In the Face of Inflation, is “Just-in-Time” Simply Out of Time?

in-the-face-of-inflation

Given global supply chain disruptions, labor shortages, and other factors driving inflation, some companies are now actively questioning the just-in-time (JIT) inventory practices that have been dominant for the past several decades. In their place, these businesses are adopting a just-in-case (JIC) approach, which involves holding more inventory and working to develop flexibility in the supply chain.

The purpose of just-in-time manufacturing had always been to reduce inventories and save costs in the supply chain. But in this climate, JIT’s reliance on suppliers, who have been unreliable since the COVID-19 pandemic began, seems counter-productive. Incidents early in the pandemic, such as large shifts in demand for items such as protective gear and panic-demand purchases of products like toilet paper and cleaning supplies, quickly underscored just how fragile the world’s supply chains are. And the situation has only deteriorated since then, fueled by factors such as China’s production-slowing COVID policy and an upending of so many supply chains due to the war in Ukraine.

And few expect things to get better any time soon. In its recent PwC Pulse Survey, for example, the firm found that two-thirds of manufacturers predict that inflation will remain elevated throughout 2022, with nearly three-quarters expecting to increase prices during that time and less than half expecting supply chain disruptions to ease.

The surge in demand, coupled with ongoing shortages of people and products, has made it inevitable that manufacturers and businesses would pass along rising costs by sharply increasing prices and driving inflation. This has set the stage for a migration from JIT to a JIC strategy, through which businesses, by stockpiling goods, are able to hedge their bets against increasing prices. As a recent PwC article noted, “Pricing that perfectly aligns with cost of goods or just-in-time inventory management approaches seem like quaint and distant memories.”

Manufacturing expert Willy Shih of the Harvard Business School agrees, writing in Forbes that “having more material on hand can make a lot of sense, especially if it comes off a long supply line from China.”

It is, of course, possible that, in the near term, the shift to a JIC inventory approach could drive up costs and actually contribute to inflation. However, the end result, many financial reporters say, is likely to be more reliable and more local supplies, as well as improvements to the ways in which inventory is designed, manufactured, and sold.

In fact, according to the Financial Times, “Some businesses are increasing the inventory they keep on hand and entering into longer-term contracts with key suppliers. Others are diversifying their manufacturing to create regional hubs with local suppliers and investing in technology to give them greater advance warning of potential bottlenecks.”

The message, say PwC’s business analysts, is that manufacturers must be both resilient and agile in the current business environment if they are to contain the impact of rising price inflation and succeed in addressing supply chain snarls and shrinking margins. The analysts suggest that as prices of energy and materials rise, manufacturers can mitigate the impact on cost of goods sold through actions such as “being more aggressive in finding alternate suppliers that offer more attractive pricing or suppliers that are closer to your operations in order to trim delivery costs.”

What’s critical to consider, regardless of which inventory approach you use, is taking charge of your supply chain from the beginning and making sure your actions are most appropriate to your situation.

Ask yourself:

• In light of current crises and with inflation in mind, are you thinking about whether JIT or JIC is the right approach to these issues and risks?
• Are you not only anticipating risks but also mitigating them as they develop, whether they’re internally or externally generated?
• At the same time, are you paying attention to each product’s lifecycle, with a clear focus on potential end-of-life issues, ensuring that they won’t cost you time, money, or customers?

These are complicated times. But the solutions don’t have to be complicated. Learn more about Dynamic’s Supply Chain Management Solutions and get a copy of the company’s proprietary Supply Chain Risk ScoringSM process.

Supply Chain Cybersecurity: The Ukrainian War Increases Your Company’s Risk

Supply Chain Cybersecurity: The Ukrainian War Increases Your Company’s Risk

The war in Ukraine has brought the issue of cybersecurity into the mainstream of public opinion, with increasing media coverage of actual and potential Russian cyberattacks on businesses and infrastructure—often, far from the fighting.

These threats are very real, but for many companies they are not entirely new. Supply chain cyberattack risks, in particular, have been growing for some time, especially for companies in life sciences and other industries with sophisticated supply chains. And they can come from states like Russia, or from criminals.

