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About your suppliers: Just-in-Time vs Just-in-Case

2022/03/17 > Back

The key materials such as plastic parts (e.g.: socket, switch), hardware (e.g.: metal chassis) etc. that are vital for H&L’s power line filters, we have comprehensive JIC (Just-in-Case) inventory management and backup suppliers to ensure that your needs are not affected in such variable environment.

Since the outbreak of the covid-19 epidemic, many manufacturing industries have not been short of orders, but they have faced serious issue from supplier shortages – which has changed from a short-term problem to a structural imbalance, which has created great concerns for global companies. According to the statistics of the US think tank, the proportion of world trade in the past 50 years is dominated by the supply chain, and the intermediate finance such as components is the main object of trade, in fact, components are an important engine driving the global economic development, and even affect GDP. The pandemic has made many countries aware that supply chain stability is a key factor in maintaining economic security.

This involves which suppler management strategy a company adopt: Just-in-Time or Just-in-Case.

Just-in-time (JIT) and just-in-case (JIC) are on opposite ends of the inventory philosophy spectrum: One aims for lean operations, the other makes stockpiling a priority. Both are commonly employed in manufacturing and distribution. Companies committed to JIT inventory focus on making the supply chain as lean as possible. It’s a reactive strategy, where inventory purchasing decisions are based on current conditions. Meantime it reduces the risk of over ordering and having supplies sit idle, this allows the JIT companies to divert resources from that inventory to other business areas. JIC companies are often more agile and able to respond to sudden demand increases. Just-in-case inventory prioritizes preparedness over the cost and cash flow implications of holding stock in reserve. It protects businesses from falling behind in production or losing revenue because they couldn't meet demand. This strategy pays off when demand is difficult to predict or a raw material or component is subject to sudden surges in price or going out of stock. It's also helpful in environments where suppliers aren't reliable.

High risk of material shortages and supply disruption makes companies to shift their inventory management strategy from the past Just in Time (focusing on efficiency) to Just in Case (focusing on resilience), that is, the ability to restore production capacity as soon as possible in the case of major changes in the external environment.

Followings are tips for improving resilience:

1. Develop different levels of contingencies: Enterprises must expand their thinking, for example: even if the company can operate normally, but if the supplier cannot ship normally or the logistics cannot ship normally, it will still be implicated.

2. Check the hidden costs: There will be many new costs grown by ecosystem changes, and companies must re-make financial forecasts, "external costs" may exceed "internal costs".

3. Think about the business model: If you take into account factors such as time and cost, you may have different ideas: for example, you might give up a certain region or a certain market.

4. Decentralized production bases: Diverse production bases to other places has become an inevitable trend.

5. Reduce dependency and supplier risk: This means that to build a more diverse network of suppliers – so if one fails, you have others to fall back on quickly.

6. Inventory analysis: The first step is to classify items as, for example, vital, essential or desirable and then consider how scarce an item is and how easily you can acquire it, as well as the likelihood of spoilage or obsolescence.

Data sources: netsuite.com; insights.sap.com