Just-in-time inventory is a beautifully constructed phrase for the business and marketing world. It beams flawless customer service and exceptional delivery of goods — something that a company’s competitive peers would envy. It underlines operations being handled in a highly efficient way.
But, realistically, that’s where it can damage a company’s business model, especially during dire times such as today’s coronavirus outbreak.
Michael Johnson, CEO at Hampton-based Visikol, a contract research organization focused on advanced drug discovery in biotech, said companies “living on the edge” with their inventories just to suit shareholders and the bottom line are the ones being hurt the most.
“Look where this approach has taken (some health care-based providers) over the past month,” he said. “When it comes to the intersection of manufacturers, distributors and inventory, it’s so, so hard to dance the perfect dance; you’ve got to time it up just right. And, when a huge shock hits like COVID-19, just look at the negative consequences for industries such as hospital networks and the materials they require to deal with this health crisis.
“These suppliers (routinely) are working from such sharp, razor-thin margins that they have to limit stock on hand to be more cost-effective. That works great when things are going well, but, boy, wouldn’t it be great if they all had two or three months’ supply of masks and other PPEs right now.”
Managing this way was born out of the 2008-09 financial crisis, Johnson said.
“It was wakeup call, and CEOs looked around to find ways to be more efficient,” he said. “Having too much inventory is expensive. Those costs sit on your books. When inventory for some items expire, you just have to throw them out.”
Johnson said Walmart was one company that ideally addressed its situation, and it has thrived for a long time in the eyes of its shareholders, with manufacturers managing inventory on Walmart shelves and an almost perfect balance between supply and demand.
Visikol originated in 2012 and employs about 20. It is a private firm and Johnson acknowledges that just-in-time inventory plays differently between private and publicly traded companies.
“Heads of publicly traded companies have to be beholden to their shareholders,” he said. “Their (performance metrics) are made public for anyone to see. If they are not controlling expenses and improving revenue, the shareholders will just dump their stock — and you can’t prevent them from doing that. For these companies, there are thousands of shareholders.
“For private companies, your investors have every right to call into question the operations. But, for us, we have 10 shareholders in our company. It’s a different conversation. I can get on the phone with each and every one of them and explain what we’re doing and why we’re doing it.”
Johnson said his company’s business practice is to consistently carry a great number of supplies, especially those that have longer lead times or might be harder to find. His inventory comprises tools and materials to conduct medical research studies such as microscopes, slides, reagents, chemicals, antibodies etc.
Just-in-time inventory helps to free up cash for companies. Investors and shareholders prefer that cash to be invested in growth strategies, not inventory, Johnson said.
“Companies like Tesla only have enough cash on hand for a couple of weeks; as long as revenues go to zero and expenses are largely maintained, the rest is spent to drive growth,” he said. “For a company like us, we’re happy to focus a little less on growth so we can have a little less risk.”
Johnson is a microbiologist by trade. He said that when he heard in late January about COVID-19 and its clinical characteristics, he sold most of his personal stock market holdings and bought “tons of supplies” for his operations. As lab researchers, his employees have been mostly keeping their regular work schedules, hunkering down and working on bioresearch with a few adjustments to reduce the spread of the virus. Visikol fits into the exempt category for businesses during the stay-at-home edict of Gov. Phil Murphy.
“The important work we do really can’t be done from home,” Johnson said. “I’m avoiding public spaces. In our offices, to be safe, we are staggering our shifts, we aren’t inviting any guests inside our offices, and, while we are working, we are spread out. We don’t want our processes to slow down and the development of new therapeutics to slow down.”
Paul Bergeron is a freelance business reporter based in Herndon, Virginia. And, yes, he is related to ROI-NJ Editor Tom Bergeron. They’re brothers. And know this: If you have seen the recent CNN spats, they get along better than the Cuomos.