Inventory Management Today: Just-in-Case Versus Just-in-Time?
How many times have you run out to “pick something up” at the store only to discover that the item wasn’t in stock? Chances are, that scenario plays out more frequently of late than it did several years ago. Most supply chains following a Just-in-Time inventory management strategy have found themselves up against incredible odds with today’s disruptions.
Just-in-Time versus Just-in-Case Inventory Management
Just-in-Time (JIT) is a tried-and-true inventory management system where goods and materials are obtained only as needed from suppliers to reduce inventory costs. Alternatively, Just-in-Case (JIC) inventory management is a method where slightly larger inventories are held to prevent running out of stock. It weighs the higher cost of holding inventory against the benefits of customer satisfaction and retention. Technology advances leading to innovations in manufacturing, fulfillment, distribution, and last mile delivery enabled Just-in-Time inventory management. However, recent supply chain disruptions like raw material delays, labor shortages, and shifts in demand from historical data may motivate the evolution from JIT as a model of choice to a Just-in-Case supply management strategy. Today we pose the question:
Does Just-in-Time still make sense in today’s marketplace?
History of Just-in-Case (JIC)
Before the introduction of the revolutionary Just-in-Time method, inventory management followed the Just-in-Case model. It wasn’t called Just-in-Case – it was simply the inventory strategy that was used. The common practice was for manufacturers to order a surplus of supplies and to produce more inventory than they planned to sell. This mindset often expanded across the supply chain to retailers, as well.
History of Just-in-Time (JIT)
The principle of Just-in-Time Inventory originated in Japan with the Toyota Motor Company. Inspired by the efforts of industrial engineer Taiichi Ohno, it was introduced in the second half of the twentieth century to handle batch sizes and parts in construction assemblies. The system revolutionized production and demand, resulting in a smaller work-in-process inventory. Inventory costs decreased, while inventory turnover increased. JIT changed how supply chains ran, paving the way for further improvements. Lean processes were a delightful outcome.
Supply Chain Disruptions
Global manufacturing and distribution has benefited from Just-in-Time inventory management for decades. Much of that success, however, has relied on enabling factors that have changed. Historical data, demand patterns, and process times have been disrupted by factors such as COVID-19, economic uncertainty from geopolitical concerns, and evolving consumer behaviors. The result? A Just-in-Time inventory management practice that may not work as well in today’s supply chain as it has over recent decades.
Adapting to market changes has always been the consistent key to long-term business success, and managing inventory in today’s environment may benefit from a change to the Just-in-Case mindset. While a JIC model carries a higher inventory cost than JIT, those cost increases could be offset by competitive gains in market share.
Retail success depends on brand loyalty. With so many choices for consumers, empty shelves due to supply chain disruption can erode brand value in the mind of frustrated shoppers. Modestly higher inventories reduce out-of-stock and backorder inventory situations, thereby protecting brand loyalty and potentially gaining new customers. A Just-in-Case supply management strategy can help ensure that a product is consistently and reliably available to manufacturers and consumers, increasing consumer trust, consumer retention, and brand allegiance.
Just-in-Case Inventory: A Potential Solution?
Supply chains should remember these basic tips plus be open-minded when considering JIC:
- Consider the probabilities. Stress the importance of understanding and ranking a range of probable scenarios and outcomes.
- Develop options. Devise likely scenario-based plans and evaluate each for risk and reward.
- Develop the ability to detect and respond to change early. Decision-making based on data, prior experience, and scenario planning is key. Be aware when business intelligence indicates likely disruptive change and how that will impact your business goals.
Changing to Just-in-Case requires strategic thinking, actively watching for early signs of disruption, and acting accordingly. Late supplier shipments or abrupt changes in demand are important to recognize. A Just-in Case approach, when paired with probability-based scenario planning, might result in more liberal inventory management and slightly higher costs. But engaging in JIC in the current supply chain environment could be the secret to greater market share and better business continuity.