Just-in-time (JIT) and just-in-case (JIC)

Just-in-time (JIT) and just-in-case (JIC)

Just in Case, often referred to as Just in Case Manufacturing or (JIC), is the traditional production model in which finished goods are created in advance and in greater quantities than expected demand. The excess is produced and stocked ‘just in case’ demand suddenly rises or the supply of raw materials and components dries up. JIC is also an inventory management strategy – inventory levels are kept as high as possible.

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, but any business providing tangible products, such as retail or food and beverage, falls somewhere on the JIT versus JIC curve.

No matter the industry, making the most of inventory requires planning and a solid grasp of current and future customer demand. There are several points about JIT and JIC inventory management that companies should understand to successfully carry out either just-in-case or just-in-time inventory learning objectives or a combination of both.

Choosing Between Two Inventory Management Strategies

Companies committed to just-in-time 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.

In contrast, those that prefer a just-in-case inventory approach are proactive. Purchases are made to maintain a healthy stockpile and avoid running out of raw materials or work in progress items and slowing or stopping production.

A JIT model is something to aspire to because it aims for a sustainable process, with reliable suppliers and stable demand. JIC is suitable for cases where having adequate inventory is nonnegotiable. JIC companies are often more agile and able to respond to sudden demand increases.

For both JIT and JIC, the term "inventory" refers to raw materials and supplies used in production, unfinished items in various stages of the manufacturing process and final products.

Examples of unfinished, or work in progress, items include motherboards with CPUs installed that are ready to have memory modules attached in the next stage of building a laptop.

What is just-in-time (JIT)?

In inventory management, "just-in-time" means having inventory arrive precisely when needed, no sooner. Another way of referring to JIT inventory management is as a "pull" system. A pull system means supplies are replaced as goods are consumed rather than proactively.

Just-in-time inventory management consists of two core principles:

Materials must arrive when production is expected to begin.

Materials should not arrive before production is expected to begin.

These are important distinctions because production can't go forward without inventory, but the business can incur storage costs if the inventory arrives too soon.

The goal of a JIT inventory strategy is to balance production volume with inventory levels and ensure the company keeps only the stock that's necessary for near-term work on hand. It's an effective method for attaining high production levels with minimal inventory holding and supply costs.

This inventory strategy works best when a company works with reliable suppliers that provide consistent quality, doesn't experience shipping disruptions and pens long-term contracts that minimize price fluctuations.

One of the most significant downsides to just-in-time systems is that unexpected supply chain interruptions in any area can derail the entire process. For example, a sudden shortage of raw materials or bad weather that slows shipments may have a dramatic effect on production.

What is just-in-sequence (JIS) vs. just-in-time (JIT)?

Just-in-sequence (JIS) inventory management is a variation on JIT. The main differentiator between just-in-time and just-in-sequence (JIS) is that JIS ensures inventory arrives in the specific order in which it is used in production. JIS is associated with assembly lines, such as automotive or large appliance manufacturing, where items arrive at the line position at the time they’re needed.

What is just-in-case (JIC)?

Just-in-case inventory strategies are based on expected sales and require companies to purchase supplies proactively to meet any level of demand, within defined parameters. Businesses that use JIC may avoid the effects of common inventory management challenges such as supplier delays, unexpected increases in demand or spikes in the cost of a material or component.

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 inventory management 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.

A significant weakness of the JIC method lies in the fact that these systems can be wasteful if demand slows down and inventory stagnates. You’re also tying up cash.

Just-in-Time vs. Just-in-Case: Pull vs. Push

Companies use just-in-time inventory to reduce excess supply and create a lean production process, while just-in-case inventory is used to avoid running out of stock due to a sudden increase in demand. Both strategies provide companies with benefits, but there are drawbacks, as well.

Just-in-time

Just-in-time inventory management optimizes the supply chain, but there are caveats.

Advantages

Just-in-time inventory benefits those with efficient operations and is good for the bottom line. This strategy also prevents overproduction and minimizes transport costs. Other benefits:

Efficient use of resources: JIT inventory management reduces the risk of overordering and having supplies sit idle. This allows the company to divert resources from that inventory to other business areas.

