JIT and the Rise of E-Commerce

Supply chain disruption has been a major topic of conversation in recent years as we continue to experience the effects of breakdowns in the trade network. While the global supply chain has been featured in various news stories throughout the pandemic, and multiple large events have garnered attention such as the Ever Given, One Apus, and LA/Long Beach port congestion, some lesser-known driving factors play an important part in the landscape today. 

There are many moving parts, and to better understand the inner workings of the supply chain, it helps to know more about Just-in-Time manufacturing and e-commerce. We will discuss how they have impacted the supply chain as a whole, during the pandemic, and what solutions there are to counteract any problems that have arisen from this system of manufacturing and inventory management. 

Understanding Just-in-Time Manufacturing and E-Commerce

Just-in-Time manufacturing (JIT), also referred to as lean manufacturing, refers to an operations management approach designed to reduce excess inventory to more align with consumer demand.

This technique is aimed at waste reduction, which includes anything that does not add value to the process, from waiting periods to overproduction. With the goal of production efficiency, this process focuses on fulfilling inventory and sending it to the consumer on an as-needed basis, as quickly and efficiently as possible. 

But how lean is too lean? The JIT technique does come with its disadvantages. Because this process has a smaller margin of error, every second counts. If equipment breaks or there’s a shortage of material, it can result in shipment delays, delivery inconsistencies, and unhappy customers on the other end. What’s more, this emphasis on responding to real-time requests leaves little room for changing course, whether that’s reacting to changes or predicting an issue. 

Now let’s consider e-commerce, or online retail, which is another important factor that impacts the supply chain, and has driven a huge amount of the demand for transportation of goods in the post-pandemic world.

E-commerce is the buying and selling of goods over the internet.

During the onset of COVID-19, lockdowns and at-home orders led consumers to turn to online shopping more than ever before—not to mention the panic buying that ensued. 

So, how does e-commerce relate to JIT? Essentially, JIT is a method of e-commerce supply chain management, overseeing the flow of goods, from the moment the consumer makes an online purchase to when it’s delivered to their home. 

When there’s a balance in supply and demand, this relationship works just fine, but when there’s a spike in demand, that’s when the flow of manufacturing and export can get outpaced. In other words, companies following the JIT model—with already lean inventory—are not prepared to handle a large influx in e-commerce orders. And without inventory or the supplies to make that inventory, they are unable to fulfill their online orders. 

How Did JIT and E-Commerce Impact the Supply Chain During the Pandemic?

Nothing in the supply chain exists in a vacuum. When there’s trouble with one aspect, say the JIT model or the e-commerce space, it inevitably affects other elements of the supply chain. So, what exactly happened when an uptick of e-commerce orders hit JIT-driven companies during the pandemic? 

During the onset of the pandemic, consumers expected their e-commerce orders to arrive at lightning speeds, but companies operating under the JIT model already had low inventory. What’s more, as warehouse and factory workers, truckers, shippers, and other vital staff were unable to work because of the virus, production and distribution stalled. Without anyone to produce or distribute raw materials, inventory was unavailable, and in some cases, didn’t exist. As with any time there is a material shortage, prices go up. Everything from the cost of supplies to the price of shipping cargo containers increased. Between the rising prices and the pressure on companies to produce and deliver, breakdowns caused setbacks in every stage of the shipping process. 

The auto industry’s chip shortage is one example of how JIT and e-commerce impacted the supply chain during the pandemic. In 2020, the virus shut down many automaker warehouses and factories. But at the same time, the auto industry predicted a lull in purchases due to the virus. Accordingly, they reduced their supply order of computer chips, or semiconductors stems, which play an important role in manufacturing modern vehicles. 

Meanwhile, consumers were turning to e-commerce more than ever, stocking up on everything from at-home appliances to laptops. Because there was high demand for these electronics, the chipmakers redirected their supply to these technology-based industries—instead of the automakers—to accommodate the demand. But as you can imagine, when automakers began to recover, there was not enough in their chip inventory to fulfill their own needs. As a result,

the auto industry lost an estimated 11.3 units of production and $210 billion in revenue in 2021 alone. 

E-commerce orders and a lack of inventory were not the only factors at play. Labor shortages, price hikes, port congestion, warehouse and port closures, and limited cargo containers all created a perfect storm of supply chain disruption. These supply chain issues illustrate how when hit with unexpected challenges, JIT-run companies struggle to pivot and respond. The JIT technique, meant to promote supply chain agility, can crack under the pressure of sudden demand surges. 

Moving Forward

This surge in e-commerce and its strain on the JIT environment reveals how even just one breakdown in the supply chain has ripple effects. And

as the supply chain continues to struggle to stabilize in 2022, it highlights the need for innovation and change within the current process.

Companies are expected to begin adopting more advanced supply chain technology and big data analytics to help monitor and optimize their efforts. This can make them more agile, helping to predict delays or setbacks, but it will also help them strike a balance between having too much and too little inventory. What’s more, it may lead to favoring more of a Just-in-Case (JIC) inventory approach, which promotes having some excess inventory to accommodate increased demand. 

And finally, if the supply chain has shown us anything lately, it’s not to put all your eggs in one basket. Because of this, manufacturer and supply operations are looking to diversify where they purchase raw materials and products, instead of relying on single sourcing overseas. With more supplier options, these companies can more easily pivot in a crisis. 

Everyone feels the effects of a disrupted supply chain, from manufacturers and suppliers to the shippers and consumers. However, better understanding the factors contributing to these disruptions allows us to evaluate the past and make solutions for the future.