An excerpt from the Mercury News -
Q&A: What got us into this supply chain mess? When will it end? Stanford professor has answers
Kostas Bimpikis explains what it will take to end our supply chain nightmare
By LISA M. KRIEGER
Confronted by a pandemic, we suddenly couldn’t find what we needed: Hospitals ran short of N95s and ventilators, auto manufacturers didn’t have crucial components and store shelves suddenly emptied of everything from sneakers to sofas.
Kostas Bimpikis, an associate professor of operations, information and technology at Stanford Graduate School of Business, talked with this news organization about how to keep our supply chains reliable – even when the world is upended. His remarks have been edited for length and clarity.
Q: What did COVID-19 reveal about our supply chain?
A: It revealed two things. The first is how interconnected supply chains are. A disruption in Italy, Taiwan or Korea may be felt all over the world. The second thing it revealed was how fragile the supply chain is. Any deviation from normal operations creates a huge shock all over the world.
Q: What got us into this mess?
A: One trend is so-called “just in time” manufacturing. Typically, firms produce only as much inventory as they need to satisfy short-term sales. It keeps costs low. They do not necessarily hold excess inventory.
The second reason is the specialization of product lines. For example, cars are being manufactured that consist of thousands of components. Disruption in a supplier for a specific component – such as a small screw somewhere in the car — may hold up production of the entire car.
And the third thing is outsourcing and globalization of manufacturing. So a disruption in Taiwan, for example, affects our domestic supply chain, as well.
Q: What’s driving these trends?
A: Typically, companies take the view of minimizing costs, maximizing speed, maximizing efficiency and maximizing choice for consumers.
Costs are minimized by having very low “safety stocks,” because carrying excess inventory is very costly. Maximizing speed and efficiency means lean operations and “just in time” manufacturing. Maximizing choice for customers points to the specialization of the line. You can buy Nike sneakers in a zillion colors.
These have big advantages, but they do have disadvantages.
At the beginning of the pandemic, the shortages were mainly driven by a surge in demand for products. Now, more of the problems originate from problems with the supply chain.
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