Why "Just-in-Time" systems may hamper the recovery

In the Wall Street Journal, Phred Dvorak (great name, that) describes how the last generation's shift to "just-in-time" supply chains has made it harder to gauge conditions in many industries:

The recession has exposed a harsh side effect of the supply-chain system. Because modern industry rewards suppliers with the leanest inventories and fastest reaction times, when economic crisis struck, tech companies up and down the line contracted as sharply as possible in hopes of being the ones to survive.

Forced to guess at demand for their products in a plummeting market, everyone hit the brakes, hard. An examination of the electronics supply chain -- from retailers all the way back to makers of factory machinery -- shows that, at almost every stage, companies were flying blind as they cut.

If the current system rewards firms for slashing inventory quickly and penalizes them if they replenish them too soon, this sure looks like another factor that will make this a slow, extended recovery.

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