How the Coronavirus Is Hurting Just-in-Time Production Players

The just-in-time manufacturing model is gaining ground as companies aim to address fashion’s overproduction problem and wasted inventory by more closely aligning production with demand. But as companies chase a more financially sustainable sourcing strategy, the recent coronavirus outbreak calls into question whether they are potentially putting themselves at risk of sacrificed sales and lost productivity in the face of a crisis.

Originally developed by Toyota after World War II, just-in-time has more recently been co-opted by the fashion business, particularly among younger labels and fast-fashion retailers such as Zara. While the traditional fashion cycle involves companies producing plentiful stock based on untested designs and assumed demand, just-in-time enables firms to produce on a shorter timeline and shift manufacturing as needed.

When running smoothly, just-in-time offers a respite from markdowns and other wastefulness that cut into margins. However, companies that typically wait to produce until there is definite demand could be left with understock issues if they encounter a hiccup in their supply chain due to a crisis, delaying manufacturing or deliveries.

“The just-in-time model is good and lean for the supply chain, and it’s definitely proven itself to be an excellent financial sustainable model,” said Sharon Lim, CEO of Browzwear. “Nevertheless, it’s also not known to be able to cope very well in crisis to keep production going.”

The current coronavirus outbreak has shut down some of China’s production hubs as factories have closed amid quarantines and the Lunar New Year. The health crisis has also reduced air travel to and from the nation, cutting off a number of cargo routes. Beyond the coronavirus, events including geopolitical disputes and natural disasters have brought attention to the potential challenges of getting goods or raw materials from international suppliers in a timely fashion.

In a crisis situation, both manufacturers using traditional production methods and just-in-time strategies face a slowdown in sales and shipments. However, just-in-time adoptees are apt to experience hurdles in a shorter amount of time than others, since they do not have as much excess inventory or raw materials.

“A lot of people use buffer inventory at choke points in their supply chains to buffer out variability in supply and demand,” said Gregory Schlegel, executive in residence, supply chain risk management at Lehigh University. “The minute you take those away, your supply chain is at risk for any type of disruption.”

While Lim noted just-in-time is generally good for the bottom line, she said the pain point for these companies amid a crisis will be production rather than finished goods. There tends to be inventory stacked up in the various channels from factory to retail, whereas in a just-in-time model, raw materials are not kept on hand in mass, leading to shortages that disrupt production.

Schlegel explained that factories leveraging a just-in-time model typically source materials from suppliers that can reach them within a day, and the factories rely on having near constant shipments. For automotive assemblers, for instance, if a single delivery truck turns over, production will be halted after just two shifts.

“In lean, just in time, you don’t make extra inventory just for the sake of making it to keep people busy,” he said. “So you send people home, and now the costs start adding up.”

Just-in-time companies might be more at risk during a crisis in some ways, but they also have some advantages over their counterparts. According to Mark Burstein, president of NGC Software, companies that operate using just-in-time have better real-time visibility into their supply chains, from factory capacities to material availability. This enables firms to shift production or material sourcing to unaffected areas in times of crisis.

“If you don’t have that visibility, it is almost impossible to try to handle this manually,” Burstein said. “By the time you figure out what you want to start moving, the coronavirus will be over.”

To do just-in-time in a less risky way, companies need to plan ahead. Schlegel noted that some lean leaders or “exemplars” have taken a more proactive approach toward crisis management. These frontrunners have digitized their supply chains, and they run potential scenarios ahead of time to develop risk response plans. These companies also monitor channels such as police alerts and social media in areas where they produce and sell to gauge headwinds, helping them react to potential problems more rapidly.

For instance, some early movers may have been able to purchase extra materials ahead of time as the coronavirus hit. “Everything in supply chain risk is relative,” Schlegel said. “If you can identify a risk, assess the risk, mitigate it and manage it faster than your nearest competitor, that’s a strategic advantage.”

Technology allows for flexibility in other ways as well. “We’re seeing a lot more companies housing our design systems in-house to develop the knitting programs themselves,” Hayato Nishi, senior business development at 3D knitting technology company Shima Seiki, said. “So as long as there’s a knitter in some area other than China, for example, they can send other factories the same exact knit data, and they can achieve the same product.”

Nishi believes that localization, whether domestic or within a nearby nation, is one answer to the potential disruption in on-demand production plans. He has seen brands moving their production stateside to make garments closer to where their consumers live and shop, reducing their carbon footprint and the risks that revolve around international shipping.

“In this case, where you have an outbreak in China and the factories are closed and they’re not responsive, if you’re utilizing [our] technologies, you can have access to the data and find an alternative knitter that can produce realistic quantities for you that are maybe closer to where you’re trying to ship the goods to,” Nishi said.

Beyond localization, diversification is another contingency plan for all producers. While sourcing from one supplier might be easier in the short-term, it is not the safest route to a flexible, crisis-capable supply chain. “To take precaution and also to plan a supply chain with agility and with time reduction for the apparel industry has become more of an urgency than ever before,” Lim said.

The global nature of the fashion business means that hiccups are far reaching. “We are a global village,” Lim said. “There’s so much interconnectivity that oftentimes right now, any type of a crisis doesn’t just hit one part of the world.”

Editor’s Note: This story was reported by FN sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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