Inventory Management: How to Balance Just-in-Time and Just-in-Case

12 September 2023

Understand the concepts and differences between just-in-time and just-in-case, and discover how to use these methodologies to benefit your business.

It’s no surprise that good inventory management promotes profitability, better positioning, and market authority for businesses. On the other hand, a disorganized and poorly planned stock is subject to continuous management failures and, consequently, to a lack of goods, which directly affects sales, low productivity, reduced customer trust and loyalty, and, of course, numerous financial losses.

There is no magic formula for smart inventory management, but there are strategic paths that help in organization, reduce risks, and bring benefits to the warehouse, including the just-in-time (JIT) and just-in-case (JIC) methodologies.

These methodologies, although opposite, increase inventory security and offer practical replenishment solutions, ensuring that products reach customers at the right time. While one focuses on maintaining a reduced inventory, the other advises keeping as many products as possible.

In practice, which of these strategies is best for your business model? In which situation should each be applied? What are the advantages and disadvantages of each strategy for your warehouse? In this article, we share with you, the manager, everything about inventory management and how to balance just-in-time with just-in-case. Watch.

What are just-in-time and just-in-case strategies?

In the routine of most warehouses, a hybrid strategy is likely already in use, that is, a mix of just-in-time and just-in-case elements, depending on the situation.

Warehouses using just-in-time model techniques have as their main objective the optimization of processes within the supply chain, meaning they focus on increasing speed, productivity, and reducing downtime as much as possible, taking into account the current stock management demands.

In parallel, warehouses that opt for the just-in-case methodology work by focusing on inventory security, avoiding a lack of stored products, ensuring that production is not interrupted due to stockouts, and ensuring that customers receive their requests, regardless of the situation.

Just-in-time (JIT) inventory management.

As the name suggests, inventory management under the just-in-time strategy means that the receipt of goods in the warehouse is carried out according to demand forecasts, that is, only with the quantity of products that will be sent to production and/or final customers. Therefore, in the just-in-time model, items arrive in the warehouse only when necessary, never before, based on the company’s sales history.

Another way to refer to just-in-time is as a “pull” system, meaning supplies are replaced as goods are consumed, rather than proactively.

This strategy is based on the premise that when there is an excess of inventory, maintenance costs increase and can harm the company’s financial health, hence the application of just-in-time to balance demands with stock levels keeps the amount of items needed for short activities, always optimizing time and space.

Advantages of just-in-time inventory:

– The risks of product loss and obsolescence are minimal, as stock rotation occurs frequently.
– Warehouses gain greater autonomy to adapt to market profiles. Without a fixed stock, the possibility of purchasing new and different products increases depending on consumer demands.
– Greater reduction in expenses related to inventory maintenance.
– Stock failures can be quickly identified and corrected more efficiently.

Disadvantages of just-in-time inventory:

– If deadlines for the arrival of goods at the dock are not met, the entire workflow could be compromised.
– If there is a significant increase in demand for a particular product, it is unlikely that stock levels will be sufficient and ready to meet the market.
Planning and understanding the company’s history must be prioritized, and understanding customer behavior is essential to maintain satisfaction and profitability.
– In practice, we can say that just-in-time requires a high level of predictability and also reliability towards suppliers.

Just-in-case (JIC) inventory management.

Unlike the just-in-time model, just-in-case inventory management has a more conservative strategy, where the main goal is to avoid severe stock disruptions and prevent failures in warehouse operations, such as supplier delays and receipt of goods, unforeseen demand increases, or even an increase in the costs of items in stock.

The just-in-case strategy is widely used by warehouses where demand is unpredictable when they want to avoid any problem that involves delays or interruptions in the chain. Similarly, it can be interesting for companies working with inputs or finished products subject to sudden price increases or stock shortages.

Advantages of just-in-case inventory:

– It is possible to promote offers and think about sales strategies that stimulate consumers, as we work with a large number of items in stock.
– All products in stock can be offered on different channels, such as marketing places, e-commerce, and other sales points, as the quantity of products available in stock is known.
– More security in sales.
– Speed in meeting the demands of emerging markets.
– Greater control over order shipping and high consumer satisfaction.

Disadvantages of just-in-case inventory:

– It is necessary to invest in infrastructure and stock organization, ensuring the quality of stored products.
– Items in stock may suffer greater damage and loss and are subject to compromised quality due to poor preservation, theft, loss, damage, and expiration dates.
– Storage costs are higher.

In summary, we can say that the just-in-time methodology offers an optimized and sustainable process, making the best use of material and manual resources, prioritizing practical and lean operations. The just-in-case methodology is ideal for stocks with unpredictable demands, the possibility of increasing market competition by offering different products, and ensuring stock security in addition to customer satisfaction.

How to choose the right strategy for your warehouse?

Now that you know the concepts, advantages, and disadvantages of just-in-time and just-in-case strategies, you might be wondering: “Which should I apply in my warehouse?”. It depends. It is essential to analyze the specifics of your operation and the priorities of your business model.

But one thing is certain, director: there are many more disadvantages in choosing only one inventory management methodology. For proper functioning, the ideal is to think plurally and mix a bit of both strategies. And we help you with this!

The hybrid methodology combines the best and most efficient aspects of the just-in-time and just-in-case models. Companies that analyze both strategies manage to achieve better results than those that opt for only one of the worlds.

How to apply the hybrid system?

The most effective way to apply the hybrid management system in your warehouse is to identify potential sectors that can operate just-in-time and others that can operate just-in-case without compromising the operations’ functioning. In other words, it is important that, in this case, the stock is not completely empty and not so large as to store obsolete products.

Therefore, the first step is to analyze sales history and inventory. Start by classifying all items, identifying, for example, priority, demand, seasonality, stock time, and product losses.

You can classify items as vital, essential, or desirable, for example, and then consider how scarce an item is and how easily you can purchase it, as well as the likelihood of deterioration or obsolescence.

Then, depending on each product, implement the most appropriate strategy. In general, companies use just-in-time for less popular items or those sold in small batches. Apply “just-in-case” to vital and fast-moving items, ensuring that stocks are always available but constantly consumed.

The main goal of the hybrid strategy is to effectively meet long- and short-term sales, prioritizing low stock levels for items that can be easily purchased or have lower demand and maintaining high levels for those with higher demand or are less in a hurry, the risk of not being found when demand increases.

Another recommendation is to apply the economic purchase lot strategy to determine the ideal amount of stock to purchase.

Get the best out of strategies for your warehouse

Many companies have already seen in practice how a smart warehouse works, designed ad hoc with the best just-in-time and just-in-case, and how good results can be achieved in their business.

Your company can also start responding in a personalized and efficient way to market demands, have greater inventory security, and ensure the receipt of goods to consumers. All this is possible with the WMS system, which offers complete inventory information.

With WMS software, you can monitor in detail the order history, storage times of each item, stock levels, product integrity, ongoing deliveries, and future requests, all in real-time. Get predictable and reliable stock information and start using the best technology in your warehouse today!