What is the right strategy for inventory management? Just in Time or Just in Case?
In the past, companies aimed for a Just in Time approach— keeping inventories low by ordering items only when there was demand. In recent years, however, we have clearly seen a shift toward a Just in Case strategy. Faced with a wave of unpredictable factors, companies were forced to build up large inventories to continue serving their customers efficiently. The ideal strategy lies somewhere in between, supported by technology that helps companies optimize their processes.
From a pandemic to war, raw material shortages, and delivery disruptions caused by the blockage of the Suez Canal… never before has the supply chain been put to the test as severely as in recent years. Although companies have certainly learned from this, the right processes to deal with future challenges are often still lacking. In an ideal scenario, organizations can efficiently switch between a Just in Time and a Just in Case approach.
On the one hand, organizations naturally want to keep inventory as limited as possible by receiving or producing goods exactly when customers need them (Just in Time). Inventory is, after all, a major reason why costs escalate—not only because products in stock do not generate profit, but also because sufficient space must be allocated to store them. On the other hand, companies realize that the world is so volatile that they must be prepared for anything. That is why they build up substantial inventories of certain goods—as a precaution to ensure they can always continue serving customers (Just in Case).
Technology offers a middle ground
Minimize inventory and risk being unable to deliver tomorrow? Or stockpile too much inventory, with the possible consequence of being left with excess goods because demand does not meet expectations? The right strategy depends on many factors. How do you expect the market and short-term demand to evolve? How reliable are your suppliers? Do you have alternatives to keep delivering? How susceptible are goods to unforeseen circumstances such as extreme weather or geopolitical factors? Are goods seasonal or not?
And more importantly: do you have a clear view of the quantity of goods you have in stock, so you can accurately determine when it is time to reorder? Mapping these challenges can be complex, but with the help of technology you can address these questions on an item-by-item basis. A planning system helps manage current inventory levels, production lead times, and delivery schedules. This allows organizations to continue focusing on a cost-efficient Just in Time strategy for certain items without concern.
AI and machine learning enable technology to take a wide range of factors into account and to predict expected trends. This allows you to adjust inventory smoothly and, if necessary, opt for a Just in Case approach. For example, a system can signal that a supplier is missing deadlines or will not be able to deliver on time due to certain circumstances. In that case, you must be able to act quickly and contact another supplier, so your own business does not run into trouble.
Tips for efficient inventory management
Finding the right balance between Just in Time and Just in Case can be challenging. It does not currently appear that global uncertainty will disappear anytime soon. Therefore, companies must address this challenge today and improve their processes in a smart way. Below are some tips:
- Use data and analytics to leverage historical information and real-time data to predict how the market will evolve and what the impact on your inventory will be.
- Build strong relationships with suppliers and communicate to ensure transparency.
- Use technology to track inventory and quickly identify shortages or surpluses.
Conclusion: companies should strive for greater flexibility so they can easily switch between Just in Time and Just in Case. For the most critical products, it can be useful to maintain a small buffer. But if this is done in a thoughtful and well-informed way, inventory remains limited, and you can deliver efficiently at any time while responding to changing customer demand.