Effective inventory management is crucial for balancing supply and demand while minimising costs. Two popular strategies are Just-In-Case (JIC) and Just-In-Time (JIT) inventory management. JIC focuses on maintaining high levels of inventory to safeguard against disruptions, ensuring product availability and customer satisfaction. Conversely, JIT aims to minimise inventory by synchronising production with demand, reducing storage costs and waste. Understanding the advantages and challenges of each approach can help businesses choose the right strategy to optimise their operations.
Just-In-Case (JIC)
Inventory therefore, is an insurance policy. No one likes to pay the premiums, but the security is necessary for survival. Businesses that operate this way are using Just-In-Case inventory management. JIC focuses on maintaining high inventory levels to mitigate the risks of stockouts due to unpredictable demand or supply chain disruptions.
Key advantages of JIC:
- Robustness in the face of uncertainty - With sufficient inventory, one can weather supply disruptions due to strikes, natural disasters, shipping problems, political instability, etc.
- High levels of customer satisfaction - Just-in-case allows a business to maintain high levels of customer satisfaction because stock outs rarely occur. The business can offer their customers a wider product selection because they're willing to expand their inventory size.
- Savings from purchasing consolidation - Stock is ordered less frequently in larger lots. This reduces purchasing and shipping costs. Bulk discounts are possible which results in a lower cost per stock item.
Just-In-Case inventories tie up capital which could be used elsewhere in ways that improve the business’s competitiveness. There is also a risk of losing the inventory to accidents, obsolescence, and degradation.
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On the other hand, some companies, particularly manufacturers in markets with stable demand, can minimise their business uncertainties to the point where they have little need for JIC inventory. This requires deliberate proactive effort and the use of technology.
Businesses operating this way are using a Just-In-Time process. They know their demand and have good control over their supply chains and internal processes. Parts arrive exactly when needed from suppliers, and final products are produced, shipped, and arrive at the customer’s door when they’re expected. Just-In-Time management aims to minimise inventory levels by aligning production schedules closely with demand.
Key advantages of JIT:
- Little capital tied up in stock - This frees capital for more productive use elsewhere within the company. Warehousing costs and labour required for inventory maintenance are minimised.
- Improved supplier reliability - This is born out of necessity because reliable suppliers are the key to a successful just-in-time operation. Collaboration with suppliers who are often given direct access to the business's inventory data makes high reliability possible.
- Less waste - Minimal inventory means less is lost to accidents, obsolescence, and degradation. By necessity, shipments from suppliers are subject to a higher quality control process, because there are few spares available in inventory to use in place of defective items. Therefore, fewer defective items are thrown out.
Businesses using JIT must keep a close watch on their suppliers and have contingency plans in place to cope with disruptions. Their vulnerability to supply disruption extends up the supply chain beyond their immediate suppliers. There is also a need for precise coordination, real-time data and a robust inventory management solution.
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