Proper inventory management is one of the keys to success for retailers and eCommerce stores. Reducing inventory costs can help business owners scale their company and maximize profits. Furthermore, as the market constantly becomes denser, businesses need to be a step ahead of their competitors not only in terms of inventory but also in marketing, sales, and other processes. That’s why using the right inventory management techniques is crucial. In this article, we’ll see the pros and cons of just-in-time VS just-in-case inventory. If you’re interested in optimizing your warehouse processes or wish to learn more about inventory techniques, check out our articles on warehouse inventory management and inventory reduction strategies.
Key takeaway: JIT and JIC are the two main inventory methods. Briefly put, just-in-time inventory means ordering raw materials and goods only when they are needed. In contrast, just-in-case inventory means ordering them in advance.
What Is Just-in-Time Inventory
As the name suggests, JIT inventory is a model where raw materials and goods are delivered only when they are needed. This strategy is mostly suitable for manufacturers but it’s also used by some retailers with limited storage capabilities. The intention of the JIT model is to have rotating stock that is used by the business as soon as it arrives. This is in contrast to the JIC inventory model which prioritizes having some amount of raw materials inventory or merchandise inventory in the warehouse. It doesn’t always have to be just-in-time VS just-in-case. Some companies combine the two methods. For example, they can use JIC for the products with the highest inventory turnover rate and implement JIT for products that are rarely needed or increase storage costs substantially.
What Is Just-in-Case Inventory
The JIC method focuses on reducing the risk of running out of stock by ordering goods and materials in advance. Depending on the type of business, the days inventory outstanding can differ substantially. For example, businesses that have increased sales during the Holiday season might order large quantities of goods before that.
Although the JIC method increases storage costs, it can also improve customer satisfaction and help streamline the processes in a company. JIC is suitable for businesses that have a difficult time predicting the demand or often experience supply chain disruptions.
Benefits of Just-in-Time Inventory
JIT has various cons like potential inability to meet demand or risks related to supply chain disruptions and increased prices of raw materials. However, when comparing just-in-time VS just-in-case inventory, there are multiple reasons why companies might opt for the former. The reduced storage costs associated with the JIT method give businesses a competitive advantage compared to others that have opted for the JIC approach. Let’s examine the main pros of just-in-time VS just-in-case.
Efficiency
Thanks to JIT, businesses achieve higher efficiency. They don’t need to worry about overordering or idle stock. Instead, the goods that enter the warehouse are used efficiently and storage resources can be used for work in process inventory or finished goods.
Reduced Waste
Choosing the JIT method is especially useful when dealing with perishable products. As businesses aim to be more sustainable, JIT is clearly the more eco-friendly method in the just-in-time VS just-in-case debate.
Cost Cuts
Implementing JIT inventory can lead to a reduction of various costs. The most obvious one is the warehouse cost. However, it can also eradicate stagnant inventory and help reduce labor costs.
Flexibility
In niche markets where trends often change, having flexibility is very important. In the just-in-time VS just-in-case debate, flexibility is on JIT’s side. If the trends change, you don’t have obsolete goods or raw materials in your storage that can’t be used. Instead, businesses that use JIT inventory simply order the trendy products they want to sell.
Benefits of Just-in-Case Inventory
The main disadvantage of the JIC method is the increased storage cost. However, for some companies, this can be a reasonable price to pay compared to the possibility of not being able to answer customer demand. Let’s examine the main benefits of JIC in the just-in-time VS just-in-case debate.
Low Number of Lost Sales
Companies that use the JIT inventory strategy might not be able to answer the needs of their customers, especially during busy months. In contrast, just-in-case inventory reduces the possibility of having raw materials and goods out of stock. That way, businesses are always prepared for a surge in demand.
Cost Cuts Thanks to Bulk Orders
Wholesalers and suppliers prefer to partner with predictable clients. That’s why businesses that use the JIC model are better suited for them. This can result in lower wholesale prices. Furthermore, if the demand for specific goods or materials is low, companies that use the JIC strategy can benefit from the low prices and order large quantities in advance.
Better Marketing Opportunities and Competitiveness
Companies that have an abundance of products in their warehouses can be more aggressive in terms of marketing. They can invest more in campaigns at the lower end of the sales funnel as they know that they have their goods in stock. This can increase not only the revenue of these companies but also their market share.
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Frequently Asked Questions about Just-in-Time vs Just-in-Case Inventory
The BlueCart team has written a lot of articles related to inventory management and techniques. That’s why you can find the answers to a lot of the frequently asked questions about inventory in our blog. Below you will find some answers to questions related to just-in-time VS just-in-case inventory.
What Is Just-in-Sequence (JIS) Inventory?
This variation of the JIT inventory has one main difference. With JIS inventory, goods arrive in a specific order which corresponds to the production needs of the business. That’s why it’s called just in sequence. JIS inventory is suitable for businesses with assembly lines such as car manufacturers. They don’t need all the components at the beginning of the assembly process. Instead, they need specific components in the right order. This helps optimize inventory storage.
Just-in-Time II Inventory?
JIT II is very similar to the classical just-in-time inventory strategy. The difference is that with JIT II the supplier-customer relationship is strengthened. This relationship is usually enhanced with a supplier representative who is on-site with the customer. This helps the supplier better understand the needs of the customer’s business and further improve the supply chain. An important part of this type of inventory management strategy is that the supplier can create orders in the customer’s name. Thus, high levels of trust and a well-established partnership is required for this strategy. JIT II helps streamline processes like inventory forecasting and is a preferred method for some business models. It’s usually applicable to large enterprises.
What Is the Main Difference between JIT and JIC?
JIT inventory focuses on minimizing waste and reducing supply costs. On the other hand, JIC prioritizes keeping extra stock in hand in order to reduce the risk of losing customers or running out of stock. Both inventory management strategies have their pros and cons. Entrepreneurs need to carefully choose how to choose their operations based on the needs of their business. For example, a brand new eCommerce store might be better suited for the JIT approach in order to minimize losses and reduce the initial investment in stock. On the other hand, once the project starts to scale and grow, switching to the JIC strategy might be better.