Supply Chain & Logistics - Connected Corners

3 reasons for building a hybrid JIT/JIC inventory strategy in 2021 & beyond (Part 2)

This segment aims to explore some of the key reasons why a value chain player may consider building a hybrid JIT/JIC inventory strategy in 2021 & beyond

This segment continues from Part 1 to explore the key reasons why value chain players may consider building a hybrid JIT/JIC inventory strategy in 2021 & beyond

Quick note: Despite some similarities inherent to the supply chain & logistics function across various industry verticals, each business is relatively unique (geographic presence, product mix, tech & operational capabilities, strategic goals, supplier relationships et al.) and as such their hybrid JIT/JIC inventory strategies, broader supply chain solutions, technology platforms & CX programs will be reflective of their individual goals & capabilities

Why build a hybrid JIT/JIC inventory strategy?

JIT – preferred inventory strategy… but with room for improvement

Put simply; JIT or Just-In-Time refers to the practice where manufacturers aim to accurately time the delivery of raw materials/parts to match their production & fulfillment schedules so as to minimize waste & reduce costs [outlined in Part 1]

Similarly; for resellers & retailers this translates to timing the delivery of finished goods from manufacturers to their centralized distribution centers (DC), independent stores and/or even customers‘ doorsteps (D2C program) with anticipated sales so as to maintain minimal shelf inventory

There is little doubt that JIT model continues to remain the preferred inventory strategy for a number of businesses; owing in part to the myriad of operational efficiencies & cost benefits it offers…

…but despite that; JIT-aligned businesses may not be entirely immune to certain types of market & supply chain risks [outlined in Part 1]

JIC – averting unforeseen risks… but at a cost

Simply put; JIC or Just-In-Case refers to the inventory practice of maintaining ‘more than required’ raw materials / parts on hand (read: cushion inventory) so as to better manage range of potential risks (production/supply chain, brand, competitive, market, et al.)

JIC has traditionally appealed to businesses who predominantly operate in an state of constant uncertainty & unpredictable conditions and/or whose key focus is to being adequately prepared to mitigate a variety of unforeseen operational & market risks in the future; even at the added cost of holding the cushion inventory

The ongoing pandemic in concurrence with other unforeseen events may have exacerbated some of the inherent gaps & risks associated with JIT inventory model…

…leading traditionally JIT-aligned businesses to explore integrating various aspects of JIC practice in building a hybrid JIT/JIC inventory model

Highlighting the 3 key reasons

Why hybrid JIT/JIC inventory strategy - Connected Corners

Whilst the actual reasons for developing a hybrid JIT/JIC inventory strategy may vary by individual business and be dependent on a range of factors (business type, industry vertical, operational capabilities, product mix, risk appetite, supplier networks, digital capabilities, consumer demand, et al.)

…generally speaking; the 3 key reasons businesses may seek to build a hybrid JIT/JIC inventory strategy would be to –

  • Build a more resilient inventory management strategy for the future
  • Develop the capability to fulfill unpredictable & asymmetric demand spikes across an omni-channel footprint
  • Prevent customer churn & improve/maintain competitive positioning in market

1. Build a more resilient inventory management strategy

JIT-aligned businesses facing sudden & severe inventory shortages; caused in part by supply chain disruptions &/or whose JIT contingency plans haven’t been able to withstand multiple low-probability/severe-impact events… may be seeking to build a hybrid JIT/JIC inventory model that is more resilient to similar situations in the future

Even the venerable automotive industry – who’ve been perfecting their JIT strategy over decades – is facing severe parts shortages (notably semiconductor chips) causing a raft of production delays and even plant shutdowns

…leading many manufacturers to consider holding cushion inventories (JIC inventory practices) to keep their production lines rolling; even if it meant incurring the additional costs that come with it

Whilst the resulting hybrid JIT/JIC inventory model would still be JIT biased to ensure continued efficiency & capital gains; maintaining reasonable levels of cushion inventory could help prevent costly disruptions to key business operations (production, sales, et al.)