Less waste: There is less waste as businesses keep only the stock they need for production. That is particularly helpful for businesses depending on perishable supplies.

Reduced costs: Eliminating overbuying reduces supply costs directly since companies only purchase what they use immediately. Eradicating stagnant inventory also cuts warehousing expenses, including labor and administration.

Increased agility: Using JIT reduces the amount of time it takes to change over inventory when fluctuations in demand occur or products change.

Disadvantages

Just-in-time inventory management can increase issues in some key areas. For example, when using JIT, companies order bare minimums of items based on projections. However, if there's a sudden, unexpected surge in demand, there may not be enough products or supplies on-hand. Other downsides:

Supplier stability needed: The success of a just-in-time inventory strategy relies on the timeliness and consistency of suppliers. However, companies have little control over supplier operations, and even previously reliable partners can experience disruptions that ultimately cause delays for the receiving company. Then there are unforeseen shipping delays to consider.

Inability to meet unexpected demand: The just-in-time inventory method also requires few to no fluctuations in demand. Some variations are predictable and planned for, such as seasonal trends, but unexpected spikes or valleys make it difficult to maintain the necessary stock stability.

Pricing risks: A JIT strategy can be more expensive than JIC if materials cost less during certain parts of the year, meaning stocking up would be prudent. Businesses may also lose out on savings because they don't take advantage of bulk-buying discounts.

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Just-in-case

Companies that employ a just-in-case inventory strategy enjoy several benefits, but it is not without downsides.

Advantages

Just-in-case inventory management can facilitate growth and profitability in a few ways.

Increased competitiveness: Companies can keep up with most any level of demand, increasing their competitive edge and even boosting market share if they can meet demand when a competitor is out of stock.

Fewer lost sales: With JIC, companies reduce the risk of lost sales due to a lack of inventory. JIC inventory allows companies to continue production while waiting for stock to be replenished.

More wiggle room in demand forecasting: There is less need for precise demand projections because inventory levels are high enough to keep up with demand.

Savings: Companies can take advantage of bulk discounts or make large purchases when prices are lowest, decreasing direct procurement costs.

Disadvantages

Just-in-case doesn't address all inventory issues and creates a few of its own.

Additional storage costs: Companies incur more carrying costs to maintain the excess inventory. These costs can be high, equaling 20% to 30% of total inventory value.

Increased opportunity costs: Capital is tied up in inventory. That takes flexibility away from other aspects of the business and increases opportunity costs.

Wasted stock: There is an increased risk of stock spoiling or becoming obsolete if items don't sell. This risk is particularly significant if the goods are perishable, seasonal or part of a flash-in-the-pan trend.

jit vs jic inventory on netsuite

Just-in-Time vs. Just-in-Case: What's the Difference?

Just-in-Case Just-in-Time

A "push" system where inventory purchases are not based on actual current demand. A "pull" system where inventory is essentially purchased to order.

Focuses on maximizing flexibility with less concern for capital application. Focuses on minimizing inventory and using capital efficiently.

Excess inventory is kept on hand to avoid running out due to supplier delays or demand spikes. Inventory is purchased only to meet immediate production or sales needs.

Companies generally make larger, more expensive inventory orders Less working capital is required because inventory purchases occur in smaller batches.

Valuable when demand is unpredictable or suppliers are unreliable. Works best when demand is stable and suppliers are highly dependable.

Demand forecasting is less critical as long as there is enough inventory to meet the highest demand. Requires accurate demand forecasts to avoid over- or under-buying inventory.

Choosing the Right Strategy for the Right Time: A Hybrid Model

There are more cons than pros from hewing strictly to either a JIC or JIT inventory management strategy. In the real world, they work best in tandem. Companies that develop a hybrid inventory management model that combines the buffer of just-in-case inventory with just-in-time's conservative use of capital can have the best of both worlds.

Employing a hybrid system

A standard method of employing a hybrid push-pull inventory system is to have some stages of the supply chain operate as pull systems while others operate in a push model. This strategy requires a more accurate demand forecast than a JIC system but doesn't aim to keep standing inventory at zero, as in JIT systems.

