Monday, August 24, 2020

Managing our Supply Chain

The Covid 19 crisis has highlighted that the time has come to revamp the U.S. Supply Chain management strategies that have been used for decades. In the late 1970’s the Japanese championed the Just-in-Time manufacturing system which ultimately replaced the Manufacturing Resource Planning method that had predominated in the U.S.

Though best suited for Japan where lack of cash at the time made it difficult for industrial companies to finance the large inventories and warehouses that were common in the U.S., Just-in-Time supply chain management as practiced by Toyota was far more cost effective. At a time of extraordinarily high interest rates, this method allowed the Japanese manufacturers to operate with fewer materials on hand and fewer warehouses and to eat our lunch. Just in time inventory was widely adopted in the U.S.

Over the years in the search for systematic cost reductions many raw materials, intermediates (chemical and drug feed stocks) and finished products moved manufacturing to other parts of the world. We have driven our supply chains to geographic diversity which has effectively limited the U.S. control of production of products essential to our way of life. Even products which are manufactured in the U.S. (toilet paper, paper towels and many cleaning supplies) were in short supply because they had no excess capacity in their systems and inadequate inventory stored to weather a crisis.

We as a nation woke up in April to discover that not only toilet paper and paper towels were in short supply, but therapeutic and diagnostic pharmaceuticals, ventilators, other medical devices, personal protective equipment, certain foods and computer equipment were also in short supply. The cost of N95 face masks went up 10 fold in price if you could find them. The U.S. found itself strategically vulnerable in a time of crisis. We woke up to realize that we had sacrificed supply chain reliance for lower costs. Outraged, Congress sent for all the manufacturer and engineering trade associations and the RAPID Manufacturing Institute (part of the AIChE my professional institute).

The briefing outlined several strategies for strengthening U.S. supply chains that included moving from large centralized manufacturing to smaller geographically distributed production facilities; data integration along the supply chain, and maintaining and adequately tracked and rotated “just-in-case” levels of inventory. Companies need to begin by mapping and analyzing their supply chains. The U.S . must identify the weak links in domestic supplies of strategically important products and resolve them. The lowest cost product is not always the right product. When Covid 19 is in the rearview mirror will these changes take place.

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