By Julian Keeling
Chief Executive Officer
This Opinion piece appears in the May 23 print edition of Transport Topics. Click here to subscribe today.
Fewer than five months into 2011, New Zealand and Japan have been slammed by powerful earthquakes that in Japan’s case also led to a killer tsunami and potentially deadly damage to a nuclear power plant.
Turmoil has erupted in the Middle East with seemingly solid regimes falling and civil war breaking out, while the United States and Europe have experienced unusually cold winters. There has been “slow steaming” on the world’s shipping lanes, all-freighter flights have been reduced or eliminated, and the shortage of qualified truck drivers is back, partly in reaction to the Federal Motor Carrier Safety Administration’s new Compliance, Safety, Accountability program.
Clearly, the $1 trillion international transportation industry faces some formidable obstacles today, and no delivery system is as thoroughly exposed to these negative developments as the much-ballyhooed “just-in-time” (JIT) method of moving goods both domestically and around the world.
JIT was first introduced in the early 1980s and quickly spread to the trucking industry — a shipper’s dream come true. It reduced inventory to a minimum, saving substantial money while at the same time increasing production efficiency. Little wonder that JIT became the standard logistics system for land, air and sea transportation throughout the industrialized world.
Global political, economic and social conditions, however, have changed fundamentally in the 25 years since Japanese automaker Toyota developed JIT and began receiving parts under that system. Truck makers and parts distributors no longer live in a sane and peaceful world. Who would have thought the Egyptian government, seemingly as immovable as the Pyramids, could be overthrown in less than two weeks? Or that many people in oil-rich Libya — with its “dictator for life” and no history of free expression — would embrace democracy almost overnight?
Even nature seems to be conspiring against us. Ironically, Toyota, the first major supporter of JIT, found itself having to cut production at its North American plants by 75% after the March 11 earthquake and tsunami in Japan forced the company to conserve its limited supply of parts made in that country.
Likewise, despite all the talk about global warming, truckers last winter were paralyzed in many parts of the United States with roads under blankets of ice and snow. Thousands of tons of high-value freight sat in truck terminals throughout the Northeast and Midwest.
The successful application of JIT requires every link of the supply chain to remain unbroken. Trucks and their cargo must arrive within a very precise, predetermined period of time — often only hours before the cargo is needed on the assembly line.
With JIT, the shipper is rolling dice with his freight, assuming a seven will come up every time. But the odds are getting longer that it won’t.
Given the natural and man-made disasters that have occurred so far in 2011, JIT’s value must come into question. Yes, JIT could save thousands of dollars by way of lower inventory costs — but millions of dollars could vanish because assembly lines shut down or there’s a lack of goods to distribute — and the billions of dollars spent by shippers, carriers and their agents annually are at stake.
I believe there is a better way for shippers with global manufacturing and distribution operations and their truckers to meet successfully the transportation challenges of today’s unstable world — just-in-case inventory, or JIC.
Just-in-case means moving freight via land, sea or air a number of days earlier to build up inventory. JIC also means moving 10,000 tons of cargo in one shipment rather than dividing it into 10 shipments of 1,000 tons each. Opting for a single shipment minimizes the losses or delays so often the case with multiple shipments.
JIC’s advantages go beyond overcoming today’s upheavals to replace a number of JIT’s shortcomings, problems rarely admitted by JIT’s enthusiastic proponents.
For example, JIT puts enormous stress on every link of the supply chain. Fixating on getting cargo to its destination at a precise time produces extreme pressures that can lead to costly mistakes. Errors in documents can slip by and prompt unsympathetic customs inspectors to turn back the freight. Loading or unloading too quickly can physically damage cargo.
With JIC, however, there is a marked decline in stress for the simple reason that with more time allotted for the mechanics of shipping, errors are far less likely.
An indirect, but important, benefit of using JIC is the inventory buildup tied in with our recent emergence from a serious recession. The U.S. economy should continue to strengthen as manufacturers and distributors spend billions of dollars, adding to the gross domestic product as they restock their inventory.
Now let’s discuss the business of freight forwarding, a business responsible for moving 70% of all domestic traffic — most of it by truck. As a consolidator, I welcome the more balanced playing field between shipper and agent when using JIC.
With JIT, shippers get almost all the benefits. With minimal inventory, costs are reduced substantially, and the shipper guards customer cost advantages jealously. Almost none of these savings is passed on to the shipper’s hardworking agent, the freight forwarder. With shippers constantly pressing for — and generally getting — lower rates, they are laughing all the way to the bank.
JIC is a practical, realistic and efficient successor to JIT. It’s fair to the shipper, fair to the trucker and fair to the forwarder. With adequate amounts of inventory securely in place next to the assembly line or within the distribution warehouse, JIC almost completely eliminates the nightmare of lacking parts or supplies just when they are needed most.
With JIC, trucking company dispatchers can sleep more soundly at night.
The author has 35 years of experience in logistics. Consolidators International is a freight-forwarding company based in Los Angeles.