Balancing Efficiency with Preparedness
- Consider that you're running a cafe and want to keep costs low, but also ensure you never run out of ingredients during a busy morning rush.
- How do you strike the right balance?
- This is where Just-in-Time (JIT) and Just-in-Case (JIC) inventory management systems come into play.
Just-in-Time (JIT): Efficiency at Its Core
Definition
Just-in-Time (JIT)
JIT is an inventory management system where materials and products are produced or sourced only when needed.
The goal is to minimize inventory costs by aligning production closely with demand.
Advantages of JIT
- Reduced Inventory Costs: By keeping minimal stock, businesses save on storage, insurance, and maintenance costs.
- Minimized Waste: Less inventory means fewer items become obsolete, damaged, or expired.
- Increased Cash Flow: Funds aren't tied up in unsold inventory, allowing businesses to invest elsewhere.
- Enhanced Efficiency: JIT encourages streamlined processes and close coordination with suppliers.
- Toyota is a pioneer of JIT.
- The company orders parts only when needed for production, reducing storage costs and waste.
Disadvantages of JIT
- Vulnerability to Disruptions: Any delay in the supply chain can halt production entirely.
- Dependency on Suppliers: JIT requires reliable suppliers who can deliver high-quality materials on time.
- Higher Ordering Costs: Frequent small orders can increase administrative and shipping expenses.
- Limited Flexibility: Sudden spikes in demand can lead to stockouts and lost sales.
- Students often assume JIT eliminates all inventory costs.
- Remember, JIT reduces costs but doesn't eliminate them entirely—businesses still need to manage ordering and supplier relationships.
Just-in-Case (JIC): Preparedness for Uncertainty
Definition
Just-in-Case (JIC)
JIC is the traditional approach to inventory management, where businesses maintain a buffer stock to handle unexpected demand or supply chain disruptions.
Advantages of JIC
- Reliability: Buffer stock ensures production continues even if suppliers are delayed.
- Meeting Unexpected Demand: Businesses can quickly respond to sudden spikes in customer orders.
- Reduced Risk of Stockouts: JIC minimizes the likelihood of lost sales due to inventory shortages.
- Stability: Provides a safety net during supply chain disruptions or emergencies.
- Amazon strategically holds extra inventory in its fulfillment centers to meet peak demand during events like Black Friday and Prime Day.
- This JIC approach ensures customers receive their orders quickly, even when demand surges unexpectedly.
