Just-in-Time (JIT) is a system for managing inventory where goods or materials are obtained only when they are needed from suppliers in an effort to reduce the cost of holding inventory. Alternately, Just-in-Case (JIC) is an inventory management method where large inventories are held to prevent running out-of-stock. This method weighs the higher cost of holding inventory against the benefits of customer satisfaction and retention. Advances in technology leading to changes in manufacturing, fulfillment, distribution, and last mile delivery fostered a marketplace where Just-in-Time made sense. However, disruptions to that marketplace including raw material delays, labor shortages, and shifts in demand from historical data may motivate a shift from our previous model of choice. Today we post the question: Does Just-in-Time still make sense in today’s marketplace?
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 Taiichi Ohno, the system was launched in the 1950’s to handle batch sizes and parts in construction assemblies. It revolutionized production and demand, and resulted in smaller work-in-process inventory. Inventory costs were reduced as inventory turnover increased. Ultimately, the JIT model changed how supply chains ran, paving the way for further improvements. Lean processes resulted, and organizational silos were knocked down.
Shifts in Supply Chain Factors
Global manufacturing and distribution benefited from Just-in-Time for decades. However, much of that success relied on enabling factors that existed during those times. Fast forward to the 2020’s. Assumptions and factors from previous decades that made JIT work no longer hold. Historical data, demand patterns, and process times have been disrupted by factors, such as COVID-19, economic uncertainty generated by geopolitical concerns, and evolving consumer behaviors. In our recent Pace Logistics Lab post, The Revival of Sales and Operations Planning, we discuss the many short and long-term benefits of adapting to marketplace shifts.
A change in mindset from Just-in-Time to Just-in-Case may offer a solution. Business success has always hinged on recognizing changes in the market and adapting accordingly. Managing inventory and manufacturing processes in today’s environment may benefit from a Just-in-Case mindset. Even though a JIC model necessarily carries a higher inventory cost than JIT, the cost increases associated with Just-in-Case could be offset long-term by competitive gains in the marketplace. Retail success depends on brand loyalty. But with so many choices for consumers, an empty shelf due to supply chain volatility can devastate brand value in the mind of a disappointed shopper. Just-in-Case can help ensure that a product is consistently and reliably available, increasing trust in the minds of consumers.
Just-in-Case Inventory Management as a Solution
Supply chains may want to consider these three simple changes in mindset:
- Think about probabilities. Develop an understanding and ranking of a range of probable scenarios and outcomes.
- Develop options. Devise several likely scenario-based plans, and evaluate each for likelihood, risks, and rewards.
- Build your ability to sense change early and respond. Decision-making should be based on data, prior experience, and scenario planning. Be aware when business intelligence indicates likely disruptive change and how that will impact your business goals while allowing plenty of time for your response.
The mindset change to Just-in-Case requires decision makers to develop their strategic skill set, actively watching for early signs of disruption, such as late supplier shipments or abrupt changes in demand. A Just-in Case approach, when paired with probability-based scenario planning, might result in more liberal inventory management and slightly higher costs. However, as the potential next generation of inventory management strategy, it might very well win the day by securing competitive market share and business continuity.