Just-In-Time and Unquantifiable Risks

Modern college textbooks talk about “Just-in-Time” inventory systems like they are obvious. The benefits are well known, so everyone should take advantage, right? Well, for those of us who have actually tried to manage a global supply chain in the real world, we know better.

If there were no tradeoffs, this would be an easy decision. However, there are real risks involved, and some of these risks are difficult to quantify.

I often joked with a friend and fellow former Purchasing Manager: “When our careers are over we should write a book because no one would believe this crazy stuff.” In my purchasing career, I had suppliers hit by tornados, hurricanes, floods, fires, and tsunamis (everything but locusts).

One supplier had a maintenance worker accidentally trip the power, causing all chemicals in their process to freeze up, ruining the equipment. A rush shipment I had coming in from Mexico was stopped and impounded at the border by Customs because the truck driver tried to smuggle drugs in his dashboard. A shipment from a supplier in Asia was hijacked by pirates! Literally! The ocean container vessel was attacked and held for ransom.

Needless to say, “pirates” was not a line item on my strategic plan. The point is that these risks are real, but they aren’t easy to capture. The big question is: How can we intelligently weigh these unquantifiable risks against the financial benefits of a JIT system?

Leave a Reply

Your email address will not be published. Required fields are marked *