The main objective is to address long- and short-term production and sales needs by keeping inventory levels low enough to be cost-effective but high enough to withstand supplier or production delays or meet increased demand.

The first step is an inventory analysis exercise, where you 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.

Companies can employ JIC inventory for vital, quick-turnover items, ensuring stock is always available but constantly consumed. JIC can also be helpful for scarce items that are available only from unreliable suppliers or that are often out of stock or have long lead times.

Of course, you might also look to find a more reliable or backup supplier.

Companies use JIT inventory for less popular items or those that sell in small batches. For example, the customization stage of a personalized t-shirt order would benefit from a JIT approach since there is no need to keep a stockpile of made-to-order items. However, a JIC approach should manage the inventory of plain t-shirts awaiting printed designs.

Economic order quantity

Knowing how much inventory to purchase is essential to apply a push-pull inventory system effectively. The economic order quantity (EOQ) formula helps this hybrid method of inventory management determine the optimum amount of stock to purchase.

It's written as:

EOQ = √KM/H

"K" represents the costs of inventory orders, "M" represents the amount of inventory used in a given period and "H" represents total inventory expenses — including warehousing, depreciation and opportunity costs — within the same period.

The resulting figure is the amount of inventory that a company should order.

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Successful companies integrate just-in-time and just-in-case inventory methods to achieve efficient, agile supply chain operations. This strategy creates a buffer allowing for an adequate response to unexpected demand or supplier issues while maintaining a minimal amount of inventory and keeping costs low.

However, ensuring that demand forecasts are accurate and optimizing the supply chain to ensure reliable operations is critical to either approach.

Modern enterprise resource management (ERP) software supports both JIT and JIC inventory to account for both push and pull. It provides granular and birds-eye views of current inventory levels, inventory in the pipeline and future demand. Look for a system can also gather and analyze supplier, inventory turnover and demand data to generate more reliable forecasts.

Agility, cost savings and the ability to meet demand are three pillars of effective inventory management. Getting the balance between JIT and JIC right can overcome many challenges, from shifting customer demand to limited visibility to poor production planning.

Challenges of Just-In-Time & How To Overcome Them

 Challenges of Just-In-Time & How To Overcome Them

Many global companies, most famously Toyota with its renowned Toyota Production System, have been using just-in-time (JIT) to improve efficiency and reduce waste. JIT refers to a management strategy that aligns the production of goods precisely with customer demand. It aims to create an ideal factory scene – every product is made just when it needs to be, resulting in zero wastage and zero surplus inventory.

However, the fragility of the JIT inventory system became apparent when the COVID-19 pandemic caused dramatic fluctuations in demand across industries, making it difficult to maintain appropriate inventory levels. In some cases, businesses were left with severe product shortages, while in others, they found themselves with an oversupply of products that were in low demand due to lockdown restrictions.

Moreover, the just-in-time model depends heavily on the reliable and swift transportation of goods. When lockdowns and workforce shortages disrupted global logistics, it caused significant delays and disruptions in the supply chain. With limited stock on hand due to the JIT approach, businesses were unable to fill the gaps with stored inventory and faced production shutdowns in some cases.

Now we are in 2024, and the question of whether JIT is still a good approach is not easy to answer. Read on as we look at the current difficulties with just-in-time inventory management and how best to handle these challenges!

Table of Contents

What are the challenges of JIT supply chains in 2024?

How businesses are adapting their JIT supply chains?

Crisis-proof supply chains are the key to business success

What are the challenges of JIT supply chains in 2024?

Working on an ‘as-needed basis’, JIT inventory systems are designed to closely sync with the manufacturing process, while keeping inventories as close to zero as possible. However, this tight alignment can sometimes prove challenging. Let’s take a look at some of the most significant challenges facing just-in-time supply chains.

Unpredictable consumer demand

Cutout paper appliques of hand with a glass magnifier

The first challenge of JIT systems is the volatile nature of customer behavior. According to a survey by Accenture involving 1,700 global C-suite leaders, a staggering 95% of executives from both B2C and B2B sectors perceive that their customers’ needs and expectations are evolving more quickly than their companies can adapt.

