The limits of search for efficiency - "just in time" in Covid times

I blogged here and here about how Covid 19 has exposed the perils of excessive pursuit of efficiency, at the cost of marginalising all else including resilience. Last week I had blogged here about how technology-based management at Amazon created undesirable workforce outcomes. 

The Times has an article about how the global embrace of Just in Time (JiT) supply chain and inventory management, popularised by the Japanese manufacturers like Toyota, has left manufacturers and retailers exposed during the pandemic. It writes,  

Automakers have been crippled by a shortage of computer chips — vital car components produced mostly in Asia. Without enough chips on hand, auto factories from India to the United States to Brazil have been forced to halt assembly lines... This helps explain why Nike and other apparel brands struggle to stock retail outlets with their wares. It’s one of the reasons construction companies are having trouble purchasing paints and sealants. It was a principal contributor to the tragic shortages of personal protective equipment early in the pandemic, which left frontline medical workers without adequate gear.

Just In Time has amounted to no less than a revolution in the business world. By keeping inventories thin, major retailers have been able to use more of their space to display a wider array of goods. Just In Time has enabled manufacturers to customize their wares. And lean production has significantly cut costs while allowing companies to pivot quickly to new products. These virtues have added value to companies, spurred innovation and promoted trade, ensuring that Just In Time will retain its force long after the current crisis abates. The approach has also enriched shareholders by generating savings that companies have distributed in the form of dividends and share buybacks.

It quotes Willy C Shih, an international trade expert at Harvard Business School,

It’s sort of like supply chain run amok. In a race to get to the lowest cost, I have concentrated my risk. We are at the logical conclusion of all that... People adopted that kind of lean mentality, and then they applied it to supply chains with the assumption that they would have low-cost and reliable shipping. Then, you have some shocks to the system... The real question is, ‘Are we going to stop chasing low cost as the sole criteria for business judgment?’ I’m skeptical of that. Consumers won’t pay for resilience when they are not in crisis.

There is a clear resilience Vs efficiency trade-off, not just in business but across life in general. Too much of one comes at the cost of the other. The modern economy, especially with neat digital technologies and work-flow automation, makes it extremely easy for businesses to pursue the efficiency line. The challenge therefore is to step back and ensure that resilience is kept in mind while technologies and process re-engineering are adopted. How about a resilience test for any efficiency enhancing change?

Update 1 (28.08.2021)

Matt Stoller (HT: Ananth) points to the role of management concepts and services contracting in the failure of the US strategy in Afghanistan. This from an Afghan General, 

Contractors maintained our bombers and our attack and transport aircraft throughout the war. By July, most of the 17,000 support contractors had left. A technical issue now meant that aircraft — a Black Hawk helicopter, a C-130 transport, a surveillance drone — would be grounded. The contractors also took proprietary software and weapons systems with them. They physically removed our helicopter missile-defense system. Access to the software that we relied on to track our vehicles, weapons and personnel also disappeared. Real-time intelligence on targets went out the window, too.

The US military like the corporate world appears to be another example of the pursuit of efficiency taken to its extremes - management consultants and their ideas being applied indiscriminately and outsourcing to keep costs down and harvest efficiency gains.

Update 2 (12.12.2021)

By Beata Javorcik, Chief Economist at EBRD, in the FT

The quest to find the most cost-effective suppliers has left many companies without a plan B. More than half of firms surveyed by the Shanghai Japanese Commerce and Industry Club reported their supply chains were affected by the outbreak. Less than a quarter said they had alternative production or procurement plans in case of a prolonged disruption... Businesses will be forced to rethink their global value chains. These chains were shaped to maximise efficiency and profits. And while just-in-time manufacturing may be the optimal way of producing a highly complex item such as a car, the disadvantages of a system that requires all of its elements to work like clockwork have now been exposed... Resilience will become the new buzzword. Firms will think harder about diversifying their supplier base to hedge against disruptions to a particular producer, geographic region or changes in trade policy. This means building in redundancy and perhaps even moving away from the practice of holding near-zero inventories. Costs will certainly rise but, in the post-Covid world, concerns about supply chain fragility will come right after those over cost. Firms will be expected to assess resilience of their second and third-tier suppliers, too. We may see some reshoring as automation reduces labour costs.