We started introducing the concept of Response Lead time (RLT) in the early days of COVID when it was becoming clear that disruptions in supply chains were significant and were going to be long lasting. Of course, the continuation of COVID and its massive lockdowns, the invasion of Ukraine, the increasing devastation of climate change etc. etc. have exacerbated that trend and it will continue unabated. We emphasized that resiliency in supply chains was going to be far more important than LEAN and JIT and that we had to fundamentally change our mental models of supply chain including getting rid of concepts like Just In Time. And here it is – the replacement for JIT – it’s called Just In Case (JIC). And as the name implies, it’s almost the exact polar opposite of JIT.
Where JIT pushed for lean inventories and delivery of raw material tied closely to production (I’m sure you remember it all), JIC pushes for redundancy and resiliency. “Long-standing supply chains of manufacturing have been turned upside down,” said Nancy Pallares, international business development director at the defense industry company Teledyne FLIR, “Companies are moving from ‘just in time’ to ‘just in case’,” Pallares said, adding that resilience and responsiveness to unexpected developments were becoming essential. Many companies were trying to find suppliers closer to home and stocking up on their inventories to reduce their exposure to supply chain disruptions.
And if you don’t believe a small consulting company like TMG from 3 years ago (😊), perhaps our predictions are now supported by a study by the business consultancy Boston Consulting Group that found that firms with resilient supply chains consistently outperformed their peers, especially during crises. And again, it makes logical sense. If you are managing a supply chain today, you are going to look for suppliers that have the most resiliency – ergo, point proven. Those resilient suppliers have a competitive advantage over their peers.
These issues are also going to manifest themselves in things like trade policy where diversification of supply chains is going to be the key. The dependency on China and the disruption caused by COVID are causing major shifts towards onshoring and near shoring already. Europe is fast trying to reduce its dependency on Russia for energy because of the geo-political risks and similarly for grain production. Production of chips is fast becoming a national security risk for many countries because of the risky supply chains.
Naturally, this also has an impact on things like industrial real estate. Here is a current headline: Supply Chain Strategies Shift: Near-Sourcing & Just-in-Case Modeling Now Dominate Industrial Real Estate. This is putting pressure on the real estate industrial market raising rents and making space scarce. Think about this – The average wait time for materials used in the manufacturing process was a month longer in March 2022 than it was in March 2021, according to the Institute for Supply Management’s latest survey. Organizations today are near sourcing as well as diversifying their suppliers while holding more inventory.
While Response Lead Time (RLT), when we introduced it, may have seemed like a passing fad that would soon lose its importance, it has actually proven to be the exact opposite. It has gained significantly in its relevance and importance and is now becoming a buzzword with its own set of three letter acronyms – the official sign of acceptance and approval. The challenge facing our profession will continue to be to educate our stakeholders that it’s not about price anymore and that’s where a major shift to Stakeholder Value Drivers in our conversations will need to take place.
