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The Post COVID Crisis Supply Chain: a Time to Rise (Part 2)

by Robert Martichenko
April 20, 2020

The Post COVID Crisis Supply Chain: a Time to Rise (Part 2)

by Robert Martichenko
April 20, 2020 | Comments (0)

As companies and consumers reacted to coronavirus pandemic lockdowns, shortages developed of everything from toilet paper to protective medical gear. A big cause of the disruptions, according to misinformed media outlets, was lean management with its over-emphasis on just-in-time production and cost cutting.

In a new white paper, Robert Martichenko, founding CEO of LeanCor Supply Chain Group, reminds us that JIT is based on inventory optimization, not inventory minimization. The paper, “Post COVID-19 Crisis Supply Chain,” also outlines how the public and the private sectors can create a “national core competency” in flexible manufacturing and efficient supply chain practices to guarantee a more robust response to the next pandemic or other crises. Robert has"This is not about nationalism or being anti-global trade, but rather it is about being anti-extended lead times and anti-supply chain instability." spent over 25 years implementing lean supply chain principles in a variety of companies that includes Toyota Motor Manufacturing. He serves on the board of the American Logistics Aid Network, an industry-wide organization that provides supply chain assistance to disaster relief organizations.

What follows is the second of two articles based on the white paper. Today, Robert explores the flaws in our current supply chain responses to weather and medical crises and suggests how to create a national “one team-one system” strategy for producing and delivering lifesaving supplies to the right places, in the right quantities, at the right times. In the first article, Robert explained what JIT is and isn’t.

The Future Is Now: Supply Chain Professionals Rise Up

By Robert Martichenko

In today’s social media and political environment, it’s very easy to take a populist stance on real-world, complex problems. To take a populist view on a problem means that we trivialize the complexity of a problem and then offer high-level simple solutions that gain easy popularity from the population. The challenge, though, is the solutions are generally not true solutions to root causes of problems and often simply address some symptom or countermeasure to the real issues. This is the case when we trivialize the COVID-19 medical equipment supply chain challenges by simply saying we should carry more inventories.

Yet, something needs to be done as the current situation is not acceptable, and we need to do better when we experience the next unplanned crisis.

Let’s explore possible improvement strategies, but first, let’s summarize the problem statement with COVID-19 and our supply chains.

COVID-19 Supply Chain Problem Statement:

The world was impacted by an unplanned virus, and we didn’t have the required sanitation products, testing, medicines, medical equipment or medical materials (PPE) available in the right place, in the right quantities, at the right time.

If we review this problem statement, we can rephrase the problem statement in supply chain language:

Demand exceeded our current inventory supply, and demand also exceeded our ability to make more in the required timely manner, all resulting in our healthcare workers not having the proper equipment to do their jobs or stay safe from the virus.

While this situation is not acceptable due to the seriousness of the situation, the good news is this problem statement is not anything new to supply chain professionals. All organizations that face intense seasonal demand for products know about this supply chain challenge all too well.

And because this is not a new problem, we do know the possible countermeasures to the challenge. Some more good news is that there are only two options to the supply chain problem of meeting unexpected demand. These are:

Option 1: Have inventory on hand to meet the new demand.

Option 2: Have the capacity and capability to make (manufacture) the products required within a time frame that meets the needs of the new and unexpected demand.

As we already mentioned, the challenges with events like COVID-19 are that we don’t know when the new demand will be, where the new demand will be, what new products will be in demand, or what new quantities will be needed for these unknown products. As discussed earlier, this almost eliminates option one as a viable option. In other words, it is almost impossible to have an inventory plan to support an event like COVID-19; however, as mentioned, we can give it our best shot by implementing a Plan for Every Product supply chain principle. But it will not get us all the way there.

If we agree that an inventory stockpiling strategy cannot get us there, then we are left with option two. We, as a world, as North America, as countries, need to have the capacity and capability to be flexible in our means of production. We need to be able to instantly surge capacity and make vital lifesaving products in the short term when new and unexpected demand hits us from a crisis. This competency needs to be considered a function of national security. Perhaps we’ll call it a national core competency.

We are actually witnessing public and private organizations doing this during the current COVID-19 crisis; however, we can argue that it took too long, and it was random in its execution. In project management speak, it was unplanned and lacked any essence of coordination. Tooling was not ready, inbound raw material supply chains were not in place, and the companies involved did so almost in a reactive manner. We lost weeks of vital time. For clarity, we are not talking about implementation of the Defense Production Act, where the government can force companies to make products. Health crises are measured in days and weeks, not years. If we are relying on the Defense Production Act, then we are already too late.

This flexible and capable manufacturing required for a healthcare crisis needs to be pre-planned from a point of view of who, what, when, where, why, and how. I suspect this is our first task as a nation – to prepare for the next crisis by focusing on flexible means of production and effective supply chain processes that when called upon, will actually work. This is the job of the ONE TEAM.

