Can traditional supply models handle supply chain disruptions?

September 18, 2024

Aktualisiert am: Oktober 7, 2024

3 min Lesezeit

Having access to replacement parts is crucial for minimising machine downtime, whether it is planned or unexpected. This ensures that equipment can be quickly repaired and brought back into operation. Traditional supply models meant manufacturers kept large stores of spares in case anything went wrong. However, the cost and space requirements involved have prompted companies to pivot towards just-in-time (JIT) inventory management.

What is JIT inventory management?

JIT entails keeping minimal on-hand inventory levels and ordering parts only when necessary. This method improves efficiency and saves on costs, but it leaves businesses open to supply chain disruptions.

Efficient supply chains that promised same- or next-day delivery used to be able to reduce the dangers of lean JIT. Decades of largely predictable and stable global events further supported this approach. However, two trends – namely, globalisation and increased disruption – have exposed the fragility of the JIT model.

Globalised supply chains have been adopted by a range of different industries. They have also set up centralised distribution centres. Using these methods, they are able to expand their market reach and take advantage of cost savings. Despite the benefits, this shift complicates the already hard task of managing and coordinating complex supply chains.

The interconnected nature of global supply chains means that disruption in one region has an impact across the entire network. Longer and more complex supply chains only increase the challenge of responding swiftly to disruptions or changing market demands.

Supply chain disruptions, once sporadic and localised, are now more frequent and severe, with no sign of abating. Only a small fraction, just 1.5% of manufacturers, have been able to completely avoid disruption in recent years. This has led Tobias Meyer, the CEO of DHL, to describe the current global landscape as one of constant and ''continuous disruption.''

Why are supply chain disruptions happening more often?

The COVID-19 pandemic is still being felt, and it has a big impact on global trade. However, it's important to note that the rise in supply chain disruptions is not solely a result of the pandemic. These disruptions have far-reaching consequences that extend beyond the current situation. The increased frequency of disruptive events in recent decades has exposed the weaknesses in global supply chains.

Natural disasters, geopolitical events, trade tensions and health crises have become more frequent and impactful. This presents ever-more complex challenges for manufacturers to overcome. Indeed, some are already describing the 2020s as “the most disruptive decade in supply chain history.”

The rise in global temperatures has been linked to the increased frequency and intensity of hurricanes, floods, wildfires and extreme weather events. Heightened competition for resources, trade routes and economic dominance has led to bitter conflicts and disputes.

The geopolitical landscape has become unstable due to shifting geopolitical dynamics, regional rivalries, power conflicts, and rising tensions. Infectious diseases have spread quickly due to factors such as accessible international travel and dense populations. This is further compounded by the arrival of new pathogens and the strain on already stretched public health infrastructures.

These supply chain disruptions result from a combination of long-term environmental changes and geopolitical shifts, alongside human decisions. Relentless supply chain disruptions and rising costs have posed significant challenges to existing models. This has led many businesses to reevaluate their supply chain strategies.

Manufacturers are actively exploring ways to build greater flexibility and responsiveness into their operations. They aim to better respond to, and even pre-empt, the challenges of an unpredictable global landscape. A particular focus is on supply chain resilience.

Artificial intelligence has emerged as a powerful tool in achieving this goal.