Tag: just -in-case

OM in the News: Did the Pandemic Kill JIT?

Retailers struggle with an inventory glut and overstocked warehouses

Just-in-time supply chains took a lot of heat during the pandemic after empty shelves laid bare the pitfalls of ordering as little inventory as possible in the name of efficiency. But, with retailers now struggling with too much inventory, can the lean model, our topic in Chapter 16,  be making a comeback?

Experts are mixed: While some believe that JIT has no place in the supply chains of the future, others say a modified version of the strategy will still be necessary to maintain resilience while keeping costs down. Here are the responses of three SCM experts as reported in Supply Chain Dive (Nov. 29, 2022):

CEO of LMA Consulting. JIT is not dead; however, the days of taking the concept literally and ordering inventory to arrive ‘JIT’ is dead. If ordering strategic inventory from China, you should account for likely demand and supply volatility and stockpile inventory appropriately. But most businesses took JIT literally, assuming the supply chain would continue to support their needs. They did not adjust their inventory profiles and were left empty handed during the pandemic. They are now assessing supply chain risk, reevaluating their supply chain footprint, dual sourcing key products and determining where to locate strategic capacity and inventory.

CEO of Assoc. for SCM. The pandemic blew a fuse, revealing flaws to JIT. JIT promotes efficiency and product quality, but sometimes at the expense of resilience, and therefore isn’t equipped to manage the turbulence of global events, like COVID-19, weather disasters and the Russia-Ukraine conflict. Now, around 64% of companies are pivoting from JIT to just-in-case to circumvent liability. This system depends on extra stock and buffers for high-demand products. A modified version of JIT can help where companies only stockpile certain vulnerable items to avoid fallout from potential disruptions. Consumers still have an expectation of high variety, rapid delivery and reasonable cost that defined JIT supply chains.

SCM Professor at Michigan State U. What we are seeing is the decision to reevaluate safety inventory levels. Safety inventories are a function of uncertainty of demand as well as uncertainty of supply. COVID-19 has exacerbated both forms of uncertainty, which results in companies holding more safety inventories to achieve the same target service levels. As we see supply chains normalize through 2023, we would expect companies to reduce their levels of safety inventory to correspond to the “new normal” levels of demand and supply uncertainty.

Classroom discussion questions:

  1. Explain the difference between JIT and “just-in-case” inventory.
  2. What was the impact of the pandemic on JIT?

 

OM in the News: The Post-Pandemic Inventory Dilemma

Budweiser brewer AB InBev shared the cost of undrunk beer with its distributors during lockdowns.

From undrunk beer to unfinished forestry equipment, businesses deliberate just-in-time or just-in-case inventories, reports The Wall Street Journal (Nov. 8, 2021). Companies are wrestling with how big their inventories should be, since the pandemic highlighted the dangers of having both too much and too little stored away.

When the pandemic first struck, and demand for many goods dived, some companies were left holding large, costly inventories. But closed borders, strained supply chains and rebounding demand meant bigger stock buffers can prove positive. Now, the question of whether to maintain costly extra stockpiles or risk getting caught out again by disruption has emerged among the host of dilemmas businesses face, from whether to reshore production to how to best transport goods.

Businesses from Nissan to PepsiCo say the decadeslong trend of hyper-efficient supply chains, called JIT manufacturing, could be ending. But many companies say they will likely return inventories to pre-Covid levels when trading conditions normalize. As we point out in Chapter 12, holding large inventories ties up capital, requires extra space and people to manage it and needs to be insured. It is also a problem for companies selling products with a sell-by date. “Cost is still the driver for companies,” said a PwC exec.

Inventories can be problematic going into a demand shock like a pandemic. Companies like car makers and luxury-goods brands were left sitting on stockpiles they couldn’t use when demand collapsed last year. Drinks companies including Guinness maker Diageo and Anheuser-Busch InBev shared the cost of undrunk beer with their distributors to spare bars and restaurants from picking up the tab during lockdowns.

Other companies say they will likely go back to normalized inventory levels, but will change how they manage them. For instance, some multinationals plan to decentralize stocks to place them closer to customers, giving them localized stockpiles to dip into during supply-chain strain. Swiss drug giant Novartis is working to ensure each country it sells to has a second supply point for key products. “One thing we learned last year was to have strategic inventory in more places…decreasing the dependency on single locations,” said Novartis’ OM head.

Classroom discussion questions:

  1. What are the strengths and weaknesses of JIT? (Hint: see Chapter 16 of your Heizer/Render/Munson text)
  2. Why will many companies return to pre-Covid inventory policies?