After the COVID-19 crisis the recent auto chip shortage has opened debates about the merits and demerits of the famous process of Just-In-Time (JIT) manufacturing, or lean manufacturing as it is known of late. The JIT supply chain method became a dominant mode within the automotive industry, particularly with auto component makers, as it cuts down waste and boosts efficiency by receiving inventory only as and when needed. This manufacturing system allows the production team to concentrate on the customer order rather than building up stocks.

However, the pandemic has prompted a rethink on this practice. Some industry experts opine that the concept of JIT thrived primarily because of stable production, demand and supply. As there was no sudden surge or sharp drop in production volumes at the OEMs' side, JIT could meet the exact requirement for production and supply.

Seeing the dynamic and volatile nature of the market, Prashanth Doreswamy, country head Continental India, feels that so many models and variants of vehicles, cut-throat competition, and an unpredictable market scenario are vastly affecting supply.

"With the JIT model, handling such scenarios can lead to ineffective utilisation of assets and be less productive. This is where the inventory model gives the much-needed flexibility in handling impulsive demand and supply more efficiently and effectively.”

According to Doreswamy, who is also the MD of Continental Automotive Components (India), the inventory model is more agile and supports quick adaptation to production requirements based on the situation, yet remaining efficient.

"With technology advancement, all suppliers can access customers' data points as early as vehicle definition. With various modeling tools available, one can predict the variant-wise demand. The ability to predict gives freedom to detach oneself from customer broadcast and develop one’s own pattern for leveling the production schedules and still supply what customers want on time without any hassle," he added.

Manish Bhatnagar, MD, SKF India, said that the methodology of implementing JIT and inventory models depends on a lot of factors such as availability of raw materials and magnitude of demand.

“Which methodology to embrace essentially depends on the pace of demand. While JIT strategy is good for high volume and standardised production, the inventory model is used in methods which involve high proliferation and when we are making products from a user standpoint,” he explained.

Although for a short while the auto suppliers have shifted to inventory models for a few of their products which require some critical components, it is not sustainable in the long run, he said.

Analysts say that despite the disruptions, only a handful of parts suppliers have switched to the inventory model as it comes with additional cost. “By keeping inventory, quality and cost become major casualties. When cash is king, small and medium-size suppliers cannot even think of incurring extra storage cost and therefore, they will stick to the conventional JIT method,” said an industry expert who did not wish to be named.