“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
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy continues reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
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