Freight Payment Versus Freight Settlement Explained
Managing inventory efficiently is one of the biggest challenges supply chain leaders face today. Just In Time (JIT) is an inventory management process that has been utilized by companies for years to help reduce the amount of unused inventory, thereby decreasing the amount they spend to stock their goods while simultaneously lowering operating costs. However, there is always the potential for what is known as a JIT stockout.
Through the JIT strategy, businesses and their supply chains are able to realize a more economical solution to production. However, this method works better in certain business models and supply chains, so it is not without its disadvantages. The biggest disadvantage is the risk of stockouts at times when demand for a company's products skyrockets.
Are you currently using or considering implementing a JIT approach? How do you protect your operations from unexpected demand surges? In this blog post, we'll share 5 tips that can greatly help you avoid a JIT stockout:
- Maintain data accuracy
- Have a backup material supplier
- Predict your needed supply based on past data
- Account for the unaccountable
- Verify your re-order generating software levels
Maintain Data Accuracy
Data accuracy is the key to maintaining your material supply. Manual data input, such as Microsoft Excel Spreadsheets, should be checked continuously with in-store numbers to ensure accuracy. When possible, using inventory management tools and Warehouse Management Systems (WMS) is advised as these tools minimize the risk of faulty data creeping in.
To further reduce any discrepancies between what is recorded in the data bank and the actual numbers, companies may wish to leverage automatic data collection software. Just remember to double-check the data it produces on a regular basis to verify the numbers.
Common problems affecting data accuracy include:
- Human error (e.g., a 10 may accidentally become 100)
- Misinterpretation of data (e.g., 200 products may be entered as 200 crates of supplies)
It is essential to proper data accuracy that your business implement a methodology to check the software numbers against the user input data.
Have a Backup Material Supplier
It may sound a bit obvious but having multiple suppliers for your product materials is crucial to helping you avoid a JIT stockout. Nothing is guaranteed, but by diversifying your material suppliers you give yourself a much better advantage.
While your company may have taken all the necessary precautions to minimize the risk, there is still a slight chance that your supplier will not have the materials to meet the demand. Ideally, you want to strive to keep a main supplier associated with your software’s level generation ordering but have a backup supplier ready should their materials run low.
When choosing your backup provider, try to find a local supplier. While the local supplier may not be able to handle large quantity orders, they should be able to provide your business adequately enough to maintain production and demand until your regular supplier can deliver the next shipment. In a sense, having a backup supplier is like having a safety supply, but not having that supply within your warehouse or costing revenue unless utilized.
Predict Your Needed Supply Based on Past Data to Avoid a JIT Stockout
Having effective analytics of your business’s operations can help you to avoid a JIT Stockout. Primarily, the information that you receive from your analytics will let you know the times, seasons, weather patterns, etc. that affect orders.
While a company may have a theory about the supply and demand trends of their orders, the factual data may differ. Take the data from your analytics and compare it to the material estimations. If you find that the estimated material is far less than what is reflected in past analytical data, you may want to adjust your generation levels within your re-ordering program.
Keep in mind that data will fluctuate from year to year, or from quarter to quarter. Having either a professional analyst or software which can average your orders over time is critical to understanding the patterns of supply and demand within your business or chosen industry.
Pay close attention to times where there are brief spikes (such as on certain holidays) as these times pose the highest risk for JIT Stockouts.
Account for the Unaccountable
One issue that businesses face with order supplies is unpredictability.
Setting realistic margins for these unpredictable variables allows the business a buffer. For example, if your business orders materials for a particular product and it generally takes 4 days to reach that business, the business should add at minimum 2 days for delays. Depending upon the supply and the current market demands for the material, the delivery dates of your product may need to be adjusted.
It is better to have a slightly longer estimated day of delivery than to have a stockout and backorder on products.
Businesses that keep too tight of an order to delivery estimate may find themselves at the mercy of the supplier. Any delays from the supplier will inevitably delay the production and delivery of the final end-product.
Verify Your Re-Order Generating Software Levels
JIT businesses often rely upon re-order generating software to automatically fulfill material needs when a certain threshold is met. Where this usually results in a seamless flow between the orders placed, the materials used for the order, and the material ordered for upcoming orders, there can be a problem should the levels be too low.
Additionally, if the data from orders is not generated at the time of the order but processes slowly, then the re-order software may be hit with a surge of orders and result in an unpredicted JIT stockout.
Audit your software paying close attention to the levels for the automation features. Compare the levels to the predicted ordering demand based upon your analytics. Also, check the firmware of the ordering software so that there are no lags in the generation of orders.
Finally, set up routine manual checks of inventory to that which is recorded within your software.
These are just five ways in which you can help reduce the risk of a JIT Stockout. Other methods are available including selecting the right carrier for your business needs and leveraging a Open 4PL approach like Redwood's to coordinate your shipment and supplythrough an open ecosystem model.
Final Thoughts
The most important way to minimize the probability of a JIT Stockout is to continuously verify your data, your orders, and your inventory.Ready to optimize your supply chain and reduce stockout risks? Contact Redwood Logistics today to learn how our Open 4PL approach can help.
FAQs
What is a JIT stockout?
A JIT stockout happens when a company using just-in-time inventory runs out of needed materials or products. It usually occurs because demand spikes faster than expected or because supply is delayed. Since JIT keeps inventory lean, even a small forecasting or replenishment miss can interrupt production and create backorders.
How can you avoid a JIT stockout?
You can avoid a JIT stockout by keeping inventory data accurate, maintaining a backup supplier, forecasting demand from past trends, building buffer time into delivery estimates, and verifying reorder software levels. The most important habit is to continuously check data, orders, and inventory so small errors do not turn into supply interruptions.
Why is data accuracy so important in just-in-time inventory?
Data accuracy is critical because JIT decisions depend on exact inventory counts and reorder triggers. Manual entry errors, spreadsheet mistakes, or misread units can make the system think stock is available when it is not. Using inventory tools, WMS software, and routine manual checks helps prevent those mismatches.
Should a JIT operation have a backup supplier?
Yes, a JIT operation should have a backup material supplier. A secondary supplier gives you another source if the main supplier cannot meet demand or runs low on materials. A local backup is especially useful because it can often provide enough supply to keep production moving until normal shipments resume.
How do past sales or order trends help prevent stockouts?
Past sales and order trends help prevent stockouts by showing when demand usually rises, such as during certain seasons, weather patterns, or holidays. Comparing those trends with current reorder estimates can reveal when planned supply is too low. That lets you adjust reorder levels before demand spikes.
Why should delivery estimates include extra buffer time?
Delivery estimates should include extra buffer time because supply delays are unpredictable. If materials usually take four days to arrive, adding at least two days of margin creates room for disruptions. A slightly longer estimate is safer than a stockout, since tight timelines can delay both production and final delivery.
How do reorder software settings affect JIT stockouts?
Reorder software can contribute to a JIT stockout if its trigger levels are set too low or if order data processes too slowly. In that case, a sudden surge in demand can outpace the system before replenishment starts. Routine audits, firmware checks, and manual inventory verification help keep automation aligned with real demand.
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