April 13, 2011 Leave a comment
Spend Matters has a nice series on some of the lessons we can learn from the supply chain disruptions caused by the earthquake in Japan. In Part one, Jason Busch raises some questions about whether or not the current disruptions should spell the end of just-in-time inventory strategies and supplier leveraging. I tend to agree that holding more inventory is not the right answer, while diversifying the supply base might be.
Excess inventory represents money that could be better spent elsewhere. I worked for a client in Alaska a few years ago whose inventory strategy was all about having month (to years) of supply on hand. The rationale was that it takes a long time to get parts and materials to Alaska. While this may be the case, a better solution is to include lead times in your ordering process rather than tying up money in inventory.
Disasters like the one in Japan do cause major disruptions to supply chains and can lead to short and medium term price increases as a result; however, these types of disasters are not a regular part of doing business. As Jason notes on his blog, holding safety stock is a hedge against these types of disruptions; last time I checked, procurement and supply chain were not in the market speculation business. Personally, I favor a strategy that includes contingency planning for supply disruptions. In this way, you are prepared should a disruption strike without being locked into money wasting tactics.