JIT AFTER SEPT. 11

JIT AFTER SEPT. 11

Complete flight shutdowns and subsequent airline cutbacks in scheduling after the terrorist attack on New York's World Trade Center, plus stricter security for both 'belly' and main deck cargo, highlight the vulnerability of the just-in-time programs that have become increasingly popular with U.S. (and world) industry. The U.S. economy, in particular, has become more reliant than ever before on lean inventories and last-minute deliveries of spare parts. The effects of the tragic events of Sept. 11 on production for American manufacturers were unmistakable. The auto and electronic industries, two bellwethers of our economy, were particularly hard hit. Many auto plants and auto parts suppliers keep on hand as little as a few hours worth of components. When these parts were not delivered, entire auto plants as well as those of their suppliers in the U.S., Mexico and Canada shut down for a day or more. Electronics makers, many of whom are totally reliant on components airlifted to and from Asian points, were running short of supplies to produce computers, printers and other high-tech items. Subsequent losses ran into the uncounted millions of dollars in both industries.

Under a 'pure' just-in-time system, the manufacturer must be willing to run his factory with almost no emergency spares to secure maximum savings on interest and inventory that just-in-time can provide. The producer must have almost unlimited faith in his forwarder's ability to deliver supplies almost to the hour, at the quality specified. This manufacturer-forwarder link was shattered, if just temporarily, by one of the darkest days in American history. Forwarders could only watch in horror and frustration as their customers' cargoes piled up on their docks. Even after flights were resumed, strict security measures continue to impact freight traffic. United Airlines, for example, put a 48-hour hold on all cargo consigned to it.Questions legitimately arise. Is just-in-time worth the risk in an increasingly exposed domestic and international airline system? Are savings in inventory and interest costs worth jeopardizing an entire assembly line when the absence of even one part can shut it down?

These questions are neither simple nor easy to answer. Under normal circumstances, just-in-time has been a very efficient solution to a production problem endemic since the Industrial Revolution. How much inventory that takes up space and idles capital should manufacturers keep on hand before committing those parts to production?

These are not normal times, however. I believe they call for taking a long, hard look at just-in-time principles. We must prevent a 'ripple' effect that occurs when the absence of a few parts causes disruptions for an entire manufacturing process. In my view, just-in-time must be modified to remain cost-effective yet reflect the new economic and political realities.

Obviously, more inventory must be kept on hand in the event of an emergency. But where should they be stored and how can it be accomplished at the least cost? For the past decade, forwarders of every size, shape and description have boasted of their logistics capabilities. A good part of these 'logistics' capabilities has been the supposed ability for forwarders and other third parties to hold inventory, then release it as needed through computer hook-ups with their shipper-customers. Candidly, many of these claims were more shadow than substance. Shippers have discovered that forwarders are very good in moving freight, but too often are considerably less successful in storing inventory and supplying it as required.

Outsourcing a just-in-time system of inventory and distribution of parts is a good idea suffering from bad execution. First, forwarders must change their mind-set. Too often, forwarders have offered logistics packages to potential customers primarily as an inducement to obtain their transport business. They often have underpriced these services, and in some cases, even offered to perform these services at no cost -- if given sufficient cargo volume.

The results: mediocre service. Low-skilled support staffs are hired, at or little more than the minimum wage. Behind-the-times technology is used because it is cheaper and generally easier to train upon.

Forwarders must treat the outsourcing of a customer's inventory, warehousing, distribution, etc., as a true profit center. And forwarders and customers must enter into a true partnership rather than an arm's length or even adversarial relationship. The customer must share with the forwarder his production and sales goals, with a realistic assessment of both. The forwarder must be candid in judging his own capabilities. Can he respond capably in the event of an emergency or rapid changes in demand?

Certainly, the extreme claims of just-in-time proponents must be modified in light of the events of the past month and the consequent new realities. Reduced schedules announced by both U.S. and foreign carriers plus new, more restrictive rules for cargo make the benefits of a pure just-in-time program almost impossible to occur. A realistic balance must be struck between the efficiencies of just-in-time and the realities of today's transport picture.

Julian Keeling is president of Consolidators International Inc., an airfreight wholesaler based in Los Angeles. He can be reached via e-mail at juliankeeling@ciilax.com.