Pakistanis, It’s time to move on from JIT to JIC + AOT procurement
Pakistan is seemingly on the brink of default, and procurement is becoming more and more cumbersome process.
Whereas we usually emphasize on Just in Time (JIT) buying as a defacto standard of lean procurement; but keeping in view current economic situation, we might have to strategize this again.
There are certain methods to restrain supply shortages, but from the procurement point of view, it is better to switch from JIT strategy to AOT or JIC plans.
Just in time is a form of procurement management in which a company works with suppliers to make raw materials or products available when required. That production or consumption is about to begin. A just-in-time procurement management strategy aims to have the necessary inventory to meet the current demand and avoid waste.
Where Just in case (JIC) is a form of procurement management where a company orders excess raw materials than required and produces more products than is expected to sell. It aims to keep extra stock in hand to avoid any risks relating to supply chain. JIC strategy allows a company to focus on longevity & delivery rather than running for raw material in times of recession or supply outage.
But both of earlier mentioned methods are not flawless, especially when company’s size and capital is limited. Only those companies can unleash the true opportunity which have coupled this with Ahead of Time (AOT) procurement plan.
When we talk about current economic situation of Pakistan, the last two options only seem feasible in medium run. JIC + AOT procurement plan of action is the solution in slump.
If you have enough budget, then AOT-only plan might be fruitful; but since it is already known that Pakistan is short on exchequer, vying AOT-only plan is Never going to help unless businesses do not keep some focus on JIC planning.
Since capital is limited we can for at least indulge in some kind of supply holding contracts, price locking and supply assurance schemes to reduce turmoil.
Like, if we try to look at construction industry, at first we have to categorize all products and services using Pareto principle. It is easy to understand that most of budget goes in building materials like cement, steel, bricks, sand, aggregate, construction equipment and labor wages.
If we can at least source- negotiate-contract three suppliers of each we can have the redundancy in supplier pool.
We have to look at our medium term and long term planning of current and upcoming projects execution. We have to forecast demand and consumption and establish a bill of quantity.
In either way; whether JIT or JIC procurements; specifications must be established clearly.
Since we are short on budget and country might have to face trade embargo, it is essential to substitute the conventional products or materials with locally sourced-cum-originated alternatives that can just work.
Off course steel can’t be substituted with bamboo but this is the real challenge what JIC + AOT planning is supposed to tackle.
We have to look whether is it totally necessary to use steel, how are some of building blocks and techniques worth? In several cases wood or stone might replace steel at all, even Egyptians used copper or bronze to make things work and fulfill the purpose, although not very efficient, but we are discussing scenarios, just in case.
Although copper is pricier than steel, we can trade this at metal exchange. Pakistan have substantial deposits of copper but short on iron ore so this fallacy is both practical and feasible; this can work flawlessly just in case (JIC) we do this ahead of time (AOT).
We can peg the prices or at least fix barter ratios, this will ensure price consistency.
We have surveyed the copper or coal reserves, and based on data we can assure commodity supply rate in medium run, even we can hold the inventory to handle the surge in supply chain.
Procurement can use this is as a vehicle of payment to trade in. As discussed earlier, barter trading can sustain if supply assurance contracts, supply holding and exchange rate (price locking) is established.
Since we are already offering three options in market, we can also try to find suppliers to do the same business using the very same method.
Off-course somethings discussed here are supposed to be executed at macro level, but to summarize this is something that can be done at micro level, I have seen people trading sand with soil.
To avoid supply chain disruptions, the just in case model provides businesses with a viable alternative that is suited to contingency planning and delivering service continuity.
Ultimately, supply chains today remain in flux, driven by a set of macroeconomic issues that show no sign of being resolved quickly.
Shehroz