency plans for potential disruptors in the supply transportation or packaging flow.

Employee Training: Train team members across the supply chain in JIT principles and strategies the company wants to implement and why. Explain how these processes will benefit the company and make the team’s jobs easier and more streamlined. Encourage feedback through process changes and implement improvements.

By incorporating these strategic adjustments, supply chains can significantly progress towards a Just-in-Time model. Even small incremental changes contribute to substantial improvements, reflecting the power of gradual adaptation and the adoption of more efficient practices.