The good news is this approach may be the least complicated and the least expensive to implement. This is because it supports the supply chain principle that the further we are up the supply chain, the closer we are to raw materials, the cheaper and more flexible we are. To understand this principle, consider the differences between stockpiling billions of dollars of finished goods (the inventory example) as compared to having a factory with preplanned tooling and raw materials that could be flexible and capable to build multiple different products when called upon.

One System: Planning and Implementing Flexible Production & Supply Chain Processes

Creating flexible and responsive manufacturing and supply chain processes will no doubt be a huge job. We will need to understand all manufacturing and supply chain availability and capacity and connect it to forecasted requirements; we will need to plan to localize factories (and suppliers to these factories) into the planned demand regions in order to be responsive from a time and place point of view; we will need to design minimal viable products with standardized raw material inputs; we will need to preplan tooling and machines that are designed for small and frequent manufacturing batch sizes; we will need to significantly reduce order to delivery lead times (from trigger of need to actual delivery); and we will need to have the logistics ability to flow products and corresponding information in small and frequent delivery frequencies, all at the pull of the ultimate customer, wherever they may be during the crisis.

These flexible and responsive operations are not limited to factories making healthcare supplies. An important COVID-19 lesson is we also require the ability to build makeshift hospitals and all related equipment, increase medical staff (eg. retirees) and support all the other functions and workers who are keeping our essential services going. This is the quintessential ecosystem.

The good news is, we know how to do this! We know how to do this because these are the core principles of lean manufacturing, disciplined supply chain management, and building cultures of operational excellence. From a supply chain perspective, the post COVID-19 healthcare supply chain will need to be designed and executed around fundamental lean and operational excellence principles.

These principles will include: visibility, flow, pull, standardization, quality at the source and velocity. However, the most important principle for the new post COVID-19 flexible supply chain will be lead time reduction.

One System: Lead Time Reduction and Nearshoring

There is no question that one aspect of our post COVID-19 new normal will be the challenges and arguments against the global supply chain. The average citizen has now received an education on just how much we are reliant on products coming from China and other countries that are considered low-cost countries. While it’s probably naive to suggest the global supply chain will be completely reversed, it is fair to say that nearshoring (make where you sell) will be a hot topic for products deemed essential for human health or national security. In general, these products fall into categories that reflect energy, defense, infrastructure, mobility, food, and health. Examples include oil, tanks, steel, cars and airplanes, beef products, medical equipment, and pharmaceuticals. We simply cannot be dependent on other countries for these necessities. This is not about nationalism or being anti-global trade, but rather it is about being anti-extended lead times and anti-supply chain instability. It’s about caring for the health of the citizens of your country.

It is interesting that the recent trade wars (and tariffs) recognized the need for internal competencies relative to certain products for national security reasons. We are all too familiar with comments like: ‘we are not a country unless we can make steel,’ or ‘we need to be energy self-sufficient for our basic security.’ Who in their wildest dreams would ever have said: ‘we are not a country unless we can make surgical masks that cost pennies to make,’ or ‘we need to make all medicines and pharmaceuticals in our country for national security reasons?’ This conversation will now take center stage.

All countries need to do their best to have farming, manufacturing and supply chain competencies to support the flow of essential products. Once we believe this in principle, we can get to the hard work of planning what to nearshore and execute strategic repatriation of certain manufacturing processes.

The irony is the financial discussion on nearshoring may become easier as cost of labor (primary reason for globalization) is becoming less significant in the overall cost structure as a result of technology and automation in manufacturing processes. In other words, the main reason we chased the global supply chain (labor) is no longer the main driving force. The fact is China and other low-cost countries remain cost competitive now because they have all the major factories, and hence incredible economies of scale, in addition to possible government subsidies and low barriers to get factories built. Balancing our need to nearshore manufacturing while maintaining high standards for the environment will no doubt be a juggling act in the USA and Canada, but one we need to grapple with.

Continue Learning

  • Plan for a post-COVID world. Get the complete 17-page white paper by Robert Martichenko. “Post COVID-19 Crisis Supply Chain.” No form to fill out. Download and read.
  • Turn Your Supply Chain into a Fulfillment Stream: This is the workbook that “will change the way you think about your supply chain and logistics networks,” reads the Shingo Publication Award citation for Building a Lean Fulfillment Stream. Learn more about its step-by-step methodology – backed up by 41 illustrations – for transforming your supply chain into a fast-flowing fulfillment stream. See sample chapters and graphics.
  • Learn Online: You need 8 guiding principles to turn sluggish supply “chains” into swift-flowing lean fulfillment “streams.” Discover the 8 and how to use them in this archived webinar with Robert Martichenko, CEO, LeanCor, and Kevin von Grabe, vice president, coauthors of Building a Lean Fulfillment Stream. Listen to the webinar.
The views expressed in this post do not necessarily represent the views or policies of The Lean Enterprise Institute.
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