Reflection: punctuality is becoming a thing of the past. Can China lead the reconstruction of the supply chain first?

Source / unfinished Research (id:weijin_research)





In a blink of an eye, 2022 is about to be half over. In the first half of the year, enterprises had a hard time. One of the important reasons was that the global supply chain was becoming more and more chaotic and out of control.



Since the global COVID-19 in 2020, there has been a shortage of supply in the world, and the normal continuous production of many enterprises has been difficult to ensure, especially those enterprises deeply embedded in the global industrial chain, such as cars, chips, mobile phones and so on, which highly rely on just in time, have experienced delays and interruptions in design, production, logistics, distribution and other links.



The situation becomes more serious in 2022. The geopolitical conflict between Russia and Ukraine escalated into war, exacerbating the insecurity of enterprises. Novel coronavirus has spread in many cities in China, especially in Shanghai, where multinational companies gather. No matter the suspension of production during the closure period, the blocking of port roads everywhere, or the difficult recovery of supply facilities during the resumption of work and production, just in time production is becoming more and more "outdated".



Is just in time, the most efficient production mode in the past 40 years, becoming just in case.



JIT production was first proposed by naiichi Ono, vice president of Toyota Motor Company in Japan in 1953. All links and processes of the enterprise production system can only produce products in the required quantity when needed. This "zero inventory" production management method can reduce costs and improve production efficiency.



Japan was hit by the oil crisis and the depreciation of the US dollar in the 1970s, and its industry began to transform and upgrade. The automotive industry implemented just in time manufacturing and achieved obvious benefits. As Japanese cars invaded cities and territories overseas, just in time production entered Detroit, and they also conquered American technology giants such as Motorola and IBM. Just in time production was refined as "lean" production mode by American automobile entrepreneur John Krafcik in 1988. Krafcik later served as CEO of waymo, a Google autopilot company.



It is worth mentioning that Krafcik later studied lean production at the Massachusetts Institute of technology. He investigated 90 factories in 20 countries around the world and made a comparative study of their productivity and quality, providing first-hand information and data for the best-selling book "machine that changes the world", so that the word lean production can be popularized from the automotive industry to the manufacturing industry all over the world, especially in Asia and China.



Lean production is the most important manufacturing method in the past 40 years, and just in time has also become one of the most distinctive labels of globalization.



IBM in the United States learned lean production and established a continuous production system. At that time, cook was in charge of IBM's supply chain. He later brought a whole set of lean production methods to apple.



Cook said that inventory was "fundamentally evil", adding that "inventory is like fresh milk, and no one wants to buy it that goes bad."



Cook is a master of lean production. He can turn inventory of Apple products every five days, accurately release, manufacture and ship millions of iPhones in the global market, and there is almost no excess inventory.

The lean miracle created by Apple has finally encountered a real test in China. In the first half of this year, the multi-point spread of the epidemic in China is expected to have an impact on Apple's second quarter results of $4billion to $8billion.

Another affected enterprise is Tesla. Its super factory in Shanghai contributed nearly half of the company's global output last year, but it stopped work intermittently and closed production during the Shanghai epidemic. It did not fully recover its production capacity until more than two months later, and began to make up for lost output day and night.

Electric vehicles are different from internal combustion engine vehicles. Their power batteries and electric motor control systems require several times more metal minerals than fuel vehicles. If internal combustion engine vehicles are eliminated in major global markets between 2030 and 2035, the supply chain of the global automotive industry will be restructured. At present, China occupies a relatively favorable position. However, as Europe, the United States and Japan accelerate their transformation to new energy vehicles, the competition for supply chain has just begun. The United States has raised the supply of power batteries and related lithium and other metal minerals to the height of national security.

In the era of electric vehicles, can lean production still play a turn?

Tesla's goal is to produce 20million vehicles annually by 2030. For this reason, it is moving towards vertical integration. From the chips of cars to the metal minerals needed for power batteries, it should be in its own hands. BYD, the leader of electric vehicles in China, has entered the manufacturing of cars and electric vehicles with vertical integration. It is the first enterprise in China and the world to produce lithium iron phosphate power batteries and electric vehicles at the same time.

