The world's complex "just in time" manufacturing supply chains are making it increasingly tough for Zoran, and any other single link in the chain, to know what's going on just a few links away. Sometimes, Zoran itself doesn't even know how its own chips are used: One batch it thought was destined for DVD players instead turned up in digital picture frames.

The recession has exposed a harsh side effect of the supply-chain system.

Forced to guess at demand for their products in a plummeting market, everyone hit the brakes, hard.

Clarity Is Missing Link in Supply Chain - WSJ.com

The above article in the Wall Street Journal of May 18th, 2009 provides insights into the plight of suppliers in a value-chain operating in isolation without sufficient knowledge of the demand side of the supply chain equation. Though forecasting  takes into consideration variables influencing demand, it is still prone to errors that get compounded during unpredictable economic conditions, especially when visibility into the variables influencing demand cannot be identified accurately.

The case with Bestbuy highlighted in this article is a classic indicator of this problem. They were unable to accurately forecast demand for DVD players given the economic uncertainties, and hence arbitrarily chose a conservative approach and slashed forecast numbers – hence the “independent demand forecast” itself was to some extent biased. The other suppliers in this chain, would have altered their production schedules based on this forecast, factoring their manufacturing cycle times and procurement lead times which would have introduced distortions (minimum batch quantity etc.) thereby affecting the “dependent demand” across other links in the chain which affects the fulfillment process. Though generalizations cannot be made, the extent of distortions introduced in the fulfillment process itself depends on a product’s order-to-cash cycle such as Engineer to Order, Made to Order, Assemble to Order or Made to Stock.

Shifting gears, the unpreparedness of Hospital Emergency Rooms to handle the influx of patients fearing swine-flu affliction is exactly the same as the issue faced by Bestbuy in predicting consumer demand.

Thus the basic issue here is with forecasting and has nothing much to do with JIT systems. Any inventory build-up just hides problems in the supply chain, and is not at all desirable. A JIT system only ensures that no fat builds up in the chain, and adds to the costs. Of course, poorly executed JIT systems that just pushes the risks to the supplier who assumes the responsibilities for the inaccurate forecasts provided by the retailer or distributor in the supply chain, but that is a subject in itself.