Disruptions push JIT logistics towards airfreight
JIT logistics are efficient, saves cost & time and improve competitiveness for businesses in a stable and predictable global supply chain. However, the recent disruptions have forced JIT shippers and operators to review the current model towards a more balanced one where airfreight will play a bigger role.
Logistics is the business of moving goods, help businesses to bring in raw materials, move products and store inventory stock. Thus it is also the only industry that is connected to every single business operating around the world. However, it is not just about the movement, logistics could determine the success of products to the competitiveness of large corporations in the larger picture.
Just-In-Time (JIT) logistics is one of such but most important inventions of the modern global supply chain that helps their customers to be more efficient and save cost at the same time. JIT means that customers are receiving products, parts and raw material in sequence as they are needed. This allows businesses/production sites to significantly cut inventory costs by having fewer unnecessary supplies on hand and far less material to store.
However, the recent events of disruption have brought perspective to the balance of efficiency and cost-saving against operational performance and supply chain resilience.
Mike Yarwood, managing director – loss prevention, TT Club, said, “Most industries have sought to access the benefits of such models. Ensuring that seasonal stock is available in good time to meet the market, not arriving months ahead of schedule and not arriving after the market window and risking missed sales opportunities.”
Claus Nicolajsen, vice president, air & sea, APAC, DSV, said, “We are mainly engaged with JIT concepts around last-mile deliveries into automotive assembly plants from a VMI (Vendor Managed Inventory) storage facility. These concepts are still great and ensure the assembly line always having exactly the amount of inventory needed to keep up production.”
We have changed our internal request for quotation system – which is key for JIT planning –to bi-weekly or monthly tender inquiries only Jo Feiks, cargo-partner
However, Alexander Kohnen, chief executive officer, time:matters, raised questions on the risk involved in relying heavily on JIT Logistics. “What happens if there are shifts in production cycles or plants, if parts/components are not produced and available in the numbers required due to a shortage, if air freight capacities are suddenly no longer available or shortened due to the grounding of entire aircraft fleets as a result of the pandemic and those capacities are needed i.e. for the delivery of urgently required protective materials,” he asked.
Risk in JIT logistics
The main advantages of JIT are that it can improve production efficiency and competitiveness. However, JIT also opens businesses to potential risks, particularly during disruptions.
For example, Stacy Rouillon, head of time critical at Quick group, a Kuehne+Nagel company, said, “With no stocks to fall back on, a minor disruption in supplies to a business from just one supplier could force production to cease at very short notice. Whether creating lifesaving drugs, manufacturing aircraft, assembling tech equipment, or automotive manufacturing, goods and materials are needed to meet production deadlines.”
Judah Levine, research lead, Freightos, noted, “There needs to be a high degree of confidence that shipments will arrive within an acceptable window so that delays won’t also slow manufacturing or distribution.”
There is a trend towards tenders being sent out for longer periods, e.g. half-yearly or yearly, on key cargo trade lanes, reports Jo Feiks, director corporate product management air cargo, cargo-partner and he sees a risk in this, due to the unclear forecast situation in the airfreight industry.
“We have changed our internal RFQ (request for quotation) system – which is key for JIT planning, since it provides a clear service level and transit time differentiation – to bi-weekly or monthly tender inquiries only,” he informed.
Nicolajsen suggests that it is well worthy to increase supply chain costs to mitigate the risk of such stoppage. “There are plenty of examples in history where automotive companies had to shut down assembly plants due to a shortage of components.”
Arun Shukla, director – operations, Rhenus Logistics India, said, “Automotive OEM works with 300+ suppliers and delay of any part of the production environment can halt the entire production unit.” Over the last 18 months, the world witnessed Brexit, Suez blockage, and the pandemic that have caused significant disruption to supply chains.
Yarwood asks, “Are the cost savings of a JIT supply chain model equal to a disruptive event that risks ceasing production, or should there be a balance where an allocation of stock is held as a contingent measure?”
Covid-19 pandemic is one of the biggest such disruptions that could ever happen to the global supply chains. It was also the biggest test for JIT shippers, operators and distributors with huge effects on the global supply chain for the foreseeable future.
According to Kohnen, stable JIT supply chains do not exist anymore. “The challenge was and is the existing level of ambiguity regarding the demand and production units, respective detailed handling requirements and timelines,” he said.
Rouillon argues that Covid-19 transferred JIT to unplanned emergencies we see in automotive and semiconductor supply chains today.
“Virtually every industry was disrupted, including aviation, high-tech and manufacturing that require parts, components, supplies and products to keep their supply chains intact, and meet their production deadlines, or their customer’s deadlines,” she said.
There are plenty of examples in history where automotive companies had to shut down assembly plants due to a shortage of components Claus Nicolajsen, DSV
The Covid-19 crisis has impacted forecasts so that JIT and just-in-sequence (JIS) schedules are getting jumbled. Feiks points that there are numerous factors contributing to this. “Schedule unreliability and harder-to-estimate transit times, lack of freighters and wide-body aircraft on key trade lanes and flight cancellations or aircraft type changes at the last minute due to lockdowns or insufficient passenger numbers,” as he lists it.
Levine reports that air cargo has been much more expensive and less reliable during Covid-19, causing problems for JIT shippers.
“Delays and added costs in air cargo were just a couple of the disruptions to many types of manufacturing this year as the pandemic led to shortages in various raw materials unrelated to delays in logistics,” he noted. So it is important to understand how air cargo is positioned in the JIT supply chain compared to road, rail and sea routes.
