Supply Chain & Logistics - Connected Corners

Spotlight on Just-In-Time (JIT) & Just-In-Case (JIC) inventory strategies and their key benefits & challenges (Part 1)

This topic takes a quick look at the 2 key inventory management strategies - namely - Just-In-Time (JIT) & Just-In-Case (JIC) models as well as briefly outlines some of their key benefits & challenges

This segment casts a spotlight on one of the key aspects of supply chain & logistics function as it pertains to inventory management strategies – namely – Just-In-Time (JIT) & Just-In-Case (JIC) models as well as briefly outlining each of their benefits & challenges

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

Quick look at JIT & JIC inventory strategies

What is JIT inventory model?

Put simply, JIT or Just-In-Time refers to the practice where manufacturers accurately time the delivery of raw materials/parts to match their production & fulfillment schedules (read: maintain lean inventory) so as to minimize waste & reduce costs

JIT has for long been the gold standard in lean manufacturing & inventory management; gaining a large following amongst businesses across a wide range of industries; including manufacturers, resellers, retailers, supermarkets and more…

…whose key focus is on achieving minimal-zero inventory holding with an aim to reduce waste, free up cash flow and minimize associated costs

For manufacturers; adopting JIT practice means ensuring raw materials/parts arrive just in time to fulfill current production & delivery orders of final goods… whilst for resellers & retailers this typically translates into ordering the finished goods just in time before its anticipated sale

A combination of modern digital, edge/cloud computing, IoT, robotics and blockchain technologies (think: automated VMI platforms, barcode/IoT based fulfillment systems, et al.) are further helping businesses perfect their JIT inventory models

What is JIC inventory model?

Put simply, JIC or Just In Case refers to the 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 environment of constant unpredictable conditions such as unreliable supply of raw material/parts, disruptive transportation & distribution networks, fluctuating consumer demand and everything else in between

Furthermore, business adopting JIC inventory model also tend to focus on being adequately prepared to mitigate a variety of unforeseen operational & market risks in the future; even at the cost of holding the cushion inventory

For manufacturers; adopting JIC practice typically translates to holding excess raw materials/parts that they may continue to ‘comfortably’ draw on even when demand unexpectedly spikes (vs. forecast)

….whilst for resellers & retailers it would typically translated into holding inventory of finished goods in their centralized distribution centers (DC) or de-centralized stores to meet unexpected sales surges

Akin to JIT; JIC-aligned businesses too rely on a combination of digital, cloud computing, IoT, automation, robotics and blockchain technologies to continuously fine tune their demand/forecast models (particularly cushion inventory modeling) with an aim to minimize associated costs

Spotlight on benefits & challenges of JIT / JIC inventory models

Key benefits of implementing JIT inventory strategy

Implementing JIT inventory strategy presents a myriad of benefits that predominantly center around holding a minimal-zero inventory on hand… such as –

#1. Free up capital

By maintaining minimal-zero inventory on hand; businesses can free up precious capital that otherwise would have been tied to excess inventory management (storage, real estate, labor, utilities, et al.) and efficiently reallocate them towards other operational priorities (sales, workforce, equipment, et al.)

#2. Reduce waste

Generally speaking; maintaining minimal-zero inventory helps in reducing waste; particularly in the event when market demand unexpectedly plummets. Furthermore; in the fast moving tech & fashion sectors; JIT-aligned businesses are less likely to be holding on to less profitable / loss making obsolete inventory

#3. Optimize real estate

Ordering inventory only when required helps businesses optimize their real estate footprint; particularly for resellers & retailers with limited real estate space. Whilst businesses may be able to achieve this space saving goal by storing all of their inventory in self-owned / 3rd party managed offsite storage facilities; they may still incur additional costs & logistical complexities in doing so

#4. Transparency into operational weak points

Holding minimal-zero inventory allows businesses to better detect potential weak points within their manufacturing &/or supply chain operations (upstream & downstream) that may have otherwise gone undetected. This gives businesses the opportunity to implement better quality assurance programs across their product’s supply chain journey

Key challenges associated with JIT inventory strategy

Despite all the robust forecasting models & advanced technologies; businesses implementing JIT inventory practice aren’t entirely immune to risks such as –

  • Unpredictable supply chain disruptions (supplier, distribution, storage, transportation)
  • Addressing unpredictable, sudden & asymmetric demand spikes across an omni-channel footprint
  • Potential impact to brand, competitive positioning & customer churn due to lack of stock availability (read: unable to meet current, pent-up or forecasted demand)
  • Potential for JIT contingency plans to buckle under compounded pressures arising from series of or concurrent low-frequency + high-impact events

