A Blog by Jonathan Low


Apr 11, 2023

Why Ukraine And Covid Teaches "Just In Case" Matters As Much As "Just In Time"

Just in time became a holy grail for business during the 1980s when Japanese automakers outperformed their US and European competitors. But the pandemic and the Russian invasion of Ukraine are now demonstrating that resilience and responsiveness are more valuable - literally and figuratively - in the face of supply chain disruption, exorbitant shipping costs and quickly changing demand. 

From artillery ammunition to baby diapers, the sourcing and delivery of essential goods is increasingly based on Just In Case scenario planning because the relative increase in inventory cost is far outweighed by the opportunity cost associated with supply shortfalls, especially when an entire nation's well-being may be at stake. JL

Janos Allenbach-Ammann reports in Euractiv and Stephen Losey reports in Defense News:

The pandemic and Russia’s invasion of Ukraine have sent shockwaves through global supply chains, leading companies to rethink their priorities, from efficiency to resilience. Just In Time companies tried to buy only what they knew they would produce and produce only what they knew they would sell. (But) the pandemic and the war led to volatile resource prices, soaring shipping costs, disrupted supply chains, and large swings in customer behavior. Resilience and responsiveness to unexpected developments became essential. A study by Boston Consulting Group that found firms with resilient supply chains consistently outperformed their peers, especially during crises.

The pandemic and Russia’s invasion of Ukraine have sent shockwaves through global supply chains, leading companies and policymakers to rethink their priorities, from efficiency to resilience.

Until recently, “just in time” was the name of the game in supply chain management. Stocking up on resources, intermediary and finished products was considered costly and inefficient.

Instead, companies tried to buy only what they knew they would produce and to produce only what they knew they would sell.

Well-integrated supply chains, abundant and cheap shipping, as well as data on customer behaviour allowed this to work out for companies – at least for a while.

Then, the pandemic and the war led to highly volatile resource prices, soaring shipping costs, disrupted supply chains, and large swings in customer behaviour. Suddenly, having some resources and products in stock no longer seems such a bad idea.

Turning towards resilience

“Long-standing supply chains of manufacturing have been turned upside down,” Nancy Pallares, international business development director at the defence industry company Teledyne FLIR, told a panel discussion that was held on Wednesday (1 June) in Brussels to celebrate the 60th birthday of the tech and industry employers’ organisation Ceemet.

“Companies are moving from ‘just in time’ to ‘just in case’,” Pallares said, adding that resilience and responsiveness to unexpected developments were becoming essential.

Her argument is supported by a study by the business consultancy Boston Consulting Group that found that firms with resilient supply chains consistently outperformed their peers, especially during crises.

Pallares argued that many companies were trying to find suppliers closer to home and stocking up on their inventories to reduce their exposure to supply chain disruptions. According to her, this development is here to stay.

“Let’s face it, we are going to face more of these risks in the coming years,” said Pallares, who is also vice president of Ceemet.

EU policymakers are also reacting to this new environment.

For example, they are trying to ensure that strategically important parts of the supply chain like semiconductors will be produced in the EU in future. That is why the European Commission proposed the EU Chips Act, which is currently being discussed by member states and by the EU Parliament.

Diversifying supply chains

Another way for supply chains to become more resilient is by reducing their dependency on a single trade partner.

“We need to diversify our supply chains,” said Christiane Canenbley, deputy head of cabinet of the Commission’s Executive Vice-President Margrethe Vestager, while talking to representatives of European industry at the same event on Wednesday.

New trade agreements with Chile and New Zealand might be concluded this year, and the EU is also set to start negotiations for an ambitious free trade agreement with India this month.

Such trade agreements would be a way to diversify away from the one obvious elephant in the room when it comes to trading partners the EU is highly dependent on: China.

However, while there is a lot of talk of “near-shoring” and “re-shoring” production, trade patterns do not yet show much adaptation to a new focus on reshoring when it comes to trade with China.

