“Just-in-time” manufacturing model challenged by COVID-19
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The manufacturing fallout from COVID-19, the expanding coronavirus disease, continues. Microsoft, which makes software installed in computers made in China, warned its sales will fall. And large manufacturers in Korea, including Samsung, now say their supply chain problems will stall output, too.
At issue here is a global manufacturing model that focuses on low costs and lean inventory at every step in the chain, a model where all the parts arrive at the plant just in time.
The just-in-time model comes from Toyota, which in the ’70s started having car parts arrive at the plant at the moment of assembly.
“You try to organize your delivery of them, just as you need them,” said Adam Slater, lead economist with Oxford Economics. “The final product goes out, and then you get a new set of inputs coming in, just as they’re needed for the next product to go out.”
It became global manufacturing gospel.
Thing is, the quest for leanness and cost-cutting led many companies to put all their eggs in one supplier, in one country. And they got burned when some disaster hit — earthquake, terror attack, pandemic, whatever.
“Back then, something went wrong, Toyota went down,” said Barry Lynn, executive director of the Open Markets Institute, which does research on markets and monopolies. “But every other company continued to manufacture cars. Today if that happens, if one of those suppliers goes down, all the manufacturing companies go down.”
That happened in the car business nine years ago, when the tsunami hit Japan. Now it’s electronics, and the virus from China.
Supply-chain economist Susan Helper at Case Western Reserve University said manufacturers have tried to build in safeguards. But there’s a lot of cost cutting inertia to overcome.
“Purchasing managers are intensely measured on how low their costs are. So that doesn’t leave a lot of room to spend extra money because there might be some contingency in which everything falls apart,” Helper said.
This time around, she thinks the pain of overreliance on Chinese suppliers could speed up change to make supply chains more visible and bring back some redundancies and slack that the just-in-time model shaved away a generation ago.
COVID-19 Economy FAQs
Which businesses are allowed to reopen right now? And which businesses are actually doing so?
As a patchwork of states start to reopen, businesses that fall into a gray area are wondering when they can reopen. In many places, salons are still shuttered. Bars are mostly closed, too, although restaurants may be allowed to ramp up, depending on the state. “It’s kind of all over the place,” said Elizabeth Milito of the National Federation of Independent Business.
Will you be able to go on vacation this summer?
There’s no chance that this summer will be a normal season for vacations either in the U.S. or internationally. But that doesn’t mean a trip will be impossible. People will just have to be smart about it. That could mean vacations closer to home, especially with gas prices so low. Air travel will be possible this summer, even if it is a very different experience than usual.
When does the expanded COVID-19 unemployment insurance run out?
The CARES Act, passed by Congress and signed by President Donald Trump in March, authorized extra unemployment payments, increasing the amount of money, and broadening who qualifies. The increased unemployment benefits have an expiration date — an extra $600 per week the act authorized ends on July 31.
You can find answers to more questions here.
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