Moving from a Just-in-Time to a Just-in-Case Supply Chain After COVID-19
By Hugo Britt | August 26, 2021
Doomsday-preppers get it. Alongside their specialist equipment such as gas masks, guns, and ammo, preppers are known for filling their shelters with non-perishable foods like tins of soup, baked beans, long-life milk, and more.
The idea is that if the day ever comes when supplies run short and prices skyrocket, they will have stock to last several months. In the world of sourcing, this approach is known as Just-in-Case (JIC) inventory management.
In this article, we’ll look at why many organizations are moving from a Just-in-Time (JIT) to a just-in-case supply chain strategy after the impacts of COVID-19.
What is Just-in-Time Inventory Management?
Just-in-Time or JIT inventory management is a lean procurement methodology originally invented in Japan. By only ordering what they need, when they need it, companies reduce waste such as obsolete or expired stock, drive efficiency, and reduce holding costs (warehousing). Importantly, JIT frees up operational cash flow.
JIT management requires a constant stream of robust data, such as having accurate and frequently updated sales forecasts and knowing your peak demand periods. It also requires a sophisticated inventory system to tell you exactly how much stock you have on-hand in real-time.
If you want to get technical, check out these explanations of the formulas JIT inventory managers use to determine exactly when to reorder stock and calculate safety stock.
COVID-19 and JIT
Unfortunately, JIT only works properly in a seamless, well-oiled supply chain. As we all know, COVID-19 brought this crashing to the ground all over the world. The pandemic caused shipping delays, port congestion, panic buying, and shortages of crucial medical equipment and PPE. Businesses everywhere rapidly ran out of stock and had to scramble for alternative sources of supply, pay higher prices, and wait for the global supply chain to recover.
What is Just-in-Case Inventory Management?
A Just-in-Case supply chain and inventory management strategy involves buying and holding more than you need as a hedge against possible disruptive events. This risk management technique helps ensure business continuity to keep sales moving or keep production running.
It doesn’t take a global pandemic to disrupt supply. Supply can be interrupted by cyberattacks, political or economic instability, or simply by bad weather. Companies can run out of goods due to an unexpected surge in customer demand or may be unwilling to source goods if prices are unreasonably high.
JIC management doesn’t mean trying to hoard enough goods and materials to maintain business continuity forever. It involves calculating how long a potential disruption could last and having enough on-hand to keep going until the disruption is sorted out. Supply chain managers, assisted by cognitive technology, are becoming increasingly expert at predicting how long it will take for a supply shortage to return to normal levels.
The primary challenge of a just-in-case supply chain is the cost of warehousing, along with the extra space needed to store larger volumes of goods. Increased holding costs must be measured against the potential cost of production halts or lost business due to running out of goods or materials. The shift to JIC, along with the surge in e-commerce, led to a warehouse building boom in 2020 that continues to this day.
Organizations using the JIC approach need to keep a careful eye on the rising cost of warehousing, which could one day reach a point where JIC strategies no longer make business sense.
An additional risk is that nothing lasts forever, which is why product life must be taken into account when considering a JIC approach. If the potential disruption or surge in demand never eventuates, companies may find themselves having to dispose of thousands of units of obsolete, unsold goods.
Just-in-Case is a form of business insurance. It adds extra costs, but in the event of disruption it will pay off by enabling you to maintain production and business continuity, retain customers, and gain a major advantage over your competitors who have been brought to a standstill.
Just-in-Time is efficient, affordable, and Lean, but it is based on several assumptions: a smoothly-running supply chain, no major disruptions, excellent sales and demand projections, and a robust inventory system. JIT can be a nail-biting experience in a global environment but is a much less risky prospect if you source predominately from local supply chains.
Need help getting your supply chain and inventory management strategies in order? Una can help. Get in touch to learn more.