Recent TIME magazine article shows an estimate that exports account for only about 20% of the world economy, cross-border foreign direct investment is only 9% of all investment, only 15% of venture capital money deploys outside national borders, less than 2% of all phone calls are international, less than a quarter of international traffic is routed through a national border, and approximately 90% of the world’s population will never leave the country in the one who was born. So what does this mean to globalize the LEAN supply chain?
Many companies, especially in the manufacturing sectors, have embarked on the LEAN supply chain journey for decades. The ‘Just-In-Time’ (JIT) concept is the backbone of LEAN Supply Chain and is popular with manufacturers. Manufacturers have developed planning systems and models to control the movement of raw materials, semi-finished products and finished products based on this concept. The models are primarily focused on how to deliver the products to the next location on time and precisely meet the predefined performance criteria. Companies have undoubtedly exercised tight control over internal operations, but supplies of materials from external suppliers are simply out of control in many situations. Let’s take an example from the 2011 Tokyo earthquake and tsunami; the supply chain was disrupted. Manufacturers dependent on supplies from the affected area were forced to shut down shortly after the disaster due to supply shortages. It was obvious that the negative impact was not limited only to nearby manufacturers, but to the entire world. The impact was definitely bad, right? What were the lessons you learned then? How about now, more than 1 year after the tsunami, have you made any changes to your supplier profile? Have you realigned your LEAN supply chain and “JIT delivery” strategies?
A Chinese proverb quotes “Distant water will not put out a nearby fire.” It clearly tells us to focus on the local solution rather than the source hundreds or thousands of miles away. In fact, the TIME magazine article is another wake-up call for us to re-analyze the success factors of JIT: “Closer is faster. Closer is more manageable. Closer is better.” JIT works best with nearby providers. To allow for the delivery of proximity supplies, localization must be performed. Eliminate not only the risk of unexpected natural disasters, but also other hidden factors found along the way. Risk factors aside, the cost of shipping, which is highly dependent on the price of fuel, is also increasing. All of this adds a burden to the cost of the product.
In short, for an effective LEAN supply chain in your manufacturing plants, you must analyze the fundamental influencers: the supplier profile. The general rule of thumb is “start close.” If local vendors can’t fully meet your expectations, work on opportunities for improvement before jumping to a quick fix for sources elsewhere. Things you can do include modifying your needs in terms of mode of delivery, acceptable quality level, internal material management system, cost model, etc. Only if you’ve exhausted local options, consider exploring sources from afar.
Remember this: location is not the only determining factor, but you can’t live without it in JIT practices. And, without JIT deliveries, LEAN in the supply chain is difficult to sustain in the long term.