For two decades, supply chain professionals have focused on reducing costs by trimming the unnecessary fat in their operations. Leaner production processes, lower on-hand inventory levels, and smaller, more frequent shipments created a just-in-time (JIT) supply chain that encouraged globalization. However, the risks and challenges associated with today’s supply chain aren’t always managed with a JIT system.
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Just-in-Case Risk Management
Globalized supply chains are vulnerable to more risks than regionally centered supply chains. Natural disasters, political unrest, and union strikes are just a few of the interruptions that affect modern supply chains. The dependency on long-distance freight and single distribution routes results in delays and shortages when unexpected events occur. Companies are hoping that increasing their on-hand inventory by establishing multiple distribution locations will lower these risks.
Can Just-in-Case Management Cut Costs?
Disruption risks aren’t the only reason companies are adapting their supply chains. According to Tim Feemster of Dallas realty company, Newmark Grubb Knight Frank, “The closer to the customer that a company can transport its goods in bulk, the greater the efficiency and cost savings.” David Simchi-Levi, author of Operations Rules, believes rising fuel costs have a lot to do with this new trend in distribution and expects to see a shift toward regional suppliers as well.
The Benefits of Change
Shaw Lupton with the CoStar Group, a Washington-based real estate research firm, says that “diversifying supply chains into multiple distribution centers” will mitigate the risks associated with small on-site inventory levels. New distribution centers are also creating new opportunities for growth across the country. Distribution centers hire nearly 15% of US private sector employees and are often in smaller towns where real estate prices are lower. Establishing multiple distribution centers creates new distribution routes, inviting other businesses and service providers to open in the area as well.
Traditional just-in-case supply chains are a thing of the past, but the effectiveness of JIT processes is also fading in today’s market. Multiple distribution centers help companies “strike a balance between carrying the minimum inventory possible, yet never running out of things, because inventory equals cost.” [/show_to]