“Just in time” to prevent a recovery?

Are "just in time" manufacturing supply chains inhibiting an economic recovery? That’s a conclusion that one might reach after reading "Clarity Is Missing Link in Supply Chain" in the Wall Street Journal. In the article, author Phred Dvorak recounts the story of Levy Gerzberg, CEO of Zoran, who “found himself surprisingly unplugged last fall. In just a few short weeks, business virtually stopped.”

Explains Dvorak, “The reason is now starting to become clear. 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.”

Dvorak notes that “modern industry rewards suppliers with the leanest inventories and fastest reaction times,” so when economic crisis strike, companies “contracted as sharply as possible in hopes of being the ones to survive.”

A graphic in the article traces the life of a DVD player. It begins with Best Buy’s decision to order from Toshiba, which in turn contracts with manufacturers in China, who then buy chips from Zoran. Zoran in turn places orders with foundries like TSMC, who orders chip-making equipment from, perhaps, Applied Materials. At the end of the line is a machine shop that sells to Applied Materials.

Each link in the chain has incentive to scale back when facing a downturn. So what happens when the downturn is ending? Dvorak quotes David Pederson, Zoran’s VP of corporate marketing, as saying, "It’s easier to turn the switch off than turn it back on."