With the Covid pandemic wreaking havoc on modern supply chains, there has been a lot of discussion recently about Just-in-Time versus Just-in-Case logistical strategies. Many are questioning whether JIT has been taken too far or has simply been implemented incorrectly. There are some who are saying we need to bring back JIC, or perhaps create some hybrid model.
But what is JIT, and what does JIC mean? What are the advantages and disadvantages of each? Let’s take a look at each of these strategies and what each of them can do for an organization.
JUST IN TIME
Just In Time, or Lean inventory management, is the strategy of keeping just enough stock on hand to meet immediate production needs without increasing holding costs due to unused inventory. Made popular by Toyota, it has since become the dominant inventory management strategy. A company can realize significant cost savings on inventory storage while at the same time freeing up cash flows for other business purposes.
The Advantages of Just in Time
The JIT model works best when supply chain partners have good working relationships, a consistent logistical flow, and long-term contracts for low-cost inventory. Companies must have good working relationships with their suppliers to negotiate accurate and reliable delivery cycles. They must also make sure their supply chain is operating smoothly so orders can be received on time and distributed where needed with minimal delay. Long-term contracts ensure a steady supply of low-cost inventory.
JIT works best when an organization has a well-developed ERP system in order to capitalize on efficient customer order fulfillment as well as automatic inventory renewal. Information needs to be collected and utilized quickly for accurate inventory counts and rapid reorder cycles.
The Disadvantages of Just in Time
In order for JIT to work optimally, demand must remain constant. While seasonal demand can be accounted for with good ERP systems, unexpected demand shifts can leave a company with too little or too much stock, and customers have a long memory when it comes to stockouts.
Just in Time systems also suffer when supplier do not or cannot get stock to you as scheduled. JIT is highly sensitive to supply chain disruptions. Shutting down production for the day because a snow storm kept the next delivery of widgets from showing up can have a ripple effect on your entire operation.
JUST IN CASE
Business can be unpredictable despite the latest software or metrics algorithms. Just in Case inventory strategy involves keeping enough stock on hand to create a cushion against such unpredictability. The focus of JIC is to maximize an organization’s ability to meet demand and is less concerned with tying up capital. JIC inventory is decided on based on forecasted demand.
The Advantages of Just in Case
JIC has an advantage over JIT in that it does not rely on a perfectly operating logistics flow. With JIC, that snow storm delaying your widgets will not shut down production because you have 3 days’ worth of stock on hand for just such contingencies.
JIC can also place a company in an optimal position to take advantage of sudden spikes in demand because the inventory is already stocked and ready to be shipped cutting down lead time.
The Disadvantages of Just in Case
Just in Case strategies suffer in three major ways: Carrying costs, increased opportunity costs, and excess stock. Carrying costs increase the more safety stock a company maintains. Cash is tied up in inventory and warehousing rather than being available for other business ventures. Stock can become damaged or obsolete before it is sold.
LEAN VS. SAFE – WHICH ONE IS RIGHT FOR YOU
Whether your company should incorporate JIT or maintain a JIC strategy is largely a decision based upon the particular industry you are in. If you are more concerned with mitigating supply chain disruptions and successfully overcoming unpredictable demand, then JIC will be an attractive strategy. If your company can accurately forecast demand and want to minimize inventory then JIT is the way to go.
More than likely, your organization will find that a hybrid model between JIT and JIC ideal for your operations. Minimizing inventory in a lean strategy frees up carrying costs and allows capital to be diverted elsewhere, while maintaining enough safety stock to manage normal demand swings ensures satisfied customers.
A problem with JIT appears when a company focuses too much on lean production at the cost of flexibility and safety stock. In the event of a supply chain disruption, they do not have enough stock on hand to meet current demand, nor are they able to acquire supplies easily from alternate suppliers.
A WORD OF CAUTION
No strategy, no matter how well implemented, can protect you from global disruptions such as the Coronavirus pandemic. Such black swan events will disrupt supply chains and demand cycles regardless of how much safety stock you keep. While it may be tempting to hold a large amount of inventory for such events, they are simply too unpredictable, and in the end you will only end up losing money to carrying and opportunity costs and can not guarantee you will be able to have appropriate logistical flow to send that inventory to customers.
As in most things, moderation is the key. Balancing Just in Time lean production with Just in Case safety stock is key to optimizing capital while satisfying customer demand.
ABOUT THE AUTHOR
Jason Kelly is completing an internship with ASCI. He is currently a senior at the University of Alaska Anchorage completing his final semester for a bachelor’s degree in Global Logistics Supply Chain Management with a minor in Computer Information Systems. He is also scheduled to receive an Occupational Endorsement Certificate in Business Analytics. His experience in logistics lies in oilfield supply, inventory consignments, and air cargo shipping.
Contact us at hello@ascillc.com or (907)348-1610 if you would like to set up a free consultation appointment to help with your business’ inventory management needs.
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