Just-In-Time LEAN Supply Chain: Globalization Or Localization?

The recent article from TIME magazine 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 is deployed outside home borders, less than 2% of all phone calls are international, less than 1 quarter of international traffic is routed across a national border, and about 90% of the world’s people will never leave the country which they were born. So what does this mean to globalize the LEAN Supply Chain?

Many companies, especially in manufacturing sectors have embarked on the LEAN Supply Chain journey for decades. ‘Just-In-Time’ (JIT) concept is the backbone for LEAN Supply Chain and is popular among the manufacturers. Manufacturers have developed systems and planning models to control the raw material, semi-finished goods and finished goods movement based on this concept. The models mostly focuses on how to deliver goods to the next location on time, and precisely meeting the pre-defined performance criteria. It is undoubtedly that companies have placed tight control in the internal operations, but material supplies from the external suppliers are simply out of hand in many situations. Take an example of 2011 Tokyo earthquake and tsunami; the supply chain was interrupted. Manufacturers that depended on the supplies from the affected area were forced to shut down their operation shortly after the disaster due to supply shortage. It was obvious that the negative impact was not limited to merely the near-by manufacturers, but across the world. The impact was definitely bad, wasn’t it? What were the lessons you learned then? How about now, more than 1 year after the Tsunami, have you made any change in your supplier profile? Have you re-aligned your LEAN Supply Chain and “JIT delivery” strategies?

A Chinese proverb quotes “Distant water will not quench a fire near”. It clearly tells us to focus on local solution than source from hundreds or thousands of miles away. The article in the TIME magazine indeed is another wake-up call for us to re-look into the JIT success factors: “Closer is Faster. Closer is More Manageable. Closer is Better”. JIT works best with nearby suppliers. In order to allow close proximity supply delivery, localization must happen. It eliminates not only the risk of unexpected natural disaster but other hidden factors which lie along the way. Apart from the risk factors, the delivery cost which largely depends on the fuel price is trending up too. All these add burden to the product cost.

In summary, for effective LEAN supply chain in your manufacturing plants, you need to look into the fundamental influencing elements: the supplier profile. The rule of thumb is “begin with near”. If the local suppliers cannot meet your expectation entirely, work on the improvement opportunities before jumping to a quick solution for sources elsewhere. Things you can do include modifying your needs in terms of delivery mode, acceptable quality level, internal material management system, cost model, and etc. Only if you have exhausted the local options, you consider exploring sources from far.

Remember this: Localization is not the only determining factor, but you just can’t live without it in the JIT practices. And, without the JIT deliveries, LEAN in supply chain is hard to sustain in long run.