Product shortages and supply chain issues have affected us all in recent years. For many, these challenges manifest themselves as empty supermarket shelves, but for businesses it can have serious long-term implications, leading them to question their inventory management strategy. Just in time (JIT) and just in case (JIC) are two common options.
JIT operations surged in popularity in the 1980s and have remained an accepted approach since. However, as a result of the supply chain struggles that have arisen since 2020, many are concerned that the approach is inflexible, and that JIC operations may in fact be a preferred option.
What Is Just in Time (JIT)?
The just-in-time method, in its purest form, involves stock and materials becoming available at the exact time that they are required. In purchasing terms, that means ordering from a supplier at intervals that ensure your items arrive at the time you need them. In manufacturing terms, that means securing raw materials exactly when you require them and finishing production of the end product at the precise time it’s needed.
The Benefits of JIT
At its core, the just-in-time methodology is about one thing: efficiency. It is designed to ensure that every element of a company's supply chain is working to meet goals precisely and with no downtime in between. As a result, companies that succeed with JIT benefit from:
- Reduced lead times, as products are always made available exactly when they are needed.
- Reduced labor costs and optimized production, as employees and processes operate more efficiently.
- Minimized space requirements and costs, as inventory and materials aren't being held and therefore less storage or warehouse space is necessary.
- Faster reactions to change, as a smaller inventory means fewer long-term commitments to sales strategies.
- Reduced wastage, as no inventory or stock expires or is unused or unsold.
The Problem with JIT
JIT has one fatal flaw: it leaves no room for error, disruption, or failure. With lower inventory levels, or in some cases no safety stock whatsoever, companies are unable to cope with factors that arise but are out of their control. This includes challenges such as:
- Machine Breakdowns
- Product Defects
- Product or Raw Material Shortages
- Delivery or Shipment Delays
- Supplier Failures
- Unexpected Downtime
- Supply Chain Congestion
- Human Error
When these issues occur, just in time leaves companies vulnerable to financial and reputational damage.
What Is JIC?
The just-in-case methodology is much more traditional than just in time. It involves acquiring more raw materials and finished products than you need at the current time. Raising reserve stock levels ensures you avoid sold-out products and can continue to fulfill orders in the event of an increase in demand or a disruption in your supply chain. This method is often employed by companies that find predicting consumer demand difficult or experiences large surges in demand at unpredictable times.
The Benefits of JIC
Adopting a just-in-case operation provides a safety net in the event of significant disruption to your business, your suppliers, or the supply chain, as well as greater inventory control and peace of mind. It can also be seen as a competitive advantage, as it empowers you to avoid sold-out stock and fulfill customer orders when other companies in your industry are experiencing product shortages.
The Problem with JIC
Unlike just in time, which focuses on a ‘lean’ approach to inventory management, just in case involves bloating your stock, which is inevitably an expensive endeavor. Purchasing an initial amount of stock to raise inventory levels requires considerable investment. However, in the long-term, it's the cost of storage and warehousing that can really impact an organization's finances. Also, depending on what you manufacture or sell, if the raw materials or end products have an expiry date, you can incur a lot of wastage with JIC.
Which Is Best for You?
There is no one-size-fits-all methodology; that's why there are different approaches. As described, both just in time and just in case have their advantages and their drawbacks. In truth, a hybrid approach that resides somewhere in between the two may be the most suitable option for your organization. What's important, though, is to assess how your company would adopt each of the methods, how they would each impact your production and purpose, and which one ultimately has the most positive impact.
Supply chain disruptions, however, show no sign of ceasing. While just in case offers some protection, it won't prevent challenges like those experienced since 2020 from impacting your organization. Diversifying your supplier network and strengthening your supply chain can only help you cope, and if you'd like to find out how CNECT, an industry-leading GPO, can support you in doing just that, get in touch with our team today.