Wrong Street Journal?
A recent Wall St. Journal article, “Clarity is Missing Link in Supply Chain” (May 18, 2009) wrongly defines just-in-time (a small and strictly defined subset of demand-driven logistics), then concludes that practicing JIT in a recession makes things worse.
The article opens with the CEO of chip designer Zoran Corp., Sunnyvale, Calif., wondering why his market collapsed so fast. The WSJ offers this answer: “The world’s complex “just-in-time’ manufacturing supply chains are making it increasingly tough for Zoran, and any other single link in the chain, to know what’s going on just a few links away.” Visibility into demand is what makes pull manufacturing and demand-driven logistics work. If Zoran was lacking visibility, it was not running JIT, or demand-driven logistics, for that matter.
The next example in the article examines a machine manufacturer for the electronics industry: ‘We’re still not sure what happened,’ says machine shop owner Angelo Grestoni. He is many steps away from Zoran on the chain, but his clients, too, evaporated around the same time.” Grestoni is now holding millions of dollars of inventory he can’t sell, and paying storage fees on it.
Nobody wants to sit on inventory. During our last recession, Cisco Systems had to write off $2.25 billion in useless inventory. The company vowed that would never happen again. The solution? A company-wide commitment to demand-driven logistics, the exact opposite perspective of the WSJ article.
Then there’s this from the retail demand point: “In March 2009, Best Buy Co. said it could have sold more electronics equipment in the three months ended Feb. 28, but its suppliers’ deep cuts made it tough to keep shelves stocked. Suppliers ‘all decided to build a lot less,’ says Best Buy merchandising chief Michael Vitelli.”
When suppliers direct production based not on demand signals, but on what they decide, that is not demand-driven logistics, supply chain management, or what the WSJ calls JIT. Zoran’s CEO added that there was a lot of guessing going on, with “everybody under-betting.” That’s fear, not JIT. Perhaps a better headline for this article would be “Fear Can Foul Up Any Supply Chain.”
That the WSJ is so off the mark with its understanding of JIT is inexplicable, given the collective business intelligence available to anyone with a working Web browser. Nobody is perfect, but what makes this misunderstanding unforgivable is that the WSJ’s stated negative impact applied to a broad range of demand-driven practitioners (including one in retail supply chain management). It does harm to the tens of thousands of logistics practitioners who struggle to better align demand to supply in order to scale company resources appropriately in good times and bad.
I shudder to think how those efforts might be damaged by a well-meaning but under-informed CEO reading the WSJ article and deciding that demand-driven logistics is the wrong way to go in a down economy—when the exact opposite is true.