Lean production has become a global standard. Not only Toyota, apple, Tesla and other advanced manufacturing industries, but also international chain brands, e-commerce and so on, all manage the industrial chain in a lean way.

But on the other hand, the more successful and globalized lean is, the more fragile the production system will be. One supply chain expert compared lean manufacturing to a ship sailing on rocks. Water is inventory, and rock represents process and system. When the water level is too high, enterprises can sail easily, but they may waste by holding too much inventory. When the water level is too low, the ship will hit the rock.

Another example is the supply chain system aiming at lean manufacturing, such as the Suez Canal. The larger and more frequent the ships usually pass, the higher the benefits it creates. However, this river is becoming increasingly narrow in front of huge cargo ships. Once blocked, it will have a huge impact on enterprises in the supply chain.

The past 40 years have been the golden age of lean production. But 2022 is an unsafe world. The world is facing wars, epidemics and extreme weather. Enterprises should pay for safety, health, disaster prevention and sustainability.

Lean production is conditional on the stability of the external environment, including a peaceful international environment and the free flow of goods, capital, labor and information.

Lean production system, without redundancy, is too tight, and the global production system is more and more closely linked, which is easy to cause systemic risks. If a tiny detail fails, it may become a bottleneck link.

In recent years, supply chain has become one of the most concerned issues for CEOs. They first consider increasing inventory. When the United States cut off chip supply to some Chinese enterprises, global enterprises instinctively hoarded tens of billions of dollars of chips, which further exacerbated the supply shortage.

Even Toyota began to stock up. According to the statistics of the economist, the inventory increased by the world's largest 3000 companies is equivalent to 1% of the global GDP since 2019.

For enterprises, they will have to sacrifice some efficiency to consider the security of the supply chain. Whether in the face of war or in response to the epidemic, we see that policymakers are willing to make a balance between efficiency and security, and strive to find a new toughness. This toughness, first of all, is to increase the redundancy of the system.

Multinational enterprises will restructure their supply chains, strengthen closer cooperation with existing suppliers, make the information of suppliers at all levels more transparent, or sign longer-term supply agreements; It will also diversify the sources of supply, look for suppliers from neighboring regions or countries as far as possible geographically, and look for opportunities for "friendly shore outsourcing" geographically. Globalization is turning to regionalization.

Enterprises still need lean management, but it is no longer simple punctuality.

Taking automobile production as an example, electric vehicles need hundreds and thousands of chips. At present, electric vehicles are becoming increasingly intelligent, and autonomous vehicle will have higher requirements for the supply chain. In 2021, just because of the lack of chips, the global automobile shipments decreased by tens of millions.

The automobile supply chain, from the metal minerals required by power batteries to the small chips required by MCU and SOC, can't produce a car or reduce the configuration. Those giants in the global automotive industry will inevitably move towards vertical integration and control the core and most likely products. Some will design their own chips, and some will dig their own mines.

Intelligent manufacturing, industry 4.0, industrial Internet, digital factory... These technologies can help enterprises carry out flexible production and large-scale customization. The higher the degree of digitalization and intelligence, the better the management of the more uncertain and complex production system. They are essentially interlinked with lean production and provide technical possibilities.

China is the world's factory and the global supply chain center. Lean production has greatly improved the level of Chinese manufacturing. Anti globalization is in an unsafe stage, but it will take many years for the global supply chain system built around lean production to transform to a resilient supply chain.

New opportunities are conceived in such a process of supply chain reconstruction and upgrading.

The largest market, such as China, will take the lead in restructuring the supply chain in the most important industries, such as electric and intelligent vehicles.

In manufacturing, enterprises all over the world, whether Chinese or American, use the same technology and management language. By helping the world's advanced enterprises build the resilience of their supply chains, the resilience of China's economy will be strengthened.

Source / unfinished Research (id:weijin_research)