For years companies have operated a just-in-time (JIT) supply chain model, only ordering stock items when necessary and carrying minimal inventory to reduce carrying costs.
The pandemic has led to various global supply chain issues, such as increased demand volatility and trouble with stock availability. This has seen a switch to just-in-case (JIC) inventory management as companies raise their stock levels to avoid the risk of running out.
Here we explain the benefits and drawbacks of both JIT and JIC inventory management models and help you decide which is right for your business.
With JIT stock management, companies order products and stock to meet customer demand. They make sure stock levels mirror actual consumption levels to minimize waste. By only ordering necessary stock, they can maintain low storage costs and invest capital into other business areas. This works where there aren’t any issues in the supply chain and requires accurate demand forecasting.
The advantages of JIT inventory management strategies include:
The disadvantages of using just-in-time methods include:
JIC stock management takes a more cautious approach. Companies keep ‘buffer’ or ‘safety stock’ of items so that they can quickly respond to unexpected demand surges. Companies will look at anticipated demand and add on extra quantities ‘just-in-case’. JIC works well where demand is volatile or to help overcome supply chain disruption.
The advantages of following a just-in-case inventory management strategy include:
The disadvantages to just-in-case stock management include:
When faced with inventory challenges caused by supply chain volatility, it can be tempting to simply increase stock levels and boost safety stock to ensure you can meet your demand. However, making a drastic move from JIT to JIC inventory management may over-simplify the solution.
In reality, neither the JIT nor JIC model is perfect. Rather than pitch just-in-time inventory management against just-in-case, you should bring together the advantages of each. For example, engage the safety stock of just-in-case inventory with just-in-time’s capital management.
To do this, you need a good grasp of demand forecasting techniques to understand your upcoming stock requirements. You can then optimize stock levels to be cost-effectively low and use safety stock to meet unexpected demand. Take a look at our second post on implementing just-in-case inventory management for more information.
Obviously, the mix of these strategies will depend on your industry, e.g. how volatile your market is and how much disruption your supply chains are experiencing. Combining just-in-time and just-in-case stock control can increase inventory management efficiencies whilst bringing agility to deal with disruption.
Whichever approach you take, you may want to consider using inventory optimization software to help. For more information about how EazyStock can support your JIT or JIC strategies, why not arrange a quick call with our team.