Just in Case

The September 11 terrorist attacks shattered more than Americans' sense of security. They also shattered many supply chain managers' devotion to the strategy known as just-in-time inventory, a near-religious belief that parts and products should show up just moments before they're needed so that on-site inventory is near zero.

For a while there it looked like just-in-time supply chains would be the glory of the so-called New Economy. Corporate productivity seemed set to grow unabated, costs to plummet and corporate profits - and hence workers' disposable income - to rise.

All that collapsed along with the Twin Towers of the World Trade Centre on September 11 last year. With aeroplanes grounded and borders clogged, stoppages in the transportation of goods and a lack of supplies forced manufacturers like Ford, General Motors, Xerox and Motorola to temporarily shut down plants within days of the terrorist attacks. It's not that demand had tapered off. It's just that their just-in-time processes, so lauded for their superb efficiency, were suddenly unsuited for world where global transportation had failed its greatest test.

Retailers couldn't get goods and manufacturers couldn't get parts. When it came to the unexpected, the just-in-time emperor proved to have no clothes and that the collaborative marketplace looked like a pipe dream. "The whole mechanisms of these extended collaborative supply chains ground to an immediate halt and it revealed a vulnerability in these virtual enterprises that nobody had really been paying attention to," says Kristian Steenstrup, research director, business applications, Gartner.

Suddenly it became clear that in a globalised world, a major incident in one spot could reverberate around the world. Suddenly everyone realised just how fragile were the extended supply chains enterprises were betting their businesses on. Suddenly companies could see the flaws inherent in external-sourcing strategies built around the cheapest source of components or labour. Suddenly it was obvious that keeping a day's - or less - worth of inventory on hand and filling orders as they came in only made strategic sense in a stable world where peace prevailed and everyone was prepared to play by the rules. In the new world order, where no one could be assumed immune from terrorist attack, inadequate supplies could force manufacturers to shut down assembly lines at a cost of up to $US10,000 a minute.

"Lean only works in a free and open society," businessman Ross Perot Jr told The Dallas Morning News. "In the world of terrorism, 'just in time' doesn't work. Companies are going to have to have much fatter supply chains."

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