Air vs Sea
JIT logistics is often associated with ocean, road and rail modes of transport and not air because, in a predictable environment, these modes could provide a very high degree of stability and cost savings with planning. However, every single element of unpredictability increases the demand for airfreight to interfere in JIT.
Kohnen noted that air cargo plays a crucial role in moving time-critical commodities, like desperately needed chips, components, spare and production parts for automotive, aviation, high-tech and Semicon and machinery industries.
“For our customers, JIT is crucial for success in the time-to-market challenge within their market player group. Mainly JIT systems are based on trucking and ocean freight and partly on airfreight. Whenever there is a disruption (floods, low water, storms, strikes, volcanoes, etc.), the need for airfreight arises to replenish the pipeline.”
“So, airfreight is Plan-B for any global JIT supply chain. Whatever is shipped by airfreight is either urgent, valuable or highly sensitive,” he added.
Nicolajsen said, “JIT is not a significant revenue generator on airfreight itself, but it is a contributor on the contract logistics side.”
Shukla said, “Normally using airfreight to import goods is the last option, considering the cost involved in air movement, but if the supply of critical raw material is expected to be delayed due to issues in transportation, suppliers immediately transport critical raw material through air movement in order to avoid line stoppage at OEM. Cost of line stoppage, i.e idle resources, idle plant & machinery, is very high compared to the cost of air freight.”
Meanwhile, Levine argues that speed is necessary not just in the miles per hour the cargo travels, but in how long the entire sales, booking and delivery process takes for the customer. And here comes the role of technology and digitalisation.
Technology in JIT operations
JIT is great when forecasting and execution work well. Predictive arrival, actual arrival and accuracy play a huge role in JIT, which opens the room full of opportunities for digitalisation and technology to optimise the supply chain.
Kohnen reports that technology is becoming a selling argument to the end customer who gains an overview of what is going on.
“Digitization creates transparency on information which is key in order to operate a smooth JIT supply chain even in demanding times. Technology such as AI, predictive analysis tools, proactive measurement tools and automation like robotics help our customers to create transparency in their production and supply chains as well as avoiding opportunity costs,” he said.
“However,” Nicolajsen, said, “It’s not enough to have visibility to work according to JIT methodology. Accuracy is a much-needed factor as well, and accuracy is often left in the faith of the actual performance of the airport handling agents and airlines in general.”
Levine informed, “Real-time visibility of capacity has the potential to improve utilization and load factors for airlines – even at near-record volumes, this number typically lingers in the mid-50 percent of space utilized – and bring down the cost for shippers as more capacity becomes usable.”
At the end of the day, it is the shippers who dictate the rules and push the JIT model which depends upon their industry needs and characteristics in turn.
Industries depend on JIT
Industries with a globally fragmented supply chain with high monetary opportunity costs and time-to-market pressure often goes for JIT. The primary beneficiaries have been those operating large scale production facilities such as automotive who would otherwise require huge storage facilities to store the necessary parts. Other high-value industries such as the high-tech and pharmaceutical industries also benefit from this concept.
Rouillon informed, “Retailers, restaurants, tech manufacturing, and automobile manufacturing are some examples of industries that depend on JIT solutions. Organisations that operate with low inventory levels rely heavily on their supply chain to deliver parts/goods on an asneeded basis. The Semicon shortage has effectively crippled the automotive industry as crucial parts to produce finished cars are unavailable causing some automotive manufacturers to halt production.”
Feiks said, “Over the past several decades, automotive supply chains have been constructed based on complex global sourcing, from the OEMs (original equipment manufacturers) down the various tier supplier levels in a kind of snowball effect. This means that JIT/JIS systems can only be maintained with charters and other emergency solutions.”
Kohnen reports a new trend towards JIT logistics also in the life sciences market.
“Individualized therapies like CAR-T cell products which are manufactured in a specialized lab (sometimes located on another continent) to treat just a single cancer patient is not only sensitive but also time-critical. On the one side, the patient’s demand for treatment is pressing once the disease is diagnosed and without a high-quality sample from the patient’s blood, the manufacturing cannot start. On the other side the reagents and components to manufacture the therapy product are partially biological with a very short shelf-live,” he said.
Yarwood said, “Those heavily invested in a JIT model would be prudent to undertake a fresh risk assessment to ensure the greatest resilience moving forward.” This is why it is important to know how the JIT logistics would evolve in future.
Future of JIT
While there is debate on the future of the JIT model in logistics there is no doubt that the present style of operating this model will change. In fact, many changes are already visible and others on the way.
Rouillon said, “Recent studies have reported as a result of Covid-19, companies will lessen their focus on sourcing from the lowest-cost supplier. It is expected that the focus and reliance on JIT manufacturing models will decrease and the adoption of Just-in-Case (JIC) models will increase. That said, there simply isn’t enough margin in many supply chains to move away completely from JIT as it does bring efficiencies.”
Feiks said, “Despite the shift of markets related to avoiding dependency on monopolies or oligopolies, we are convinced that JIT will not lose its relevance.”
Yarwood, said, “While many businesses will review their current supply chain model following the recent events, I would expect that many will continue to operate JIT models, perhaps on a reduced basis. The cost savings and efficiencies have served businesses very well. A balance is likely to be reached considering the perceived benefits weighed against the potential impact of such an event.”
Meanwhile, Nicolajsen said, “Going forward, we believe the role of JIT will be mitigated and instead, experts will focus on making their supply chains more resilient by going the dual sourcing way as well as increase the inventory of critical parts/products.”
Disruptions won’t last long. Businesses around the world and the global supply chain are always looking forward to settling things and be more stable. Thus JIT will find its way back to logistics. However, the ever-looming threat of newer disruptions and better balance will increase the need for airfreight as well.