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When 'just in time' isn't
Factories return to stockpiling as deliveries suffer
By Hiawatha Bray, Globe Staff, 9/25/2001
Not long after the Sept. 11 attack on the World Trade Center, Ford Motor Co. shut down five of its US plants because the company couldn't get enough engines and drivetrain parts from suppliers in Canada.
At the border, ''there were 30- and, in some cases, 50-mile backups'' as tractor-trailers waited for up to half a day to clear US customs, said Ford spokesman Ed Lewis. ''We have a greater reliance on parts from Canada than our major competitors,'' he said, ''and have been impacted accordingly.''
America's ''just-in-time'' manufacturers, whose production techniques helped power the longest economic boom in US history, may find themselves caught in the crossfire in the war on terror.
Companies used to stockpile the materials they needed to make their products. That meant spending millions on parts that sat unused for weeks or months. ''It's like keeping money in your closet,'' said Robert Austin, assistant professor at Harvard Business School. ''Assets that are just sitting there are not earning a return.''
In the 1980s, US manufacturers began copying the Japanese car company Toyota. They began keeping just enough inventory to keep the factories running for a day or two. Suppliers make fresh deliveries only when more parts are needed. Billions in capital are freed up for more profitable uses.
But many of the parts and supplies used in US factories must be delivered from abroad - car parts from Canada, for instance, or microchips from Taiwan. And in the aftermath of the terrorist attacks, airports shut down and border crossings slowed to a crawl.
Even as air and ground freight patterns return to normal, companies now are taking a hard look at their inventory policies. While nobody is abandoning just-in-time, companies are facing up to the fact that the war on the terrorists will require a return to the stockpiling of key components.
The rate of border crossings has returned almost to pre-attack levels. Ford temporarily modified its just-in-time policies, laying in extra parts and supplies to avoid further plant closings. But it has since decided to revert to its previous lean inventory levels, Lewis said yesterday.
Also vulnerable is Dell Computer Corp. The world's leading maker of desktop computers, the company has built its success not on the unique quality of its products but on its highly efficient manufacturing and distribution systems. Most computer parts are shipped to Dell factories by air, from manufacturers in Asia, and Dell traditionally maintains just five days' worth of inventory.
Spokesman Mike Maher said that was enough to keep the company going during the air travel shutdown. ''There's not been any financial or planning problems,'' he said. ''We've been able to manage around it, using supplies on hand.'' But Maher said if there is an extended crisis affecting transportation, ''I might have to revisit the issue.''
Lots of companies are already doing that, said Joe Martha, a vice president at Mercer Management Consulting in Cleveland. ''People are putting in some safety stock back in their plants,'' such as Ford's stockpile of critical car parts, he said. ''I don't think it's the death of just-in-time lean manufacturing, but they're going to have to make sure there are some contingency backup plans in place.''
One firm that specializes in making just-in-time deliveries says its services are as vital as ever in this time of turmoil. UPS Logistics Group, a subsidiary of the package delivery firm United Parcel Service of America Inc., specializes in just-in-time business deliveries. It had three miniwarehouses in Manhattan, stuffed with electronics parts to be delivered at a moment's notice to computer repair firms. One of the warehouses stood 150 yards from the World Trade Center and now lies beneath the rubble.
UPS has scrambled to keep its just-in-time service going, relying on the other two warehouses in Manhattan and a third in Lyndhurst, N.J. Spokeswoman Lynnette McIntire said the company is working with customers to figure out their highest-priority needs for parts and supplies, to make sure businesses are able to keep their doors open.
McIntire agreed that just-in-time customers, worried by the threat of future attacks, are beginning to stockpile merchandise. ''They are shipping in, as we speak, trailerloads and pallets of critical parts,'' she said. That's good news for UPS Logistics, which is helping to arrange deliveries of the extra inventory.
For manufacturers who rely on American-made parts, just-in-time works as well as ever. And border crossings have been speeded up considerably. Still, it's clear the attacks are making just-in-time inventory managers adopt a just-in-case approach.
Hiawatha Bray can be reached by e-mail at firstname.lastname@example.org.
This story ran on page D1 of the Boston Globe on 9/25/2001.
-- Martin Thompson (email@example.com), September 26, 2001