A global pandemic and stuck container ship highlight how fragile just-in-time supply chains can be.
What is the “just-in-time” supply chain model?
Just-in-time supply chains started in Japan’s car manufacturing industry in the 1960s as a simple supply-chain management reform. In its search to cut overheads, Toyota did away with in-house storage and began sourcing parts on a strictly as-needs basis.
These reforms were successful given that manufacturers and suppliers were closely located in industrial centres.
Toyota enjoyed global success and soon other car manufacturers and American companies began emulating just-in-time supply chains.
How the Suez Canal blockage affected global supply chains
The Suez Canal blockage could compound issues for global supply chains already burdened by the pandemic and a surge in buying.
12% percent of global trade passes through the Suez Canal. The vital waterway provides a corridor between Europe and Asia, allowing 50 cargo ships to pass between the Mediterranean and the Red Sea every day.
The Ever Given, a 400m cargo ship weighing 200 000 tonnes, became lodged sideways in the Suez Canal on the 23rd of March. The saga created a backlog of more than 400 vessels carrying everything from oil to livestock and held up $9 billion in global trade each day it was stuck. The ship was finally refloated on the 29th of March – six days later.
Insurer Allianz predicted the blockage could cost global trade between $6 billion to $10 billion a week.
Due to the blockage, many ships were forced to reroute around the Cape of Good Hope, situated at Africa’s southern tip. This 9000 km detour takes 10 days longer and adds a hefty fuel bill to the voyage between Asia and Europe.
Businesses in Europe and Asia are set to be the most affected by the blockage as there are no alternatives such as rail or truck transportation. According to Sharat Ganapati, an economics professor at Georgetown University, the blockage will delay a range of parts and raw materials for European products such as cotton from India for clothes, petroleum from the Middle East for plastics, and auto parts from China.
Companies are having to pay additional fees to see that their shipments are delivered on time. Many businesses are turning to air freight, which can be up to three times more expensive.
Rethinking the “just-in-time” approach
The combination of a pandemic and the recent Suez Canal blockage may cause executives to rethink hyper-efficient production systems designed solely to reduce costs. Just-in-time supply chains produce hefty profits but leave companies vulnerable to unexpected events. Just-in-case supply chains ensure companies have access to a large inventory but are costly both in up-front and warehousing costs.
Instead, a powerful hybrid of smart technology and collaborative production could be the supply chain of the future, doing away with costly and inefficient processes.
One way of ensuring resilience is for businesses to increase transparency in their supply chains. According to a report written by the Association for Supply Chain Management (ASCM), more than half of the companies they surveyed did not have information on their supply chain beyond immediate vendors. This limits the ability to detect emerging threats or calculate how disruption will unfold across supply chains.
The report cited that:
“High performers build an ‘outside-in’ picture through the integration of supply chain partners into demand forecasting and planning as well as systems that provide real-time data.”
In addition to improving visibility, timely supply chain data can be used to build higher-level resilience capabilities, such as stress testing and prescriptive analytics.
The same report highlighted the advantages of building long-term relationships with key suppliers. It was found that companies that focussed on cost-cutting had the lowest probability of quick recovery after a recession. The companies that recovered most successfully post-recession made a balance of defensive and offensive moves, which included providing financial support to suppliers during shock events so that the health of their supply chains remained strong.
The overwhelming need for supply chain visibility has been highlighted by “black swan” events like the coronavirus pandemic and the Suez Canal saga. That’s why Blockhead Technologies has created STAMP Supply, a blockchain-backed solution that gives you end-to-end supply chain visibility.
The program enables users to:
✅ Enhance productivity and reduce time spent analysing complex data.
✅ Use real-time data to lower costs and optimise spending.
✅ Guarantee the quality, ethical and sustainable origins of products.