Why the supply bottlenecks are a blessing

The pandemic was not the reason for the global supply bottlenecks – Covid was just the trigger. The reasons lie in mismanagement and an economy that is not designed for disruption. 

Everyone in the logistics industry knows the effects of just-in-time manufacturing. “If we don’t get product A to B today, you’ll have to shut down a production line” is a phrase that comes up quite often.

But what is the idea behind Toyota´s just-in-time manufacturing and why is Toyota, of all car manufacturers, the one with the fewest delivery problems? Toyota invented just-in-time manufacturing out of an urge to keep up with US car manufacturers. The goal of just-in-time is to minimize excess inventory. This reduces costs, shortens market response times and maximizes profits. This concept was so successful that it quickly spread throughout the entire manufacturing industry. However, not all supply chains are the same. Toyota itself had to learn this during the 2011 tsunamis, when it was quick and easy to find alternatives for polymers, but not for complex microchips.

Toyota has learnt from this and built up more inventory for certain components in order to cushion crises. However, they were pretty much alone in doing so and are therefore one of the few companies with significantly fewer supply problems. The rest of the world, manufacturers in the automotive industry, consumer electronics and other sectors, stuck to the profit-maximizing system, which is built as close to the limit as possible.

The example of microchips

The huge increase in demand for consumer electronics and the surprisingly small decline in demand for cars and other products created a fundamental shortage of microchips. This was exacerbated by the 50% increase in container sales in 2020, which caused major delays at the world’s ports.

This led to the inevitable collapse of supply chains. Any company that had not built up reserves of microchips quickly found it difficult to maintain production. So we have reached the point today where prices for graphics cards are tripling, delivery times for cars are up to 14 months and it is impossible to buy the latest games console.

It is foreseeable that there will be a better global understanding of resilient supply chains and long-term success thinking. In most companies, maximizing profits for stock prices and shareholders has not yet created an environment conducive to such thinking.

This is the blessing that the supply bottlenecks have brought us: They show us where a change of mindset is urgently needed to avoid these situations in the future.