For many businesses, inventory control involves stockpiling the products you will need for the season while mitigating the risks of overstock using demand forecasting. Just-in-time inventory is the exact opposite strategy. By ordering stock based only on what customers order, some businesses can keep more efficient inventory control, lower storage costs, and reduce overstock using the just-in-time (JIT) method.
This strategy can be risky, however, a JIT inventory control system could be the answer for businesses who want to employ the strategy but fear the unpredictability of their customers’ demand and their suppliers’ behavior.
What is just-in-time inventory control?
The JIT inventory control method involves waiting to order products from suppliers until they’ve already been ordered by customers. For the average manufacturer or retailer, the strategy will look something like this:
- A customer places an order for a product
- Your business receives the order
- The product is ordered from the supplier
- The supplier receives the order and delivers the product to you
- Your business ships the order to the customer
Many of these steps are reversed from normal inventory control practices. If the normal strategy of ordering products based on seasonal predictions “pushes” inventory out, by contrast, JIT “pulls” it in when it’s time to sell.
What are the advantages of just-in-time inventory control?
When executed efficiently, JIT inventory control has many advantages. The first of them is significantly reduced waste. Many businesses, particularly in the food and beverage industry, know the costs of spoilage and overstock first-hand, especially when demand changes unexpectedly. JIT inventory mitigates these risks by only buying what the business needs, as it needs it.
The reduced waste carries over to the business’s warehousing. With less inventory to stock, businesses may not need as many warehouses, or they may be able to downsize them. Across the board, businesses can lower their overhead for product stock using this method.
Additionally, when consumer demand or market conditions shift rapidly, many companies bear the burden of costly waste as products are no longer in demand and new products must be brought in to pivot to the new forecast. With JIT inventory control, businesses can easily and cheaply pivot because they won’t have backlogs of older products to deal with.
In short, businesses shift to the JIT inventory control method for these reasons:
- Less dead stock and other waste
- Lower storage costs
- Increased flexibility
- Increased inventory turnover ratio
- Decreased product turnaround time
- Faster production cycle
- Lower holding, labor, and raw material costs
Challenges of just-in-time inventory control
Despite these advantages, JIT inventory control poses some challenges – otherwise, all manufacturers would practice it. Although JIT puts some of the pressure off warehousing, it shifts a lot of that pressure to supply chain consistency. Disruptions in the supply chain can result in delays that can lead to bad customer experiences or canceled orders. This issue is much worse in the JIT system since there’s less time to correct the problem.
There’s another risk involving product consistency. When the strategy works, the phrase “just in time” is a positive, meaning the supplies arrived just in time. But when products arrive damaged, JIT businesses leave themselves little time to replace them.
To use this method, businesses need expert supply tracking as well as efficient ordering systems to ensure that as soon as the products are needed, the order is out. As soon as a problem is discovered, corrections should already be on their way.
How just-in-time inventory control systems mitigate the risk
Due to these challenges, a versatile inventory management platform is key to successfully employing JIT inventory control. These systems are enabled with real-time inventory tracking that automatically orders supplies when customers buy them and closely tracks the shipment from the supplier, to your business, and back to the customer.
The right system will integrate with your business’s existing technology workflow to deliver inventory control that suits your desired method. Just-in-time inventory is not a riskless strategy, but for many businesses shaken by post-pandemic demand shifts, it has cost-saving potential when employed with the right system.