Monday, December 21, 2009

The perils of just-in-time shipping

Just-in-time shipping is undoubtedly efficient. And in the last few decades it's become the norm:
Farmers, merchandisers and end users came to the sudden, collective realization that the world was entering another period of protracted oversupply in grains, a situation that is actually the historic norm in America [In 2009/10, they will come to an altogether different realization]. These events coincided with the growing popularity of the 'just-in-time' inventory management practices that had been honed to near perfection by Japanese car and electronics manufacturers during the 1970s. The combination of oversupply, ultra high interest rates and new business practices quickly turned the idea of owning extra inventory into financial heresy of the highest order. Accountants, bankers and MBAs descended on America's businesses to preach the gospel of wringing every last ounce of unnecessary corn, wheat, cotton, copper or wing nuts out of every conceivable supply 'pipeline.' To a large degree, the gospel of just-in-time inventory control has prevailed right up to the present - or at least into 2007.
Source. There's a problem, though, and that's that it makes a society prone to disruption. The same source makes an interesting point:
From year to year the new settlements of ancient civilizations ensured their continuity through one very important measure: the storage of surplus food crops, especially grain. This enabled them to withstand a bad harvest or even two or three without facing collapse.

What a supreme irony then that the sine qua non of civilization--maintaining a store of essential materials--should in our time be considered a source of inefficiency and waste to be avoided at all costs. The long tradition of saving for a rainy day (or as we will see, in our case, a drought-stricken decade) has now been rejected in favor of the so-called just-in-time revolution. For those who didn't get the memo, just-in-time inventory management means that everything needed for the manufacture of any good is delivered to the factory just as it is needed or nearly so. Inventory levels are kept at minimal levels which frees up cash for other purposes.
Food for thought, for sure. And what happens if there's a major disruption to the distribution network? This blogger thinks she knows, and it's not pretty:

The American Trucking Association presents a sobering view of possible consequences to a partial or complete interruption to our nation’s trucking business. You should take a few minutes and read the entire paper, but here is a brief summary of a possible timeline in the event of a truck stoppage.

Within 24 hours

  • Delivery of medical supplies to the area affected by a disaster will cease.
  • Service stations will begin to run out of fuel.
  • U.S. mail and other package delivery will cease.

Within one day

  • Food shortages will begin to develop.
  • Without manufacturing components and trucks for product delivery, assembly lines will shut down, putting thousands out of work.

Within two to three days

  • Food shortages will escalate, especially in the face of hoarding and consumer panic
  • ATMs will run out of cash, and banks will be unable to process transactions.
  • Garbage will start piling up in urban and suburban areas.

Within a week

  • Automobile travel will cease due to lack of fuel. Without autos and busses, many people will not be able to get to work, shop for groceries, or access medical care.
  • Hospitals will begin to exhaust oxygen supplies.
Thanks to Rajiv in this iTulip thread for these links.

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