Outsourcing, lean manufacturing, and just-in-time inventory are sometimes viewed as miracle workers for cutting production costs and allowing organizations to focus on more pressing needs. But John Bugalla and Kristina Narvaez write that depending too much on these useful strategies can ultimately prove dangerous to an organization’s health.
Offshore outsourcing comes with a number of risks to be monitored, particularly the expense and length of the vendor selection process. Another thing to watch out for is how front-end costs compare to cost savings in the first year. It should not take three years for your front-end costs to be worth the savings you ultimately receive.
Just-in-Time or Totally Absent?
Lean manufacturing and just-in-time inventory make it so that you can keep product levels low, but when raw material disruptions occur and you have low inventory, you have a recipe for missed customer shipments or for shutting down the customer altogether. Having multiple suppliers is not a surefire solution if they are all located in the same general area and subject to the same potential disruptions themselves, which is why you need to have options spread out in multiple locations. To read more about these concerns and to see how Bugalla and Narvaez propose to use enterprise risk management to solve your problems, consult the original article: http://ww2.cfo.com/supply-chain/2014/01/the-hidden-perils-of-supply-chain-innovation/