The Pros and Cons of Just-In-Time Inventory Management

An integral part of any successful ecommerce business is managing the supply and demand of your inventory. Businesses are selling on multiple channels and also fulfilling goods to customers in a variety of methods—pickup in store, shipped direct to consumer, fulfilled by Amazon, and more. These variations further complicate inventory control and management. It becomes harder to ensure that your inventory numbers will accurately fulfill your customers needs and demands, without overstocking or understocking. 

A great inventory management system will help you streamline these issues—some companies rely on Just-In-Time (JIT) inventory management wherein products are purchased (often if raw material form, or parts that will be assembled in production), shortly before they are needed so that they can be produced just as the customer orders. JIT is attractive to many businesses for its ability to pare down a manufacturing or fulfillment process to its core elements. This approach produced such great results for several large firms that it became foundational to the strategy that we now know as lean manufacturing.  Utilizing JIT can allow for merchants to hold a minimum amount of stock supplies on hand, to balance inventory costs, while at the same time making sure that stock-outs don’t happen should there be a sudden spike in demand. If you are working with a third-party logistics provider (3PL) to outsource your inventory management they can likely help implement a JIT strategy. JIT is attractive to many businesses for its ability to pare down a manufacturing or fulfillment process to its core elements. This approach produced such great results for several large firms that it became foundational to the strategy that we now know as lean manufacturing. In our list of pros, we’ll look at why it can be so successful. In our list of cons, we’ll talk about some common difficulties to watch out for.

Pro: JIT as a Great Option to Optimize Capacity and Reduce Waste

Implementing JIT practices can be great for efficiency and productivity. The entire strategy revolves around using only the tools and materials necessary for the task at hand. By using JIT to map their manufacturing or warehouse operations to demand levels, many companies have achieved great results in minimizing costs of storage and fulfillment such as:

  • Warehouse labor and utility costs
  • Shipping and fuel costs
  • Unsold inventory
  • Inventory insurance costs

JIT offers great potential for creating a lean supply chain, especially when it’s deployed along with other waste-reducing practices such as using reusable and high-efficiency packaging products and custom designing your packaging to eliminate inefficiency.

Pro: Fewer Production Errors

If your inventory orders are smaller and more frequent, it can allow for potential product defects to be spotted more easily before too much stock is purchased or manufactured. This will help to lower the number of returns or refunds that you need to process. It also might mean that your customers will wind up with a higher quality product—which in turn increases the chances that they become repeat buyers.

Pro: Large and Small Businesses Can Benefit From JIT

Another great thing about JIT is how well it works across different scales. Many small businesses love the JIT system because it gives them the agility to react appropriately to changes in the market. It can also significantly lower their startup capital costs. By reducing the inventory stored on hand, they can often increase their available liquidity—vital for a small business just starting out. But it’s also used by many of the world’s biggest businesses like Amazon and Walmart. In Walmart’s case, its JIT strategy relies on its incredibly sophisticated distribution network to operate efficiently at scale. 

Con: Coordination Can Be a Challenge

If your company has communication issues, you should focus on fixing those before you try a radically different system. A functioning JIT system requires many different departments and third parties to communicate honestly and effectively, potentially including:

  • Raw materials suppliers
  • Manufacturing plants
  • Warehouse staff
  • IT departments
  • Supply chain personnel
  • Brick and mortar retailers

One advantage of the traditional just-in-case system is that errors can sometimes be remedied by shuffling around extra inventory. A JIT system often has less of this capacity and thus can be less prepared when the unexpected occurs. That’s why a business using this kind of system can’t afford to be reactive and instead has to commit itself firmly to a proactive approach.

Con: You Must Think Proactively

On its surface, just in time might seem like a highly reactive way to manage your inventory and production. If it doesn’t have the right leadership behind it, that’s exactly what it can turn into. A reactive, inflexible mindset will produce a reactive, inflexible system. However, JIT at its best is powered by a proactive approach. This includes investments in several key areas. Accurate demand forecasting is an absolute must, as is a logistics network that can keep up with moving many small shipments frequently. (Consider working with a third-party logistics provider  that specializes in just in time inventory management.) Remember that JIT isn’t about preparing less, just about preparing the right things.

Con: Delayed Deliveries

In order for a JIT system to be successful, the deliveries themselves need to arrive “just in time”. If you find yourself in a place where a component in your supply chain gets disrupted then you could wind up stuck with stock-outs or delayed deliveries to your customers causing you to have to increase your customer service related costs. To avoid this it is important to have clear lines of communication with your suppliers, manufacturers as well as 3PLs if you utilize one.

Bottom Line

If your ecommerce business operates in a relatively stable marketplace, you have good relationships with your suppliers, and you can track a relatively large and consistent volume of orders, then a JIT system might be the right fit for your inventory management system. It can help you optimize the flow of your products and increase your profits. A Just-In-Time system requires a flexible and efficient supply chain so it might make sense to partner with a third-party-logistics provider to help you implement your JIT inventory management strategy. 

If you are considering implementing a JIT inventory management system or have questions if it might be a good fit for your ecommerce business, send us a note to connect about how we can help your company grow. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support.