A sampling of recent articles sheds light on the threats. The digital technologies that have made supply chains more efficient and responsive also make them vulnerable to bad actors. “The level of automation in the pharmaceutical industry makes it a prime environment for attacks. These environments are complex, and they haven’t been built to defend against nation-state attacks,” one security expert recently told the Biospace news site. The growing connection of operational technology to the network is also a factor, because it means bad actors can not only steal or damage data, they can also disrupt production and operations.

The variety of partners typically involved also makes the supply chain an attractive target. That’s because it increases the number of potential entry points, and it also means that a single attack can quickly move through the network to affect numerous partners.

Recent events have made this even more of a problem, as COVID and Ukraine have disrupted supply chains and forced companies to quickly turn to new, and often unknown, suppliers. As one security expert recently told Supply Chain magazine, this is a problem for medical devices manufacturers, “because on-time production and delivery can be a question of life or death. Supply chain is already the weakest link in any organization, even at the best of times. But for complex medical devices, where there is a multi-layered supply chain of hardware and software? For them, changing suppliers, or adding to them, significantly increases the exposure to risk.”

In short, cybersecurity will be a key supply chain concern for years to come. As a recent Forbes article noted, “Cybercriminals will continue to capitalize on the world’s heavy reliance on supply chains, infiltrating entire chains and not just individual companies…. More than ever, cybersecurity vulnerabilities are showcasing how interconnected we all are—as well as the fragility of many of these connections.” As a result, the article explained, supply chain cybersecurity should be a board-level issue.

Staying on top of the threat will require a multipronged defense. Companies need to continue to harden their information and operational technology landscapes, through everything from zero trust security and education to combat social engineering, to security assessments, improved vetting of suppliers, and the comprehensive inventory of supply-chain assets. At the same time, they should prepare for the real likelihood that there may be a cyberattack on their supply chain and build the resilience to get back up and running quickly in the event of a problem.

Reflections on the DA4S Conference: ESG, Partnering, and Diversity

DA4S Conference

When the Diversity Alliance for Science held its spring East Coast conference in Newark, New Jersey, several members of the Dynamic Technology Solutions team were in attendance. The following is drawn from their observations during the conference.

For 15 years, the Diversity Alliance for Science (DA4S) has been focusing on bringing greater diversity, in terms of both people and companies, to the life sciences industry. At the recent DA4S East Coast Conference, two aspects of that effort were prominent throughout the event—the need to enhance Environmental, Social, and Governance (ESG) programs, and the forging of partnerships between a variety of companies.

ESG has been around for a while, but as the meeting showed, it is now more important than ever. Today, partners, suppliers, employees, investors, and customers assess the companies that they work with through the lens of ESG. That message came through loud and clear at the meeting, where large pharma companies talked about the ESG attributes they expect to see in their suppliers.

Those pharma companies have good reason to look for those attributes. A few years ago, the McKinsey & Company management consulting firm performed a meta-study of more 2,000 studies examining ESG initiatives and found that 63% reported a positive business impact from those efforts, while only 8% reported a negative impact. So, as discussions at the meeting made clear, ESG is no longer a “do the right thing,” corporate social responsibility initiative—it is a powerful business mandate that can drive real results, now and in the long term. Certainly, suppliers will need to continue to provide value and quality with their products and services, but ESG will need to be in the mix as well.

Meanwhile, the importance of partnerships, captured in the event’s theme of “The Power of Us,” was underscored in several ways. Some discussions, for example, explored how Tier 1, 2, and 3 supplier relationships can bring unique value and innovation to life sciences organizations. A number of supplier showcase presentations (including one by our Vice President of Business Development Tami Schultz) provided insights into a range of solutions available to partners. Roundtable events brought different companies together for mutual education and discussions of possible partnering opportunities. And in the final session of the conference, representatives from various suppliers joined their customer counterparts on stage to talk about the partnering journeys they had taken. Every story was unique, but they all shared a common theme: that partnerships are an important key to building growth and success.

The value of ESG and partnerships—and ultimately, diversity in life sciences—are well understood at Dynamic Technology Solutions. But it was good to have that view reinforced at the meeting, and to have a chance to collaborate with others to explore ways to improve the industry on both fronts.

[Photo Caption]
Dynamic Technology Solutions’ Robert Werner, Tami Schultz, and Dan Wood at the DA4S East Coast Connection in Newark, New Jersey.