Though the concept of just-in-time inventory management isn’t new, many companies are just now learning of its advantages. As the name implies, inventory arrives at the precise time (or pretty close to it) when needed. For manufacturers, this means raw materials are delivered when production is ready to begin. For business retailers, new products arrive just before shelves or e-commerce stocks are empty. In this process, supply chains deal with less volumes and operate more efficiently, especially when well-integrated using logistics software systems. Fratogo and other 3PL companies are well familiar with these processes and have helped dozens of clients improve their services.
Without question, the use of just-in-time inventory processes is part of effective lean management systems. As such, the benefits they provide can be substantial. But at the same time, there are some potential risks of which companies should be aware. In some cases, implementing just-in-time inventory management is the perfect solution. In other instances, it might be better to partner with a 3PL partner like Fratogo who is adept in its employment. And sometimes, it might simply not be a good fit currently. Understanding this, the following article provides a bit more insight into just-in-time inventory management.
The Advantages of Just-in-Time Inventory
As you likely guessed, the pros outweigh the cons for most companies when it comes to just-in-time inventory management. The most significant benefit is the potential cost-savings businesses can enjoy. When less inventory is on hand, there are reduced storage and holding costs. This also allows fewer staff to manage the inventory as well as less capital to be spent. But cost savings aren’t the only advantages. Less inventory also makes it easier to identify product defects more readily, which leads to better product quality. A reduced number of inventory goods also lets companies be more flexible and respond more easily to changes in demand. And with fewer items stocked, production flows move along more efficiently. These are the incentives that make just-in-time processes worth considering.
The key difference with this approach to inventory management is the driver of inventory requests. In traditional inventory management systems, orders for raw materials or goods sought to ensure adequate items were available for production or sale. In this regard, this system was a “push” system, since inventory hoped to push sales. However, just-in-time inventory systems are “pull” systems. Inventory is only ordered when consumer demand calls for it. This is a much more lean and efficient way of operating, and Fratogo has seen numerous companies benefit from it.
Potential Hazards to Consider
While just-in-time inventory is ideal from an efficiency perspective, some risks do exist. The most notable one pertains to companies who are unable to effectively forecast demand changes. If predictions about near-term sales are amiss, then too little or too much inventory may result. In the former case, this could result in underproduction, with the company missing out on potential sales and profits. In the latter situation, holding costs and inventory management resources would rise. Notably, this would eliminate some of the major advantages of pursuing just-in-time strategies in the first place. These are situations where 3PL partners like Fratogo might help. With expertise and experience in just-in-time inventory management, the risks could be substantially fewer.
There are some other potential hazards regarding just-in-time inventory management. Even with proper forecasting, supply chain disruptions can cause problems. This was evident during the pandemic, as many companies lacked inventory to keep up with production. Being lean from the start, they had no reserves with which to work. At the same time, raw materials and goods may suddenly rise in price. With just-in-time inventory approaches, subsequent purchase costs would increase, reducing profits. Companies with larger inventories of the previously less costly materials would thus have a market advantage.
The Bottom Line
As always, companies must make their own determinations about whether just-in-time inventory management is good for them or not. But by knowing the risks and benefits of this approach, a more informed decision can be made. In many instances, the best choice may be to partner with a 3PL provider who offers just-in-time warehousing and inventory services. Fratogo provides such services to many clients with great success. When placed in balance, just-in-time inventory management makes sense for the majority of businesses, and when done well, it certainly provides a competitive advantage over time.