The Post-Pandemic Inventory Dilemma EnBe InBev Bev Budweiser brewer AB InBev shared the cost of undrunk...

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The Post-Pandemic Inventory Dilemma EnBe InBev Bev Budweiser brewer AB InBev shared the cost of undrunk beer with its distributors during lockdowns. From undrunk beer to unfinished forestry equipment, businesses deliberate just-in-time or just-in-case inventories, reports The Wall Street Journal (Nov. 8, 2021). Companies are wrestling with how big their inventories should be, since the pandemic highlighted the dangers of having both too much and too little stored away. When the pandemic first struck, and demand for many goods dived, some companies were left holding large, costly inventories. But closed borders, strained supply chains and rebounding demand meant bigger stock buffers can prove positive. Now, the question of whether to maintain costly extra stockpiles or risk getting caught out again by disruption has emerged among the host of dilemmas businesses face, from whether to re-shore production to how to best transport goods. Businesses from Nissan to PepsiCo say the decades-long trend of hyper-efficient supply chains, called JIT manufacturing, could be ending. But many companies say they will likely return inventories to pre-Covid levels when trading conditions normalize. As noted in Chapter 12, holding large inventories ties up capital, requires extra space and people to manage it and needs to be insured. It is also a problem for companies selling products with a sell-by date. "Cost is still the driver for companies," said a PwC executive. Inventories can be problematic going into a demand shock like a pandemic. Companies like car makers and luxury- goods brands were left sitting on stockpiles they couldn't use when demand collapsed last year. Drinks companies including Guinness maker Diageo and Anheuser-Busch InBev shared the cost of undrunk beer with their distributors to spare bars and restaurants from picking up the tab during lockdowns. Other companies say they will likely go back to normalized inventory levels but will change how they manage them. For instance, some multinational companies plan to decentralize stocks to place them closer to customers, giving them localized stockpiles to dip into during supply-chain strain. Swiss drug giant Novartis is working to ensure each country it sells to has a second supply point for key products. "One thing we learned last year was to have strategic inventory in more places...decreasing the dependency on single locations," said Novartis' OM head. Classroom discussion questions: 1. What are the strengths and weaknesses of JIT? (Hint: review Chapter 16) 2. What is your company's inventory policy and how has it (or has not) changed due to Covid? Just-in-time (JIT), with its focus on rapid throughput and reduced inventory, is a powerful component of Lean. With the inclusion of JIT in Lean, materials arrive where they are needed only when they are needed. When good units do not arrive just as needed, a problem has been identified. This is the reason this aspect of Lean is so powerful-it focuses attention on problems. By driving out waste and delay, JIT reduces inventory, cuts variability and waste, and improves throughput. Every moment material is held, an activity that adds value should be occurring. Consequently, as Figure 16.1 suggests, JIT often yields a competitive advantage. Figure 16.1 Lean Contributes to Competitive Advantage JIT TECHNIQUES: Suppliers: Layout: Inventory: Scheduling: Preventive maintenance: Quality production: Employee empowerment: Commitment: Few vendors; supportive supplier relationships; quality deliveries on time, directly to work areas Work cells; group technology; flexible machinery; organized workplace; reduced space for inventory Small lot sizes; low setup time; specialized parts bins Zero deviation from schedules; level schedules; suppliers informed of schedules; kanban techniques Scheduled; daily routine; operator involvement Statistical process control; quality suppliers; quality within the firm Empowered and cross-trained employees; training support; few job classifications to ensure flexibility of employees Support of management, employees, and suppliers WHICH RESULTS IN: Rapid throughput frees assets Quality improvement reduces waste Cost reduction adds pricing flexibility Variability reduction Rework reduction WHICH WINS ORDERS BY: Faster response to the customer at lower cost and higher quality- A Competitive Advantage The Post-Pandemic Inventory Dilemma EnBe InBev Bev Budweiser brewer AB InBev shared the cost of undrunk beer with its distributors during lockdowns. From undrunk beer to unfinished forestry equipment, businesses deliberate just-in-time or just-in-case inventories, reports The Wall Street Journal (Nov. 8, 2021). Companies are wrestling with how big their inventories should be, since the pandemic highlighted the dangers of having both too much and too little stored away. When the pandemic first struck, and demand for many goods dived, some companies were left holding large, costly inventories. But closed borders, strained supply chains and rebounding demand meant bigger stock buffers can prove positive. Now, the question of whether to maintain costly extra stockpiles or risk getting caught out again by disruption has emerged among the host of dilemmas businesses face, from whether to re-shore production to how to best transport goods. Businesses from Nissan to PepsiCo say the decades-long trend of hyper-efficient supply chains, called JIT manufacturing, could be ending. But many companies say they will likely return inventories to pre-Covid levels when trading conditions normalize. As noted in Chapter 12, holding large inventories ties up capital, requires extra space and people to manage it and needs to be insured. It is also a problem for companies selling products with a sell-by date. "Cost is still the driver for companies," said a PwC executive. Inventories can be problematic going into a demand shock like a pandemic. Companies like car makers and luxury- goods brands were left sitting on stockpiles they couldn't use when demand collapsed last year. Drinks companies including Guinness maker Diageo and Anheuser-Busch InBev shared the cost of undrunk beer with their distributors to spare bars and restaurants from picking up the tab during lockdowns. Other companies say they will likely go back to normalized inventory levels but will change how they manage them. For instance, some multinational companies plan to decentralize stocks to place them closer to customers, giving them localized stockpiles to dip into during supply-chain strain. Swiss drug giant Novartis is working to ensure each country it sells to has a second supply point for key products. "One thing we learned last year was to have strategic inventory in more places...decreasing the dependency on single locations," said Novartis' OM head. Classroom discussion questions: 1. What are the strengths and weaknesses of JIT? (Hint: review Chapter 16) 2. What is your company's inventory policy and how has it (or has not) changed due to Covid? Just-in-time (JIT), with its focus on rapid throughput and reduced inventory, is a powerful component of Lean. With the inclusion of JIT in Lean, materials arrive where they are needed only when they are needed. When good units do not arrive just as needed, a problem has been identified. This is the reason this aspect of Lean is so powerful-it focuses attention on problems. By driving out waste and delay, JIT reduces inventory, cuts variability and waste, and improves throughput. Every moment material is held, an activity that adds value should be occurring. Consequently, as Figure 16.1 suggests, JIT often yields a competitive advantage. Figure 16.1 Lean Contributes to Competitive Advantage JIT TECHNIQUES: Suppliers: Layout: Inventory: Scheduling: Preventive maintenance: Quality production: Employee empowerment: Commitment: Few vendors; supportive supplier relationships; quality deliveries on time, directly to work areas Work cells; group technology; flexible machinery; organized workplace; reduced space for inventory Small lot sizes; low setup time; specialized parts bins Zero deviation from schedules; level schedules; suppliers informed of schedules; kanban techniques Scheduled; daily routine; operator involvement Statistical process control; quality suppliers; quality within the firm Empowered and cross-trained employees; training support; few job classifications to ensure flexibility of employees Support of management, employees, and suppliers WHICH RESULTS IN: Rapid throughput frees assets Quality improvement reduces waste Cost reduction adds pricing flexibility Variability reduction Rework reduction WHICH WINS ORDERS BY: Faster response to the customer at lower cost and higher quality- A Competitive Advantage