As the figure below shows, trade in goods increased strongly in 2021 in spite of the pandemic, but also despite the fallout between the EU and China over human rights concerns and the mounting geopolitical tensions.

Of course, aggregate trade figures do not yet show whether the traded products are of strategic importance or not. Nevertheless, it remains to be seen whether the EU and its industry are serious about diversifying their supply and reducing dependency on geopolitically unstable trading partners.

[Graph by Esther Snippe; Edited by Zoran Radosavljevic]

The F-35 Joint Strike Fighter will need a more resilient supply chain to ensure the military can keep it flying in a future, highly contested war, the Air Force officer in charge of the program said Monday.

The F-35 program was set up with a “just in time” supply chain, where parts arrive right before they’re needed and little inventory is stockpiled, Lt. Gen. Michael Schmidt, the program executive officer, said during a panel discussion at the Navy League’s Sea Air Space conference being held this week in National Harbor, Maryland.

In the private sector, Schmidt said, that kind of efficient supply chain works well for keeping costs low. But in a future war involving highly contested environments, it could lead to disaster, he said.

“When you have that [just-in-time] mentality, a hiccup in the supply chain, whether it be a strike … or a quality issue, becomes your single point of failure,” Schmidt said. “We need to look at, what does ‘right’ look like in the future, to give us more resilience in a combat environment.”

Bridget Lauderdale, vice president and general manager of the F-35 program for the aircraft’s main manufacturer, Lockheed Martin, said the company has focused more on trying to forecast the demand cycle, so it can better predict when it will need parts.

“A lot of those materials take lead time to prepare, even when you do have funding and even when you have repair capacity,” Lauderdale said.

To create the resilient supply chain necessary to fly the F-35 in the future, Lauderdale said, the military services and the defense industry are going to need to work more closely together.

The F-35 enterprise’s sustainment network is “enormous,” Schmidt said, encompassing airplanes operating from 27 bases and 10 ships. Nine nations fly the F-35 operationally, and there are 17 countries in all taking part in the program.

Schmidt said the international nature of the F-35 program will provide opportunities for the U.S. and other partner nations to work together and more efficiently maintain their jets.

“In a few years, we’re going to be flying between 500 and 600 F-35s in Europe, and less than 100 of those are going to be U.S.” fighters, Schmidt said. “What a huge opportunity that is to leverage each other’s logistics and maintenance environments.”

At the same time, he said, the F-35 program needs to work on ensuring it can get the right parts and other materials to the right places, so those maintenance hubs can do the necessary work on the planes.

‘Huge win’

Schmidt acknowledged that the program was “a little bit late” in standing up depots to handle the sustainment capacity the F-35 will need, adding that as the Pentagon was negotiating with Lockheed on lots 15-17 last year, it opted to use some of the money to pay for more depot capacity, instead of buying an unspecified number of additional fighters.

“That’s a huge win,” he said. “I think once we can really figure out this global sustainment enterprise, to make sure that we can meet all the demands of all the countries … getting that right is a huge focus area of mine.”

The F-35 program, including the heavy maintenance depot at Tinker Air Force Base in Oklahoma, has made great progress in fixing an engine shortage, which at one point was a “top degrader” dragging down readiness rates. Schmidt said. A little more than a year ago, 48 F-35s were without engines, he said. Last month, that number was down to one.

The commander of Tinker’s Oklahoma Air Logistics Complex told Defense News last year that the base had overhauled its processes, hired more workers and acquired new tools and equipment to repair more of the fighters’ F135 engines.

F-35 maintainers are also getting more data they can use to assess the health of the fighters’ engines, without having to go through the time-consuming effort of pulling the engines out of the plane to do a closer inspection.

“We’re seeing over a 50% increase in reliability in terms of engine-on-wing time,” Schmidt said. “I’m anxious to see how that really plays out over the life of the program.”


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