August 5th, 2021
Is JIT Dead – And Is a New Model Needed?
It is forecasting time, and I am working on sales projections for 2022. So, I am visiting with customers and asking them what projections for next year may look like. Usually, I get fairly solid answers like, “this year we grew 10%, and we feel next year it may slow down a bit, but we should still grow 4 to 7 percent.” But this time, I am getting one of two responses: one being “we see no end in sight to this crazy growth” and the other, “Your guess is as good as mine!”
Most window manufacturers believe next year will be another strong year but limited by one major factor – the availability of glass, extrusions, and components needed to build doors and windows. As one of my customers described this feeling- “It’s like getting behind the wheel of a Ferrari, stomping on the gas, then discovering that someone put a governor on the engine!”
Over the years, many companies have had success utilizing the JIT model for purchasing raw materials and components. In case you have had your head in the sand, the last 10 years or so, JIT stands for just-in-time inventory, which is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process. This reduces inventory costs. However, for a JIT system to run smoothly, it requires producers to forecast demand accurately.
There lies the problem as of late. The unprecedented demand brought on by the pandemic-induced obsession with home repair and new construction has made accurate forecasting almost impossible to achieve. This has created extremely long lead times for everything. This unusually high demand has also escalated shipping costs and extended lead times of raw materials that component suppliers rely upon to make the key components that manufacturers need to make doors and windows.
This condition is exacerbated by the fact that purchasing agents have been conditioned to use the JIT model for so many years that they cannot seem to order components any other way. To do so is like “going against the grain.” They will continue to order in small quantities based on what they feel is needed to produce their anticipated bi-weekly demand, only to continually see that demand superseded by yet another spike in orders. The result is that they run out of necessary components a day or two ahead of time and end up calling to plead for faster shipments or to be moved up on the production schedule.
So maybe, at least for the time being, it is time to go back to the days of ordering a little extra safety stock and let those inventory costs rise just a bit. Order more than you think you might need because if history repeats itself, then you will need more than you thought. Also, strengthen strategic partnerships with suppliers. Provide bi-weekly forecasts to them so they can fine-tune their production schedule. Perhaps your supplier is willing to keep stock for you in their warehouse, letting you place blanket orders and draw materials and components as needed. You can give them an annual usage, place a blanket order, and get shipments released accordingly. The price of these components may be higher to reflect this warehousing cost, but it sure beats shutting down your production line, sending people home, and disappointing customers while you wait for components to arrive.
“Crazy busy” is now the new normal in the door and window industry, so concepts like JIT that work well with more predictable demand profiles may no longer be the best models. Perhaps a new model is needed!
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Totally agree with your take on this Jim. But there’s a second component to the current pain being experienced throughout the chain. Even if you have all the raw materials and components you need, you need still people to put it all together, and if we don’t figure out to solve the labor shortage, we’re going to continue to struggle to meet demand. We may need a new model there also.
Very well said Loren! Stay tuned for my next blog!