Key benefits of implementing JIC inventory practice

JIC based inventory management strategy also presents businesses with a range of benefits that center around maintaining cushion inventory on hand… such as –

#1. Meet unexpected demand spikes

By maintaining cushion inventory; businesses would likely be in a relatively better position to respond to unexpected market demand spikes. Manufacturers could draw on their cushion inventory to keep their production lines rolling as planned… whilst resellers & retailers gain the ability to have their e/shelves aptly stocked at all times

#2. Gain economies of scale

For certain types of product SKUs & categories; businesses may be able to secure a significant financial benefit in the form of bulk order discounts. These savings could be used to partially/entirely offset the costs associated with managing the cushion inventory – and/or – businesses may also benefit in more ways than one (loyalty, repeat purchase, et al.) by passing on these discounts as savings to their customers

#3. Manage customer expectations & churn

Cushion inventories ensure a disruption-free production & order fulfillment process; which in turn could be a key contributing factor to the overall customer satisfaction & retention scores for businesses of all kinds. For resellers & retailers; ensuring shelves are always stocked with (in-demand) product SKUs may also help minimize the possibility of customer churn to competitors.

#4. Mitigate potential supply chain risks

One benefit of adopting a cushion inventory strategy would to better manage any unpredictable upstream supply chain disruptions; whether arising from unreliable transport & distribution networks or maybe even collapse of a key parts supplier. This may also cover unpredictable & high-impact events that have the potential to disrupt the supply of raw materials for manufacturers and finished goods for resellers/retailers

Key challenges associated with JIC inventory practice

Many of the disadvantages associated with the implementation of a JIC inventory practice also center around the cushion inventory aspect itself and may typically include –

  • Incurring additional costs directly related to managing cushion inventory (storage, labor, utilities, et al.)
  • Risk of inventory obsolescence; particularly for products aligned to rapidly evolving consumer trends (e.g. fast fashion) and computing & tech categories
  • Relinquishing premium real-estate space to cushion inventory storage; which otherwise could have been repurposed to other aspects of the business
  • Complexity & costs associated with clearing overstocked inventory; particularly for end-of-life SKUs; through deep discounts (maybe even below cost)

So is there a preferred inventory strategy?

Adopting either JIT or JIC inventory management strategy would typically depend on each individual business’ unique circumstances as well as correlating set of variables such as business type & size, product mix, operational complexity, supplier relationships, digital capabilities, consumer demand, et al.

Generally speaking; whilst both JIT & JIC inventory management models have their own place within the broader supply chain ecosystem; each suiting the very specific goals & requirements of the business that adopts them…

…it is the JIT model that has come to become the more preferred choice for a number of businesses across diverse set of industry verticals…

…although recently there has been a lot of buzz about traditional JIT-aligned businesses seeking to revisit the aspects of JIC practice (e.g. cushion inventory)

…owing in part to the impacts from series of concurrent low-frequency / high-impact events such as the ongoing pandemic, parts supply shortages (as faced by the automotive industry), adverse weather patterns, ever evolving micro-patterns in shopper behavior

So…

Both JIT & JIC inventory management strategies present their own distinct value propositions as well as unique set of challenges as well

Whilst the JIT model’s minimal-zero inventory philosophy scores big points for freeing up capital, saving real-estate space, as well as providing excellent obsolescence control… it may also be vulnerable under certain unpredictable events; particularly low-frequency / high-impact ones in a rapid succession or concurrency

On the other hand; JIC model’s cushion inventory philosophy scores points for dampening potential supply risks and possibly even contributing towards better customer retention & CX… but also has big vulnerabilities centered predominantly around costs associated with managing the excess inventory at all times

In a constant pursuit to build a resilient supply chain operations (SCO) that dynamically adapts to the constantly evolving industry, consumer, technological and regulatory trends…

…businesses may see significant benefits in developing a bespoke hybrid JIT/JIC model strategy that amalgamates the best of both inventory management models

Forthcoming segments will aim to cover some of the key reasons why JIT-aligned businesses may revisit aspects of JIC inventory practices, explore a hybrid JIT/JIC inventory model scenario for manufacturer & resellers as well as cast a spotlight on the role of key digital & connected technology enablers in development of supply chain of the future

Stay tuned!