For decades, many organisations relied on Just In Time (JIT) inventory control. It meant they could minimise waste, protect their cash flow, and keep costs down. Then along came a global pandemic; product businesses had to reconsider what defined ideal inventory management.
As a result, many have now switched to the more reliable Just in Case stock control (JIC) strategy. Here, we break down the pros, cons, and potential risks of JIC as it compares to JIT.
In this guide to Just in Case stock control:
What is Just in Case stock control?
Just in Case stock control is an inventory replenishment strategy in which extra stock is kept in reserve as a buffer in case of unexpected demand or supply chain disruptions. This strategy minimises the risk of selling out of stock.
Like any inventory control model, JIC should be considered on a case-by-case basis, depending on your company’s requirements. Let’s look at some of the benefits and downsides of JIC now.
6 major benefits of Just in Case stock control
There are many reasons you might wish to implement a JIC stock control strategy in your facility.
Here are a few of the more common ones:
- Less risk of lost sales. You can’t sell products you don’t have. JIC strategies aim to ensure there’s always reserve stock.
- Better supplier rates. If you’re purchasing in large quantities, suppliers will typically offer discounts and reduced shipping costs. Bulk orders can also help to improve product and materials consistency.
- Greater operational efficiencies. You spend less time having to reorder stock, closely monitoring inventory for JIT replenishment and dealing with backorders (or even worse, refunds and frustrated customers).
- More opportunities to market your products. When you have high volumes of available stock, you can market products more regularly. This can also increase your competitive edge in the market.
Disadvantages of Just in Case stock control
All that said, JIC isn’t for everybody. There are a few reasons JIT was the more popular method up until the COVID-19 pandemic struck.
Here are four of them:
- Cash flow challenges. When all your cash flow is tied up in inventory, you can be left with nothing to pay your staff and bills. This makes it difficult to sustain for smaller operators.
- Higher risk of shrinkage. There is always the risk of goods expiring before you’re able to sell them, making JIC less desirable for those stocking and selling perishable items.
- Slowed growth. When your funds are invested in JIC stock, that money can’t be used in other areas of the organisation. This could mean other departments miss out on growth opportunities and valuable progress.
- Requires extra storage. More stock on hand requires more warehouse space. This can lead to logistical challenges and higher storage costs.
Considerations for Just in Case stock control
JIC stock control requires knowledge of customer demand, product and raw material lead times, and the most efficient order sizes.
There are a few key variables to consider:
- What does ‘maximum demand’ look like? This is understanding how much stock has been sold on a business’s best sales day.
- How long does it take to reorder stock? This is understanding the maximum lead time a business has experienced waiting for reordered stock to arrive.
- What is the ideal minimum reorder quantity? This is the point that will trigger a reorder of products and ensure you have enough on hand to cover demand and/or production while waiting for new stock to be delivered. This can be calculated using the reorder point formula.
If you’re implementing a JIC method of stock control, you want to order enough stock to have inventory to cover maximum customer demand and maximum lead time.
For example, a company might average a sale of 50 products a day. But at peak times, this could be 70. On average, the lead time from the product supplier is 10 days, but the worst-case scenario could be 15. An effective JIC strategy aims to account for those peak seasons and worst-case scenarios.
JIC vs. JIT stock control
Just in Time inventory control is a strategy where the main objective is to have as little stock on hand as possible. Items are scheduled to arrive only as and when they are needed to fulfil orders.
JIC, on the other hand, is about ensuring there is a sufficient buffer of spare stock in case of demand surges or supply chain troubles.
Advantages of JIT vs. JIC
- Better cash flow. Ordering stock only when you need it means you don’t have money tied up in products sitting on shelves, allowing for a better cash flow.
- Minimises wastage. With Just in Time, you’re less likely to experience stock wastage – where it can’t be sold or is expired.
- Reduced costs. Less stock on hand means lower storage and warehousing costs.
- More funds for other areas. JIT means less capital is invested in stock, allowing it to be used elsewhere in the business.
Disadvantages of JIT vs. JIC
- Requires on-the-ball teamwork. JIT requires fast-paced and accurate coordination, to move stock quickly and efficiently; without these, orders can be delayed and customers will complain.
- Vulnerable to supply chain disruptions. As a manufacturer, this could mean not being able to sell a product because you have one part missing, or as a retailer, having no stock on shelves.
- Increased risk of losing out on sales. Since slight disruptions to the supply chain and surges in customer demand can mean insufficient stock on hand, the ability to fulfil all customer orders on time can be lost.
- Requires accurate demand forecasting. If a business is unable to correctly predict customer demand it will struggle to keep ahead of sales.
Which is better, JIC or JIT?
So, how do you decide which is best for your business?
Ultimately it comes down to the sales data, the ins and outs of your supply chain, and the items your organisation sells.
This table gives a general idea of which method is better for specific business models:
Just in Case stock control
Just in Time stock control
Better for businesses that…
Better for businesses that…
Some examples of businesses that gravitate towards a JIC strategy include hospitals, healthcare providers, and large organisations within the construction industry.
Meanwhile, the automobile industry was where the JIT methodology originated and continues to thrive. Supermarkets, hospitality businesses, tech manufacturers and small businesses on a tight budget are also examples of areas where the JIT model may be preferred.
Just in Case + Just in Time: The hybrid approach
Despite their differences, these two inventory strategies can work in tandem so you may enjoy the benefits of both.
JIC doesn’t have to be applied to every product in your business. Instead, you can use it for products where there is supply chain uncertainty or potential price increases. This way you can apply JIT stock control to everything else, ensuring optimal replenishment for your entire product portfolio.
Why JIC is trending in the world of stock control
Stock control is a balancing act. It requires a company to carefully tread the line of enough (but not more than enough) stock to meet demand. The last few years have impacted nearly every business and industry, and like any sizable event, there are lessons and learnings to be taken from it.
At the end of last year, we undertook some research to see what was happening post-pandemic and what organisations were doing to minimise supply chain disruptions. What we found was that SMEs in the UK, New Zealand and Australia were being forced to hold record levels of stock in Q3, 2022.
This has been the result of lead time blowouts and has meant a shift in inventory strategy for many, as manufacturers abandon the Just in Time business model for the more costly Just in Case approach.
While this approach has allowed them to continue delivering to their customers within reasonable time frames, the Gross Margin Return on Inventory (GMROI) has dropped across the board. This profitability metric shows how much profit inventory sales produce after covering inventory costs, and naturally, a higher GMROI is better, as it means each unit of inventory is generating a higher profit.
The global pandemic has meant many businesses now see elements of Just in Case stock control as not so much of a luxury but a necessity. But the difficult decision remains – what levels of reserve stock should they have, and when is the optimum time to order it?
To mitigate the higher costs that may arise from this method, most are using better forecasting and inventory management software. The right tools can provide the right balance to those who want to keep stock in reserve, but not at a level where it begins to negatively impact profit margins.
For a business to succeed during times of turbulent supply chains, its inventory management strategy needs to be one of flexibility and include planning for worst-case scenarios.