Consider the following: After rising to become the world’s second largest manufacturer during the 1960s and 1970s, Japan has developed into a central hub for international supply chains. However, firms engaged in global manufacturing are vulnerable to the disruption of their supply chains. Managers have to balance the cost of keeping high inventories, and the risk of pure “just in time (JIT)” production. The exceptional nature of the Japanese disaster (a Black Swan event, from a probabilistic point of view) bypasses any security procedures embedded in normal supply chain management practices. Additionally, the strategic role played by Japanese firms means that they cannot be easily replaced by foreign suppliers. Indeed, soon after the disaster, production slowdowns and even disruptions began to register in many of the Japanese affiliates abroad and in some foreign industries relying on Japanese inputs. Many Japanese car manufacturers, including Honda, Toyota and Nissan did not see significant damage to production facilities, but the damage done to Japan’s infrastructure limits their ability to move cars and products through the supply chain.
For your initial post, discuss the trade-offs associated with JIT inventory management. Is climate change a new consideration in this regard?