I’ve not really tried to write this down before but….

A question from Rob Fisher:

My conjecture is that supply chains, even “just in time” ones, are in fact robust, on account of the self interest of the people involved in them, and the price signals of the market and so on. The appearance of fragility comes from somewhere else, possibly the mind of the observer lacking all the information.

Tim, do you see what I’m getting at? I have a feeling you would have something to say about this, possibly involving exotic metals.

Without running off into weird metals.

The global experts in running supply chains are the people who run supply chains. They have more information than anyone else about who produces at what price and quality etc. That is, after all, what they do for their living. That they do it for their living means they also have the correct incentives. Their wages/profits depend upon the chain being supplied. They have, as it were, skin in the game.

The global experts are committed to the system. Can’t see that we’re going to get a much better system than that. Moving to any other system of the State or bureaucracy would seem to violate one of those two principles, knowledge and commitment.

As to JIT a lot of people misunderstand this. It’s a matter of scheduling more than it is of not having stock in the supply chain.

Think back to coal going down a canal. Takes 2 weeks for a barge to get somewhere, the somewhere uses a barge a day. Do they need to have 14 barge’s worth in storage at the end of the canal to cover delivery time? Nope, they need the canal to be loaded with one barge a day of coal at the start so there’s one barge a day arriving at the end. JIT is that second. It’s not that the order is placed and the supply chain is empty then it’s delivered. It’s that the supply, chain is tuned to deliver when it is needed. There’s much the same forward commitment to take stock etc. It’s just instead of delivering my 14 barge’s worth, please deliver one a day under the same contract.

10 thoughts on “I’ve not really tried to write this down before but….”

  1. A lot of the twitterati and Guardianistas completely misunderstand JiT systems, hence the cries of anguish at potential customs delays due to Brexit. JiT does not mean instant or even rapid. As Tim says you can have a JiT system using old fashioned and slow delivery via canal barges. The main advantage of JiT is the avoidance of the need for large on-site inventory with its implications for storage and working capital.

    Also a supply chain is very rarely, if your sensible, a single chain. For critical materials you need resiliance and so your supply chain is probably going to be more like a supply network. I remember seeing a pharmaceutical production manager proudly showing the Finance Director a new manufacturing unit and telling him that the global production of product X was now being manufactured in this highly efficient and small unit. He was instantly deflated when asked what would happen if it burnt down in a fire.

  2. Presumptively, the potential problem is that if a lock gate breaks on the canal and no barges can move, then the end-user has no coal in reserve, so they have to shut down until the gate is repaired or until they find an alternative source of coal.

    But this has very little to do with JIT and is all about resilence. You can sometimes make things resilient by having a stockpile, but there are plenty of things that you can’t and you can only make resilient by diverse sourcing. Like fresh food, for instance. If there’s a fire in a chicken barn and you can’t get chickens from that farm for a year, then you need other farms, not a year’s worth of chickens in a stockpile.

  3. The global experts in running supply chains are the people who run supply chains. They have more information than anyone else about who produces at what price and quality etc. That is, after all, what they do for their living. That they do it for their living means they also have the correct incentives. Their wages/profits depend upon the chain being supplied. They have, as it were, skin in the game.

    And then there is NHS and PHE procurement and their experts, whose wages do not seem in any way linked to their expertise…

  4. You did write about the lifting/imposing of the the ban on the big boys going into the Indian Market, and i recall the benefit was all about expertise in supply chain efficiency,, not so much they had special know how in building big boxes with car parks.

  5. I always considered JiT to be a consultant’s coup. Publishing the obvious.

    A business owner knows his inventories cost him money.

    “The main advantage of JiT is the avoidance of the need for large on-site inventory with its implications for storage and working capital.”

    The owner knows this; he doesn’t need to be told by a CONsultant.

  6. The old Silk Road was resilient, because it’s wasn’t /a/ Silk Road, it was at least half a dozen parallel routes. If the Fuzzies started fighting in Fuzekistan, you’d avoid that route and go through Blatklavia instead. If Number Three lock at Coddington is blocked, you send your barges through Little Wigginton. If there’s a derailment in Stonehaven, you go via Perth.

  7. As Richard Gadsden and jgh point out, it’s not just about not holding stock, it’s about arranging your supply chain to deliver the stock as & when you need it. So for example, having one barge/day of coal setting off – which means around 14 barges in transit at any time.
    But of course, if you take it seriously, you consider the “what if the lock gates are broken” – it does happen. But if it’s going to take an extra couple of days to re-route the barges via Little Wigginton you need a plan for what to do in those 2 days you aren’t getting a delivery. Do you have an option to reduce consumption for a couple of days – perhaps by switching production to an alternative product that’s less coal intensive ? Or do you hold a couple of days of stock ? Or some combination.
    It is answering those questions that the teams involved earn their pay. The problem is that a typical bean counter sees a pile of coal and describes it as a waste of money that could be better used elsewhere – so forces the stocks to be run down. The same beancounter probably also blames everyone else when the lock gates at Coddington get broken and everything stops for two days.
    To a certain extent I suspect that’s what happened with NHS PPE supplies. There probably were people saying that we needed to hold stocks to cover such events – the recent events being far from unforeseeable. But then beancounters probably over-rode them and stopped the profligate waste of money !

  8. Excellent. Pretty much what I thought, but put better. And of course “any other system of the State or bureaucracy” is usually what is being talked about when people espouse worry about some looming disaster.

  9. Unless you’re Kkeystone, or Conemaugh
    Then you’d have a utility commission mandated 30-day supply of coal out in the coal yard. Where there’s a guy in a bulldozer whose only job is to run over the multi-acre coal yard and shove coal around 24×7 so that … Well I don’t know why exactly.

    Something about exposing dry coal underneath if it’s just rained so that you didn’t put wet coal in the power plant? Or that turning the coal over somehow prevented spontaneous combustion? Or how moving coal around somehow cut down on coal dust instead of creating coal dust?

    Truth is, I didn’t pay much attention to those two power plants cuz they were jointly owned by 10 utilities & coops; so I really couldn’t trade our share.

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