16 Nov 2021 | Value Investing Substack NEWS
COVID-19 Cases in ASEAN, Goldman Sachs Backs 50 'Common Prosperity' Stocks, How JIT (Just-in-Time) destroyed itself, Aswath Damodaran revisits Tesla, 1st China-US Leaders' Summit
This is Value Investing Substack NEWS! Subscribe for free below to get daily curated market news in your inbox!
Stocks & Sectors:
How JIT (Just-in-Time) ended up destroying itself (Reddit, with some good rebuttals under this parent comment):
I have jumped careers recently, but until 2 years ago I spent over 20 years in supply chain and logistics, and import and export. Most of my time in those fields was adjacent to American businesses of all sizes. One of the biggest things that got us here was slavish devotion to JIT (Just In Time) inventory and shipping methodology. In short, it means that a company does not keep excess stock or spare parts. They do not order anything until they absolutely need it. Anyone with a brain saw this shit coming with JIT as a large cause.
JIT was instituted because some accountant that had never done the work picked a number out of thin air and said you can add this much more profit if you don't keep spare parts and inventory around. There is absolutely no way that is a thing because it has never (at least adequately) factored in lost sales and work stoppages and customer dissatisfaction and a wide variety of other factors into your P&L. That this became an industry wide standard shows that stupidity is contagious.
To combat the losses that they knew were happening firms then required their vendors to hold stock for them. So they aren't really practicing JIT, they are just delegating the inventory portion of their materials management to their vendors. American manufacturing found that's a great way to alienate your long term business allies. Those vendors retaliated by having higher minimum purchases of goods. So the manufacturers just nuked themselves all the way around. Not only did they not get the parts they need when they want them, now they have have to buy 5x as many and take delivery all at once, or go buy their shit somewhere else. So instead of a carton load of parts its now a container load. Then they have to wait for build time, because you nuked that vendor so badly he isn't keeping the components for your spare parts any longer. That servo you used to keep on the shelf now takes 6 months from order to delivery
And this is where we are now. The billionaires wanted a few more billion and we have dinged-up ports to help blame for it. Corporate greed has to be reigned in before this gets truly fixed. It is not entirely a workforce issue. It's a process problem.