Other Implications

Automakers are starting to adjust their level of dependence on Just in Time manufacturing, a technique whereby manufacturers vastly reduce inventory holding costs by having the relevant inputs—car parts, for instance—arrive at the factory just before they’re needed. In some of the more extreme cases, that includes arriving on the moving assembly line just before it’s needed for addition to the growing product.

The hyperefficient auto supply chain symbolized by the words “just in time” is undergoing its biggest transformation in more than half a century, accelerated by the troubles car makers have suffered during the pandemic. After sudden swings in demand, freak weather, and a series of accidents, they are reassessing their basic assumption that they could always get the parts they needed when they needed them.
“The just-in-time model is designed for supply chain efficiencies and economies of scale,” said Ashwani Gupta, Nissan Motor Co’s chief operating officer. “The repercussions of an unprecedented crisis like Covid highlight the fragility of our supply-chain model.”

That’s true, and it’s also good that that fragility finally is being taken seriously.

There are two other factors in JIT supply chain fragility beside those largely innocent ones. One is the fact that an enormous amount of trade goods, including raw materials and components for assembly into larger components or finished products, passes through the South China Sea. A large majority of Japan’s inputs and trillions of dollars of value for the US pass through the that Sea. Those shipping lanes are at increasing risk from an increasingly aggressive and acquisitive People’s Republic of China.

The other source is supply chain disruption by union strikes. Strikes generally and supply disruption by strikes are ways in which unions extort concessions out of manufacturers.

Inventory on hand, rather than on trucks or rail cars, helps manufacturers get through those deliberate disruptions.

2 thoughts on “Other Implications

  1. Mr. Gupta left out one important point – supply chain efficiency (aka, JIT) depends on a perfect world. The Pax Americana extended the Pax Britannica which enabled such steady and reliably timed supply.

    Now the CCP is deliberately disrupting it, with all-dimension warfare (so far mostly gray zone warfare). That includes our union-plagued port process, working 2 shifts/day, while Chinese ports run 24/7.

    I highly recommend paying attention to @man_integrated on Twitter. His threads warned of the current disruption 15-18 months ago. He knows his stuff, and explains well.

    • My primary concern is that national security problem.
      The Expected Cost of an economic black swan event disrupting a JIT supply chain is likely less than the accumulated savings from not maintaining inventory during the intervals between black swans. And those economic black swan events can be recovered from.
      The Expected Cost of a national security black swan event is the conquering of the nation undergoing the security black swan. Those need to be prepared for with significant developments of military, cyber, political–and economic–capabilities.
      Failure to prepare is especially unconscionable when it’s not really a black swan event, but a threat that’s unfolding right in front of us, like the People’s Republic of China’s occupation of the South China Sea, it’s assaults on Japanese territories in the East China Sea, its attacks on our government’s and private business’ computer networks, its attempts at subversions of the Republic of Philippines’, Vietnam’s, India’s territorial sovereignty, etc, etc, etc.
      And on the other side of the world, Russia’s increasingly acquisitive territorial designs against its neighbors, and its own cyber attacks against us and against the Baltic States–every single one of them.
      Eric Hines

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