Supply Chains Are Not Prepared for Pandemics
Lean manufacturing is the opposite of what you want in times of crisis
Supply chains are already being stressed
As many people are witnessing here in the United States and around the world, there are already shortages of some essential items as panic sets in and people try to stock up in the face of the growing coronavirus pandemic.
If you go to Amazon or your local grocery store right now, you’re likely to see “Currently unavailable” or empty shelves for items like toilet paper, canned goods, frozen foods, face masks, hand sanitizer, etc.
Naturally, this is going to cause a lot of frustration, anger, and even more panic among shoppers, especially for those who already have a difficult time putting food on the table for their families.
People are also going to start wondering why these massive corporations (worth billions of dollars in some cases) can’t keep up with a rapid change in demand for their products.
For many, the simple reason is that their supply chains are not designed or organized for rapid and substantial shifts in demand. Rather, they are designed utilizing lean manufacturing principles to provide just enough products based on the manufacturer’s demand forecast.
Because of this, supply chains for products that people deem essential in times of crisis will be stressed — and some will be pushed to the brink.
What does lean manufacturing have to do with supply and demand?
Lean manufacturing’s definition, origin, and even prevalence of use among companies are all difficult to describe, since there are a lack of surveys on the topic as companies implement lean manufacturing principles in a number of different ways.
In general though, lean manufacturing is all about minimizing various types of waste, which can include things like energy, raw materials, and other resources. Lean manufacturing is attractive to companies because it can help reduce manufacturing costs, increase efficiency, and add more value for the customer — all of which can increase a company’s profits in the long run if successfully implemented.
Although there are “Seven Deadly Wastes”, let’s just focus on two of them that are related to our current supply issues.
The first is overproduction. As the name implies, overproduction leads to a mismatch between supply and demand by providing more product than what customers actually demand. In order to counteract this, companies may implement measures like a Kanban system or measuring Takt Time to carefully monitor the flow of production processes from start to finish. This can help reduce downtime and optimize capacity throughout the supply chain for a product to consistently meet customer demand without having to store large amounts of product at one time.
The second, related form of waste, is inventory. Inventory can include everything from raw materials in-process at upstream suppliers to final product held at the manufacturer waiting to be shipped out to customers. Based on the principles of lean manufacturing, only immediate customer needs should be met. Therefore, actions to reduce excess inventory are similar to overproduction measures like Kanban systems as well as utilizing Just-in-Time (JIT) delivery. For example, using a Kanban system can signal when new materials need to be ordered just in time to keep the manufacturing operations running consistently and smoothly.
As a result of utilizing lean manufacturing principles, companies can better manage the complex dynamics of supply and demand more efficiently — that is, when the actual demand is in line with their forecast. Since forecasts are based on both historical demand and reasonably expected demand from new customers, their predictive power fails when unforeseen events occur.
Potential solutions for supply issues during crises
It is not currently in companies’ business interest to hold surpluses of products for potential crises like the coronavirus pandemic. Every company has limited manufacturing capacity, and the less space that has to be used for storing excess inventory, the more that can be utilized for production to increase throughput and reduce waste. This is particularly true for products with limited shelf lives.
Therefore, companies may need to be incentivized in other ways if they are going to be expected to hold surplus product at their facilities.
For example, governments could provide funds via subsidies or other means to businesses that provide essential products to ensure that a surplus is set aside for emergency situations. Companies could produce the required surplus product and hold it in a separate area with strict measures that the product cannot be released without a government order.
Governments could also procure the products directly from these companies and hold them in a secure location for future use. Countries like Singapore are already doing this for essential items.
As another option, governments can even make their own versions of these products, as New York has started to do with hand sanitizer. That way, the supply of essential items doesn’t have to rely on the business strategies of companies that are primarily focused on their bottom line.
Any of these solutions are better than the current situation where companies are already struggling to meet the major spike in demand for essential items. Hospital staff and emergency responders should not have to worry about potential face mask shortages nor should medical supply companies be the decision-makers in who gets masks and who don’t.
One of the lessons we need to learn from this pandemic is that supply chains of critical products cannot be solely designed to meet immediate customer demand. We need safeguards in place to ensure essential items are available during unforeseen events as we are now witnessing. Otherwise, many more people will needlessly suffer.