Ultimately, your company’s philosophy around how to deal with your inventory will fall somewhere on the spectrum between two strategies; Just-in-Time (JIT) and Just-In-Case (JIC). Both methods have their merits, just as both have their drawbacks.
So which option should you choose for your business? More importantly, what do these terms even mean?
To answer these questions, let’s take a look at both of these inventory strategies and compare them head-to-head.
What is JIT (Just-in-Time)?
As the name implies, a Just-in-Time inventory management strategy is one where the raw materials are received precisely when they are needed. This means that there are no materials held in reserve in the warehouse, as the inventory is used immediately as it is received. This provides a great deal of flexibility and agility for the supply chain and can result in large cost savings at the warehouse level.
What are the Benefits of Using a JIT Strategy?
The main benefit of a JIT strategy involves the ability to produce at a high level while limiting or otherwise deflecting the costs of storage. The cost savings from that alone can then be put back into other operations throughout the chain. Needless to say, this strategy works well when the company partners with likewise reliable, high-quality suppliers.
What are the Drawbacks of Using a JIT Strategy?
Unanticipated issues anywhere in the supply chain can leave companies that employ a JIT strategy high and dry. Natural phenomena including inclement weather, shortages of raw goods, or other issues can spell disaster for the company as they will have no reserves to fall back on in order to fill orders.
What is JIC (Just-in-Case)?
In contrast to JIT, Just-in-Case inventory management systems tend to be more proactive in nature. A JIC strategy works by stocking up on materials and storing them so that they have more supplies than are needed to meet their current orders.
What are the Benefits of Using a JIC Strategy?
In unstable and unreliable times, a JIC strategy provides a support system to ensure that companies can still fill orders. The strategy is especially effective when prices of raw materials surge. At these times, companies are prepared to meet demands with their surplus of stored material and don’t need to pay extra in order to meet demands.
What are the Drawbacks of Using a JIC Strategy?
While there are numerous benefits to being prepared with a JIC inventory strategy, the method can lead to wasted materials if and when demand slows. Additionally, companies using a JIC strategy have their funds tied up in the inventory.
JIT and JIC: Is One Better Than the Other?
Let’s now summarize the above points by comparing each of the two inventory management strategies outlined in this article across three important categories:
JIT: Costs tend to be lower overall with a JIT model.
JIC: Costs can often be higher with a JIC model as labor and storage expenses need to be accounted for. However, ordering the materials in bulk will often incur a discount from suppliers, which can factor in favorably to the overall cost.
JIT: Materials are rarely wasted with a JIT strategy due to the nature of the model: inventory is kept in only enough supply to fill the orders in question.
JIC: In the unfortunate scenario where demand dips, supplies will often be wasted in a JIC model as they are stored in excess in order to be prepared for times when supplies are in short supply.
JIT: Any issues with suppliers can be devastating for companies relying on a JIT strategy. An unforeseen disruption in supplier operations can leave these companies in a tough spot as they will need to quickly adjust to fill orders, or the whole order fulfillment process will be delayed.
JIC: While supplier stability is still important with a JIC model, these companies have a bit more breathing room should something affect their suppliers. The JIC model allows companies to continue to fill orders even in situations where suppliers are unable to deliver goods in a timely manner for one reason or another.
So which is the better inventory management strategy? Frustratingly, as the answer to an either-or question such as this one tends to be: it depends. Many factors need to be considered when deciding on your company’s strategy including:
What Products are You Dealing With?
Perishable items are going to have to be considered very differently from their non-perishable counterparts.
Are Your Suppliers Generally Reliable?
If you’ve had trouble with your suppliers in the past (due to an issue with their operations or an act of nature), this needs to factor into your inventory management strategy.
What are Your Goals for Your Company?
If your goal is to save money overall, you may lean toward a JIT strategy. However, if you want to be prepared no matter what happens, you will likely consider a JIC strategy.