There are two opposite ends of the inventory philosophy spectrum: Just-in-time (JIT) and Just-in-case (JIC). In this article, we will only focus on the JIC method and explain what it is and its application.
- What Is JIC (Just-in-case)?
- Advantages of JIC
- Disadvantages of JIC
- What type of companies should use JIC?
- How can businesses succeed with this model?
What Is JIC (Just-in-case)?
JIC is an inventory management practice based on expected sales and requires companies to purchase supplies proactively to meet any level of demand within defined parameters. The term "inventory" refers to raw materials and supplies used in production, unfinished items in various stages of the manufacturing process, and final products. This method is not restricted to only manufacturing and distribution; it is also commonly used in finance and other industries.
In other words, companies reorder stock even before it reaches the minimum level so that they can sell inventory while the suppliers are supplying the goods. The time from when the firm reorders the stock to the time the supplier provides the new stock is known as lead time.
Advantages of JIC
The JIC method does bring many advantages:
- Efficiency: It significantly reduces the impact of sudden order fulfilment from suppliers. There should be no distribution challenges or increases in lead time as the stock has already been stored.
- Economics of scale: Businesses with JIC might have to spend higher storage costs, but they can defray those expenses by earning discounts on bulk orders and benefiting from product consistency.
- Customer satisfaction: Stockouts are bad for both the business and the customer. There are particular goods that customers prefer to choose from the familiar inventory. Companies can improve customer satisfaction, which is a critical factor nowadays, by ensuring them a reliable source of products with the JIC method.
- Time reduction: By ordering in bulk beforehand, companies can reduce associated time concerning ordering inventory — shipping, customs, taxes, and more. Additionally, physical labour is involved in ordering systems and filling out forms. Companies order stock less frequently with JIC, which saves time and money on these tasks.
Disadvantages of JIC
There are several points about JIC inventory management that organisations should consider to successfully carry out effective inventory objectives:
- This strategy incurs higher carry costs for inventory, for example, larger storage space. However, it protects the company from the possibility of losing revenue if running out of inventory.
- JIC typically costs more than JIT because it carries the risk of waste if demand slows down and inventory stagnates, additional storage costs can also increase due to the additional inventory. This method can become a great burden. In this situation, there can be significant problems of tying cash or wasted stock.
- What happens if a company has a huge inventory of products on hand and buyers suddenly decide they no longer want those things? Businesses might find it more difficult and costly to pivot in these situations when they use just-in-case solutions.
- As your company orders a large amount of inventory, it can be more challenging to control the quality. You may be left with a stockpile of products that cannot be sold without modification or at all if it commits to huge manufacturing run only to find defects or problems later.
What type of companies should use JIC?
Companies that choose JIC are proactive, which means they make purchases beforehand to maintain a healthy stockpile and avoid running out of raw materials during unforeseeable slow and stop production.
This method is recommended for companies with unpredictable demand or unstable environments when suppliers are unreliable. Generally, it aims for a sustainable process because companies always have reliable suppliers and stable demand.
If companies can keep up with any level of demand, they can increase their competitive edge and even boost the market. After the disruption of the supply chain due to the global pandemic Covid-19, some companies have adopted this strategy, understocking their inventories as these are particularly popular items with few substitute choices.
How can businesses succeed with this model?
Currently, using digital technology to incorporate agility and resilience into operations is the favoured approach. Businesses can benefit from a just-in-case inventory strategy while avoiding its limitations by utilising contemporary inventory management software.
Advanced management software can assist manufacturers in numerous steps with a user-friendly interface. Inventory optimisation software can assist with accurate stock classification, demand forecasting, determining the best amounts of safety stock, and risk of run-out reporting.
For example, for companies that have many warehouses or assembly facilities, those tools can enable managers to define preferred stocking levels for automatic replenishment and track supplies across different sites. You can have total insight throughout your whole stock portfolio thanks to the combination of the aforementioned data points in one system.
In short, the JIC strategy has both advantages and disadvantages. Choosing a stockpiling technique requires planning and a solid grasp of current and future customer demand. Companies are advised to choose the right method depending on their own characteristics. Retailers and manufacturers can obtain the best of both worlds by combining JIC with forecasting and inventory management software to insure against an uncertain supply chain for the least amount of extra money above JIT.