This rapid alteration in consumer behavior is hardly startling in today’s world, given that consumers are comprehensively connected via social media platforms. They are perpetually exposed to a myriad of new products, trends, and ideologies, which propels their appetite for novelty and transformative products. 

For instance, the latest iPhone model becomes obsolete the moment speculations arise about a new version’s launch. Similarly, the prevailing fashion trend can lose its appeal within just a few weeks.

The Just-in-Time (JIT) inventory system is intended for consistent, scheduled operations and doesn’t maintain additional stocks as a contingency to counter sudden shifts in demand. Consequently, if a product experiences an unforeseen surge in demand, companies may find it challenging to meet orders promptly, causing delayed deliveries and potentially missed sales opportunities.

Cost fluctuations

Wallet with coins, banknotes, and a credit card for payment

Since JIT relies on procuring materials exactly when needed in the manufacturing process, it becomes heavily susceptible to variations in supplier prices. A Boston Consulting Group (BCG) study reveals that raw materials often face market volatility due to supply disruptions, high demand, or significant price changes. This can impact production costs unpredictably.

Businesses using just-in-time (JIT) inventory systems may experience a sudden increase in operational expenses when raw material prices surge, as they lack a stock buffer to cushion against these fluctuations.

For example, a fashionable brand depending on cotton for their t-shirt line operates with a JIT system and orders cotton to save on storage costs. Unfortunately, severe weather affects global cotton supplies, causing prices to skyrocket. 

Without pre-purchased cotton, the brand’s cost of goods sold (COGS) rises, hurting its profit margins. They face the dilemma of either passing the costs to customers or damaging their profits.

Raw material shortages

In addition to the pressure caused by rising prices, the need for raw materials is set to become two times greater by the year 2050. However, these materials are becoming increasingly harder to get. This is particularly true for lithium, cobalt, nickel, and rare earth elements.

Think about technology companies like Apple, which use rare earth elements to make their products. In the JIT system, these elements should arrive at factories just when they’re due to be added to the products. 

But if something unexpected occurs, like a political issue or a natural disaster, and disrupts the supply of these elements, what happens then? The production of iPhones wouldn’t just slow down – it could stop completely if key parts are missing.

Overdependence on automation

Automation is the backbone of lean manufacturing as it increases productivity and reduces operational costs. However, when a JIT supply chain heavily depends on automation, technical glitches can disrupt the operations and cause major delays. 

For instance, a relatively small issue in an automated assembly line can stop production.

Furthermore, automation is rigid when dealing with sudden changes, such as an unexpected surge in orders, a shortage of materials, or an equipment failure.

Consider a food processing facility that uses automated machines for packaging and shipping. If there is a sudden change in packaging regulations or new labeling requirements arise, such as for allergens, it can create problems. In this situation, the machines need to be reprogrammed to include new information or adapt to different packaging, which can be both challenging and time-consuming.

How businesses are adapting their JIT supply chains?

After understanding the challenges of having a zero inventory system, let’s explore how various businesses are adjusting and strengthening their JIT supply chains to become more resilient.

Switching to Just-In-Case (JIC)

Many companies are turning to the just-in-case (JIC) inventory approach. JIC is a safety net. It involves keeping extra stock ready to counter unexpected scenarios, like sudden surges in orders or hiccups in the supply chain.

Even though this strategy may lead to increased inventory costs, the benefits of the JIC method often outweigh its costs:

Customer satisfaction: Keeping a sufficient inventory means a company can always meet its customers’ needs promptly. It avoids running out of stock and ensures timely delivery of orders, leading to satisfied and loyal customers.

Price stability: Holding surplus inventory protects businesses from short-term market price swings. They can buy and hold stock when prices are low, which helps maintain stability in costs.

Market adaptability: Having surplus inventory enables businesses to adapt to market changes quickly. Whether it’s a demand surge or a disruption in supply, companies can use their extra stock to smooth over these bumps, demonstrating adaptability and resilience.

Diversification of suppliers

Close-up photography of colorful plastic cones

Building a diversified supplier base is another strategy that businesses can use to make their JIT supply chains more resilient. In a JIT framework, any disruption from a single supplier can stop the entire production process, particularly where timing is crucial.