2. Develop capabilities to fulfill sudden & asymmetric demand spikes across an omni-channel footprint

Today more so than ever; retail & eCommerce businesses managing an always-open storefront and a broad array of delivery options are faced with the challenge of accurately balancing demand, forecast & supply planning across an omni-channel footprint; notably –

  • Gaining real-time visibility & predictive models into consumer demand across all sales channels (physical, digital, social)
  • Providing diverse yet cost effective fulfillment options (2 hour delivery, click-and-collect, et al.)
  • Maintaining lean inventory yet build ample stock capacity to dynamically meet consumer demand across any channel and at any time

Value chain players; particularly across the manufacturing & retail ecosystem may see benefits in developing a hybrid JIT/JIC inventory model that can sufficiently sustain any sudden & asymmetric demand spike across any of the sales touch-points in the future…

…in turn having the potential to reduce their holistic operational costs, increase recurring customer spend (revenue) as well as improve consumer experience (shopper/customer) CX across an omni-channel footprint in the long run

3. Prevent customer churn & improve/maintain competitive advantage

For resellers/retailers who have been practicing minimal-zero store inventory JIT models; sustained disruption in securing finished goods from the manufacturer = empty shelves = potential customer churn + related impacts (repeat revenue loss, less than favorable promoter scores, et al.)

Even a single adverse event may be enough to cause sudden & severe shortages of everyday consumables like toilet rolls & pasta (as witnessed through 2020)

…which; in a low-loyalty, hyper-competitive &/or price-sensitive market may lead to negative customer sentiment and potentially even loss of business to competitors (read: customer churn)

JIT-aligned CPG/FMCG ecosystem businesses may find that building a hybrid JIT/JIC inventory strategy could contribute towards customer delight, better CX and perhaps even a competitive advantage

Again; dependent on a raft of variables (brand impact, demand profile, product type, pricing & profitability, storage cost, et al.); businesses may choose to hold cushion inventory across an entire product category or only select SKUs thereof

Is hybrid JIT/JIC inventory strategy here to stay?

Inventory management has always been a complex function and is also in a state of perpetual evolution; owing to ever changing consumer behavior, industry transformations, digital & technology advancements, complex supplier partnerships and everything in between…

…but for the most part is still centered around finding a critical balance between reducing costs / increasing ROI, optimizing operational efficiencies and enhancing customer experience (CX)

Whether hybrid JIT/JIC inventory strategy is just a temporary measure or here to stay for good really depends on the individual business and their unique goals & capabilities

For certain businesses; integrating JIC inventory practices into their existing JIT operating rhythm may just be a temporary stopgap measure until the ongoing adverse conditions abates (read: inventory normalcy returns)

…and that could be due to a myriad of reasons such as being sensitive to tying-up precious capital in holding cushion inventory for extended periods or perhaps avoiding the risks associated with holding sizable volumes of obsolete SKUs (e.g. technology / fast fashion product categories)

For some others, developing a hybrid JIT/JIC model may actually be a permanent strategy to bolster their JIT contingency measures as well as build a resilient supply chain operation of the future…

…even if it means absorbing the costs associated with managing the cushion inventory (invariably optimized over time) in exchange for maintaining better competitive positioning as well as be adequately prepared to address future operational & market risks

So…

Whilst JIT remains the preferred inventory strategy for many businesses & industries; recent events have shown that the model isn’t completely immune to risks arising from various adverse events

Developing a hybrid JIT/JIC inventory model could not only help the business add a degree of resiliency to their existing supply chain operations but also help unlock a range of additional benefits

Forthcoming segments will aim to explore a hybrid JIT/JIC inventory model scenario for manufacturers & retailers as well as the role digital, cloud & connected technologies play in developing a robust inventory management solution

Stay tuned!