They adopt a just-in-case (JIC) inventory strategy to prevent stockouts. With uncertainty rife across manufacturing supply chains, is just-in-time (JIT) going out of fashion? Keith Kentish, group commercial director at TFC, explains how inventory management strategies are going full circle.
Toyota coined JIT manufacturing in 1970 as a way to save warehouse space and improve efficiency. JIT organises the delivery of component parts to individual workstations at the time they are required. Over the past 20 years, there has been a drive to minimise inventory levels to increase profit — and JIT became overwhelmingly popular.
Recent events have caused supply chain disruptions, shipping bottlenecks and component shortages, leading many businesses, including Toyota, to change course. In fact, a McKinsey survey found that 73% of senior supply chain executives had encountered problems with their supplier footprint that required they implement changes.
The pandemic has triggered a large shift towards JIC inventory management — a risk management system that identifies which components are likely to experience shipping delays so businesses can build a stockpile to cover demand ahead of time. As some manufacturers struggled to get the parts needed, those who implemented this method could continue production with minimal delays. While this strategy is useful to keep production moving during times of uncertain demand, it also has its weaknesses in that it is inefficient, expensive and wasteful.
Another common approach to dealing with supply chain uncertainty is working with more local businesses. While previous supply chains were built on low-cost, high-efficiency models, shipping delays have caused manufacturers to turn to nearby partners to fulfil demand quickly. Alternative approaches include spreading the risk by dual sourcing and introducing digital technologies to increase resilience.
For businesses looking to maximise capacity, productivity and efficiency who are unconvinced by JIC as a long term strategy, one good option is Vendor Managed Inventory (VMI), where a service partner manages inventory on a manufacturer’s behalf. The VMI partner orders components ahead of time, stores them locally and supplies them directly to the point of use.
A VMI solution can be designed to a customer’s unique needs and quickly adapted in periods of changing demand. It can act as almost a hybrid model between JIT and JIC, where the partner orders and stores stock ahead of time, while delivering it to the end user according to a JIT model. This brings vast efficiency gains to customers, so long as the VMI solution is managed with care, good customer support and a strong network of both local and global suppliers.
Alongside the financial and space savings VMI brings, the inherent vendor consolidation built into a VMI solution reduces time spent doing purchasing, invoicing, negotiating and choosing suppliers. It saves manufacturers time on the phone chasing suppliers, because VMI means bins are filled when needed. With a VMI partner taking responsibility for quality checks, a mammoth task is removed from the manufacturer’s plate, without compromising on quality.