A great example of such mitigation in action is Toyota’s response to the 2011 earthquake and tsunami in Japan. Having learned from a previous crisis in 1997, Toyota developed a diversified supplier strategy, which enabled it to keep production going in the face of significant supply disruptions.

Creating a diverse network of primary and backup suppliers is beneficial and can be classified as follows:

1. Geography-based suppliers:

Local suppliers: These are close by, leading to shorter delivery times. If issues occur, they can be sorted out quickly due to the nearness and improved communication.

Global suppliers: These offer alternative supply options if local chains are disrupted. They can also give more competitive rates, due to lower production costs in their regions.

2. Lead time-based suppliers:

Short lead time suppliers: These are key during emergencies as they enable quick responses to unexpected demand or other supply interruptions.

Long lead time suppliers: These usually offer more affordable rates and are suitable for consistently demanded products.

Increased localization

Just-in-time supply chains relying on international suppliers can be susceptible to risks such as trade restrictions, changes in currency value, political instability, and even natural catastrophes. 

To fight these challenges, localizing production can be helpful by sourcing materials mostly from suppliers located in the same country or region. Here are some advantages of utilizing local assembly units:

Faster lead times: Local suppliers can hasten the acquisition process, resulting in businesses being more apt to fulfill customer needs.

Decreased transport expenses: Having sources closeby lowers transportation costs since components can arrive at production facilities without traveling far.

More efficient production: The closeness of suppliers to the production sites helps businesses streamline their production lines, coordinating JIT deliveries with production timetables.

Looking back at 2018, a growing trade war between the U.S. and China negatively affected many industries including the bicycle manufacturing sector. The U.S. imported a lot of bicycles from China, which underwent a hefty 25% tariff. As a result, a U.S.-based bicycle manufacturer, Huffy, saw their costs increase by millions and had to raise prices, resulting in decreased sales.

On the other hand, Canyon Bicycles, which assembles its bicycles in Germany, was less affected. Although they sourced parts worldwide, having an assembly location closer to their main European markets helped mitigate the effects of tariff disruptions. This helped keep their costs and pricing relatively steady.

In-house manufacturing

Wine bottles on an industrial machinery

“Why purchase a loaf when you can bake your own?” Making raw materials in-house, instead of outsourcing them, has become a strong strategy to make JIT supply chains that rely heavily on timing much more resilient.

In-house production of raw materials can lead to cost savings by eliminating the need for markups and transport fees charged by third-party suppliers.  Moreover, producing raw materials in-house allows businesses to control the quality of their inputs more closely, ensuring consistent standards and reducing the risk of defective products. 

While in-house manufacturing offers considerable benefits, it’s important to understand that it might not be practical, achievable, or cost-effective for all parts of a product. Therefore, it’s important that businesses prioritize the production of key components that can be manufactured internally without the need for substantial investments or drastic changes to the current production setup.

Take, for example, a chocolate manufacturer that relies on a supplier for its raw cocoa nibs, the core ingredient in chocolate production. The company could purchase raw cocoa beans and roast them in-house to create their cocoa nibs. 

Minimal investment in a roaster and basic processing equipment would allow them to have better control over the quality, flavor profile, and consistency of the cocoa nibs. Consequently, this not only enhances their chocolate products but also ensures reliable and constant availability of the crucial ingredient whenever needed.

Crisis-proof supply chains are the key to business success

In summary, recent global disruptions have challenged the once-praised just-in-time supply chains. These challenges spotlight the urgent need to crisis-proof supply chains in today’s unpredictable business landscape. 

Irrespective of the management strategy adopted, building resilient supply chains—through measures like supplier diversification, increased inventory buffers, and advanced predictive analytics—is not just a choice but a crucial requirement for survival. Explore other inventory management techniques and equip your business with the right tools to handle future uncertainties!

How can GEN AI revolutionize Supply Chain

Generative AI injects agility into your supply chain. By predicting demand fluctuations, pinpointing supply chain disruptions before they hit, and optimising logistics for cost reduction, GenAI acts as a strategic co-pilot. 

Generative AI in supply chain goes beyond basic automation, offering risk assessments, production planning, and demand forecasts, all tailored to your specific needs. This foresight allows you to make informed decisions, streamline operations, and navigate disruptions with confidence.

