Just-in-time and just-in-case are popular inventory management strategies used in the manufacturing and distribution industries. These strategies can benefit any business that provides tangible goods, including retailers and restaurants. Understanding these proven approaches to inventory management can help business owners implement the right strategy for their operations.
What Is Just-in-Time?
Just-in-time inventory management focuses on having inventory available at the precise moment that it's needed. It is a reactive strategy, as inventory only gets replenished as a reaction to consumption. Materials arrive for planned production, not before. This approach creates a lean supply chain that operates without surplus. Without a surplus, the business doesn't spend any more than it has to, which can free up cash for other things. However, a lack of surplus can cause issues when customers want more product than expected or there are supply delays, such as if flooding delayed the arrival of new stock.
What Is Just-in-Case?
A just-in-case approach to inventory management is more proactive, with goods ordered “just in case” they're required. This approach operates with a surplus that can help the business meet unexpected demand or emergencies, such as supplier delays or price increases. They don't have to slow down or stall their operations because they run out of raw materials. However, businesses that favor just-in-case typically spend more cash storing their surplus. They may also struggle to move a surplus of stock if customer demand shifts. They may even need to heavily discount stock or destroy it if consumer tastes change.
What Is the Best Inventory Management Approach?
Both inventory management approaches have their benefits and drawbacks. They also tend to work better for some businesses than others. A just-in-time approach can be sustainable for businesses with predictable sales and strong relationships with suppliers. Their predictable sales make unexpected spikes or slow-selling periods unlikely, while their strong supplier relationships can reduce the risk of supply delays. When businesses have strong relationships with their suppliers, they are also more likely to sign long-term contracts that shield them from price hikes. Businesses with inventory that could spoil, such as restaurants, may favor just-in-time to avoid stockpiling perishable ingredients.
Just-in-case inventory management can be a better option for businesses with less predictability, such as start-up firms. It may also suit businesses that have inventory with fluctuating prices, as they can stockpile inventory when prices are low. It can also appeal to businesses that may suffer serious consequences from low inventory, such as hospitals that rely on their inventory to save lives. Some businesses may also borrow from both styles of inventory management. For example, they may use just-in-time during parts of the year that are predictable and switch to just-in-case when their activity tends to fluctuate.
No matter what style they favor, modern business software can help companies simplify their inventory management. A finance-focused program like Microsoft Dynamics 365 for Finance and Operations offers strong inventory management and control functionality. Comprehensive enterprise resource planning tools like Acumatica also offer inventory management functions. Businesses wanting to learn more about these programs and find the one that suits them can complete Clients First Business Solutions' online contact form.