What: MIT Sloan management review argues that the current supply chain crisis has nothing to do with Just In Time management techniques.

Why it is important: Many IADS members are feeling the pinch, however none is in the situation to have sur-stocked products and being forced to discount them ahead of the season to save space.

MIT Sloan reviews the causes and consequences of the current supply chain crisis, which is impacting retail in a significant manner, as analysts consider that it will disrupt the normal holiday season discount pattern.

Due to the pandemic, customer demand shifted significantly across categories. This lead to prices increases but no relief regarding shortages, due to external factors:

• For instance, shipping companies were not able to cope with demand once lockdowns were lifted, with many ships blocked outside ports waiting for their turn, leading to a global shortage of containers, therefore increasing their prices).
• Another example from the automotive industry: car sales plummeted during lockdowns, while high tech products, also consuming chips, skyrocketed. Once customers went back to car dealers, the demand could not be met due to chip shortage, even leading to an increased demand on second-hand cars.

The situation has been worsened by hoarding (both from customers and companies) which created stress and tension on parts of the supply chain elements. In addition, demand increased thanks to various governmental incentives across the globe, initially designed to support families, who in turn spent the money into their consumption.

MIT Sloan Management Review argues that this supply chain crunch is unrelated to Just In Time methodology, as many media outlets tend to claim, by pointing out the following elements:

• JIT is not about reducing costs, but about improving quality (by avoiding waste of time and anticipated production),
• JIT is all about flexibility, meaning that it is a much more resilient and adaptative system than others,
• JIT avoids deep inventories and the associated liability (as we see in the US with retailers buying stocks long ahead the holiday season, and forced to sell them at a discount rate to clear space, also disrupting the customer pattern at the same time).

The example of Toyota is brought on the table, as the car maker has been navigating much better than others in the industry thanks to the JIT methodology application, even though the duration of this crisis also ended up impacting the company.

MIT Sloan management review anticipates that the crisis might last until Q2 2022, unless further shortages are indirectly created by new government-led incentive operations.

What everyone gets wrong about the supply chain crisis