How does generative AI help supply chain?

By analysing vast amounts of data, GenAI can predict changes in demand and supply chain disruptions and optimise logistics networks. Generative AI in supply chain empowers businesses to make data-driven choices, streamline operations, adapt to unexpected challenges, and improve supply chain efficiency.

Generative AI (GenAI) can revolutionize the supply chain in various ways, including:

1. *Predictive Analytics*: GenAI can analyze historical data, market trends, and real-time information to predict demand, detect anomalies, and forecast potential disruptions.

2. *Smart Inventory Management*: GenAI can optimize inventory levels, reduce stockouts, and minimize overstocking by analyzing sales patterns, seasonality, and supplier lead times.

3. *Automated Procurement*: GenAI can automate procurement processes, such as identifying suppliers, negotiating prices, and managing contracts.

4. *Intelligent Logistics*: GenAI can optimize routes, modes of transportation, and warehouse operations to reduce costs, lower emissions, and improve delivery times.

5. *Supply Chain Visibility*: GenAI can provide real-time visibility into the supply chain, enabling proactive decision-making and risk mitigation.

6. *Risk Management*: GenAI can identify potential risks, such as natural disasters, supplier insolvency, and geopolitical events, and suggest mitigation strategies.

7. *Sustainable Supply Chain*: GenAI can analyze and optimize supply chain operations to reduce carbon footprint, waste, and energy consumption.

8. *Autonomous Warehouses*: GenAI can enable autonomous warehouses, where robots and drones manage inventory, picking, and packing.

9. *Dynamic Pricing*: GenAI can analyze market conditions, demand, and competition to optimize pricing strategies.

10. *Collaborative Robots*: GenAI can enable collaborative robots (cobots) to work alongside humans, improving efficiency, safety, and productivity.

11. *Real-time Monitoring*: GenAI can monitor supply chain operations in real-time, enabling swift response to disruptions and exceptions.

12. *Personalized Logistics*: GenAI can create personalized logistics experiences for customers, tailoring delivery options, and communication to individual preferences.

By transforming the supply chain with GenAI, companies can achieve significant improvements in efficiency, agility, and sustainability, leading to increased customer satisfaction and competitive advantage.

India's Trade

Despite persistent global challenges, overall exports (merchandise + services) estimated to surpass last year’s highest record. It is estimated to reach USD 776.68 Billion in FY 2023-24 as compared to USD 776.40 Billion in FY 2022-23.

FY 2023-24 closes with highest monthly merchandise exports of the current FY in March 2024 at USD 41.68 Billion.

Non-petroleum & Non-Gems & Jewellery exports increase by 1.45% from USD 315.64 Billion in FY 2022-23 to USD 320.21 Billion in FY 2023-24.

Main drivers of merchandise export growth in FY 2023-24 include Electronic Goods, Drugs & Pharmaceuticals, Engineering Goods, Iron Ore, Cotton Yarn/Fabs./made-ups, Handloom Products etc. and Ceramic products & glassware.

Electronic goods exports increase by 23.64% from USD 23.55 Billion in FY 2022-23 to USD 29.12 Billion in FY 2023-24.

Drugs and pharmaceuticals exports increase by 9.67% from USD 25.39 Billion in FY 2022-23 to USD 27.85 Billion in FY 2023-24.

Engineering Goods exports increase by 2.13% from USD 107.04 Billion in FY 2022-23 to USD 109.32 Billion in FY 2023-24.

Exports of Agricultural commodities namely Tobacco (19.46%), Fruits and Vegetables (13.86%), Meat, dairy & poultry products (12.34%), Spices (12.30%), Cereal preparations & miscellaneous processed items (8.96%), Oil seeds (7.43%) and Oil Meals (7.01%) exhibit positive growth in FY 2023-24.

Overall trade deficit is estimated to significantly improve by 35.77% from USD 121.62 Billion in FY 2022-23 to USD 78.12 Billion in FY 2023-24; Merchandise trade deficit improves by 9.33% at USD 240.17 Billion in the current FY as compared to USD 264.90 Billion in FY 2022-23.