By Gary Shawhan, Contributing Editor, The CHEMARK Consulting Group

It is well known that the “Just-in-Time” manufacturing model had its origins in the automotive industry as a way to improve efficiencies, speed up time-to-market and reduce manufacturing costs. Adoption of this manufacturing model grew steadily in the post WW II period. The overall business goal for implementing JIT has continued to be improvement in a company’s competitive position in the marketplace.

The benefits obtained by implementing “Just-in-Time” manufacturing vary in importance for each company according to the business for which JIT is being implemented. Examples of variables that help determine the potential benefits of JIT include: The production volumes involved; the geographic scale of the business; the complexity of the product mix; and the vacillations in demand for finished goods using these products.

The JIT manufacturing philosophy has become an integral part of the way many companies, especially the large, global market leaders, have needed do business in order to stay competitive. Finding ways to maintain a competitive advantage has become an increasingly important consideration as consolidations, through on-going M & A activity, have continued to change the competitive landscape.

Employing management tools such as JIT has been necessary to maintain a competitive edge. This includes major global corporations operating in all industries and supplying at all levels of the value-chain. In the case of coatings, this list of companies extends from the OEM and their tier suppliers to the formulator, the resin manufacturer, and the raw material supplier.

Taking a look at the advantage associated with adopting the JIT approach in manufacturing, Table 1 lists some key values derived from employing a “Just-in-Time” manufacturing strategy.

Table 1: Key Values Associated with JIT

  • Minimize inventory costs
    • Eliminate or reduce intermediate costs for warehousing of materials
    • Identify elements of materials movement that can be shortened to improve flow from source to mfg.
    • Minimize or eliminate some intermediate manufacturing or assembly steps through consolidations
  • Shorten the time to manufacture goods
    • Facility utilization/ Improved efficiencies
    • Labor rates, burden rates are reduced
    • Conversion to automation results in increased manufacturing efficiencies and quality improvement
  • Reduce the number of sources of suppliers
    • JIT favors a more streamlined, well-defined supply-chain
    • Better control of costs; Supports arguments for longer-term supply contracts
    • Purchasing leverage is improved
    • Quality and supplier reliability metrics can be employed
  • Aligning manufacturing more closely with demand
    • Minimizes finished goods inventory, handling, and transportation costs
    • Reduced damage and waste

And then along came COVID 19

Today, some can argue that “Just-in-Time” or JIT should be replaced by the acronym ASAP. In certain situations, the term “scavenger hunt” also comes to mind to describe what it takes to meet the needs of customers.. No question, the events of the last couple of years have required companies to alter their strategies for sourcing and management of their supply-chain.

Supply-chain problems, which developed in early 2020, have continued unabated. As of today, there is no clear vision as to when they may begin to dissipate. Dealing with the disruptions in supply of key raw materials, parts, and finished goods has become a daily conversation for many. It has altered many aspects of how company do business. One victim of this situation has been “Just-in-Time” manufacturing.

For most manufacturers employing JIT methods, the expected timely availability of critical components or raw materials from established sources of supply has turned into a problem. Alternative sources of supply now needed to be re-engaged our sought out to fill in the gaps. The market dynamics accompanying these shortages dramatically altered of the structured approach related to sourcing practices that had been successful in the past.

Prices for goods and services during the last two plus years have continued to escalate as the balance between supply and demand was turn upside down. While longer-term contracts with a more consolidated supplier-base worked well for an extended period of time, price all of sudden became a secondary issue to maintaining production levels required to meet customer demand.

As the supply/demand curve shifted, it over-shadowed what would have been considered “normal” business practice. Like dominoes, the market moved toward higher prices throughout all levels of the value-chain. One consequence of this has been purchasing priorities. The protocols put in place to support “Just-in-Time” manufacturing were being altered. In some cases, they have been even circumvented or replaced in order to satisfy customer demand.

 One business strategy associated with implementing “Just-in-Time” manufacturing was favoring close geographic proximity of tier suppliers or key raw material suppliers to the primary manufacturing location. There are obvious advantages in having certain high volume, strategic items produced next to or in a short geographic distance from the manufacturing site. These include elimination of shipping costs, inventories, and warehousing costs and the fact that key raw materials (or parts) were truly available “Just-in-Time.”

 From the supply side of the equation, this approach created a strategic bond with this supplier that resulted in long-term supply contracts. It also blocked competitors from gaining a principal supply position with these accounts. As long as market dynamics remained relatively constant this arrangement produced a win-win for both parties.

Global sourcing strategies are also linked to achieving the goals of JIT manufacturing. Large corporations implemented global purchasing strategies intended to leverage their total buying power. This resulted in contractual commitments with suppliers to obtain a lower overall global price than could be obtained through individual regional purchasing efforts.

Prior to the pandemic, implementing this approach was common among the larger global players in many industries. There were also few concerns related to shipping, transportation or manufacturing capacity that would interfere with an expectation of supply from offshore locations. In a number of cases, this approach led to a high degree of dependence by manufacturing companies for obtaining certain raw materials or parts from a single source.

Global purchasing strategies squeezed profitability for many suppliers. This was particularly true for those materials consumed in large volumes. In the context of the coatings, market resins prices represent a prime example. As a result of this tactic, profitability became even more constrained across much of the lower end of the value-chain. This was especially true for resins which represent a high percentage of the total volume and purchase value in a given coating formulation. Overall, “Just-in-Time” manufacturing expectations were not necessarily a friend of many raw material or parts manufacturers.

JIT manufacturing has now entered a “black hole” of uncertainly since the start of the COVID 19 global pandemic in early 2020. What is difficult to figure out is what will it look like when the crisis eventually exits or starts its demise? Will there be a slow return to past practice (including JIT), or will it head somewhere not yet clearly understood?

At this point, the challenges and plight of suppliers and finished goods manufacturers continues with no real end in sight. Companies that have employed “Just-in-Time” manufacturing have had to change the way they do business in order to survive. This suggests that there will be modifications in the way JIT manufacturing is implement in the future as the impacts of the pandemic subside.


Sustainability, the Environment and Reduction in Carbon Footprint

The growing commitment to sustainable products has introduced a number of additional challenges for the global manufacturing community. It has further complicated the ability of companies trying to return to the pre-COVID sourcing practices that fit with the traditional “Just-in-Time” manufacturing model.

For coatings, the sources for sustainable chemical ingredients used to produce next generation resins/polymers is embryonic. In most cases it requires purchasing to identify completely new sources of supply. Many of these companies are not even on the radar screen today. Furthermore, volume production capacity in relation to demand is not close to meeting the actual need.

Securing sources for new families of raw materials based on bio-based chemicals has become a focus for manufacturers of next generation coating products. The net-zero, carbon emission goal by 2050 set in the Paris accords has created a number of shorter-term sustainability goals for their suppliers set by OEM’s or finished goods manufacturers. Specifically, a minimum percentage of bio-based raw materials need to be incorporated into the coating formulation by a certain date.For coatings, the push to require more sustainable products will force manufacturers to redefine their supply chain relationships going forward. This will need to be accomplished while the available sources for the raw materials need is in its infancy. The issues of sustainability will be with the manufacturing community from now on. It is much more permanent requirement that manufacturers will need to address to stay competitive than what has occurred as a result of COVID 19. As a result, the changes created by sustainability will likely move manufacturers further outside of the traditional elements of the JIT manufacturing model.