Some companies have spent their way out of logjams while others face another year of disruption,” writes Financial Times (Feb. 1, 2022). Splits are emerging in corporate America’s response to a supply chain crisis that is expected to last all year, heralding a wave of spending on new capacity, better data, and support for weaker vendors.

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Firms are complaining of shortages, delays and surging costs and are scrambling to procure semiconductors, waiting for components and suffering the effects of suppliers’ staffing gaps. GE said shortages of semiconductors, resin, parts and labor had affected its sales, while Caterpillar admitted that the challenges had been more significant than expected. The supply chain will be “the fundamental limiter of output” this year, said Tesla CEO Elon Musk, adding that the chip shortages it faces might not ease until 2023.

Companies including VF Corp (The North Face) said they had moved some production to suppliers closer to their biggest markets. Intel, Tesla and Texas Instruments just invested in new semiconductor facilities, saying these would give them more control of key components.

Companies with more domestic suppliers and those that had moved before the pandemic to broaden their supply chains were faring better than others with more complex, global logistics. Overall, it’s still the biggest companies that are able to buy their way out of the tough spots. Diverse strategies range from Sherwin Williams (the paint company) buying a resin supplier to VF Corp chartering “full-sized jetliners” to secure supplies. Some firms, like Lockheed Martin, are offering their suppliers financial help with cash infusions to keep them from going under and disrupting their supply chains.

The extended impact of Covid is forcing companies to question long-held beliefs about JIT production, including how few suppliers they depend on, how far critical components must travel, and how little inventory they can hold. Prologis, a property company, said that clients were saying that they would need 20-25% more warehouse space so they could carry more safety stock. “The engineers have designed supply chains around predictability and when that predictability goes away everything goes to hell in a handbasket,” stated the CEO.

Questions:

1. Why is JIT under fire? (10 marks)

2. Summarize the various strategies companies are using during this period. (10 marks)
 

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