Since the introduction of just-in-time (JIT) methods in the 1960s, manufacturers have become obsessed with keeping inventory levels low. Relatively tight stocking of parts and raw materials does yield advantages, such as lower costs, less waste and easier change orders. But as we've recently seen, an over-reliance on JIT leaves manufacturers and retailers vulnerable to supply chain shocks.
Does just-in-case (JIC) inventory management, where companies keep a buffer supply of products, parts and materials, deserve a resurgence?
Inventory managers have decried the just-in-case inventory system as generating higher costs compared with JIT. JIC takes up more space and entails several risks, including that excess inventory becomes obsolete before it can be used or sold. Just-in-case has several advantages in the present, however. If a supplier goes out of business or can't fulfill orders at the volume required, the company won't run out of supplies. If customer demand spikes unpredictably, businesses have enough products to make those sales. And if raw materials prices rise precipitously or an act of nature throws a temporary wrench in a supply chain, companies have the stock on hand to wait out the storm, whether literal or figurative.
Not all businesses can take full advantage of a just-in-case inventory model, but this strategy is far from obsolete. In this article, companies can learn how even a modest move toward just-in-case inventory management can help them hedge against risks to the supply chain. We’ll compare which advantages accrue to JIC versus JIT and whether disadvantages outweigh the benefits for some companies. And, we’ll explain how to balance JIC and JIT to preserve the latter's agility without sacrificing the former's pragmatism.
What Is Just in Case (JIC)?
A just-in-case (JIC) inventory management strategy prioritizes having safety stock on hand to reduce the risk of supply chain disruptions or spikes in either the price of a raw material or customer demand for a product.
Pre-1960s, no one called this a "just-in-case" model. Before beginning a production run, manufacturers ordered more supplies than they needed, and they produced more product than they expected to sell — it was simply the only inventory strategy they'd ever used. Shipping was expensive, lead times were long and items may or may not arrive intact. It made sense to offset the risk of unexpected demand spikes or a supplier going out of business.
That changed as logistics as a discipline matured and companies got better at inventory forecasting.
Now, manufacturers and marketers have techniques to survey the market, and supply chains have become more resilient. JIC lost relevance as manufacturers flocked to a leaner, just-in-time (JIT) methodology.
What does JIT involve, and why has it gained popularity versus JIC?
Just in Case (JIC) vs. Just in Time (JIT)
In contrast to the "always have inventory on hand" ethos of just-in-case, just-in-time inventory management strategies are about holding as little stock as possible.
Just in time became prevalent because of three main factors:
- Fast, low-cost international shipping meant fewer consequences for getting it wrong — if a business underestimates how many parts or supplies it needs, it’s relatively trivial to order more.
- Increasingly reliable customer-demand forecasting means companies can make sales projections with more accuracy and so rarely have to overproduce inventory to avoid losing sales.
- The removal of global trade barriers makes it easier to find a replacement or backup supplier if a current vendor fails to fulfill requirements.
These improvements led to benefits in warehouse management:
- Inventory held in a warehouse may become obsolete or damaged. Holding less stock for shorter amounts of time mitigates these risks.
- Holding less inventory delivers savings to the business in the form of lower storage costs and space requirements.
- Parts and raw materials are a considerable expense for businesses. The smaller quantities involved with just-in-case inventory management translate to improved cash flow.
While a just-in-time inventory strategy offers advantages, there are drawbacks to going all-in. The entire company needs to commit to a lean manufacturing model. A natural disaster or other major supply chain disruption affecting all suppliers in a region could force a company to halt production. A precipitous rise in costs or a trade war could mean canceling or retooling product lines and disappointing customers.
Competitors with a JIC strategy are more resilient against these shocks to the system.
- Just in case is a traditional inventory management process predating modern global supply chains.
- Just in time gradually pushed out JIC in the second half of the 20th century.
- While JIT is still dominant, recent shocks to the global supply chain have caused many businesses to reexamine the benefits of a modified JIC strategy.
How Just in Case (JIC) Works
Businesses using a just-in-case inventory system are under less pressure to forecast customer demand or supplier bandwidth down with very tight margin of error and is more common in industries where demand is highly variable or vendors are located in regions or depend on raw materials prone to instability or supply or pricing shocks.
A JIC inventory management strategy involves purposefully ordering more stock than planners expect to need and producing more products than customers are forecast to demand. The extra inventory these companies hold is known as "buffer stock" or "safety stock."
There's no set formula calculating how much safety stock a business needs to execute just-in-case inventory management successfully, but there are a few crucial variables to consider:
Maximum demand: How many products can a business expect to sell on its very best sales day?
Maximum lead time: What is the longest it has ever taken to reorder new stock?
In contrast, with a JIT strategy, a manufacturer essentially passes raw materials through from receiving to assembly. A direct-to-consumer retailer using JIT has sophisticated forecasting models to assess demand. Both aim to produce only the products they'll sell — not more, not less. Therefore, they order only the materials they need to produce products and don't reorder until they hit the minimum level, also known as a par level.
For example, a business might sell 25 widgets per day on average, but demand sometimes spikes to 35 per day. Meanwhile, the average lead time from the supplier might be 15 days, but the maximum is 20 days. With a JIC model, the business might want to order enough inventory to cover the worst-case scenario — the supplier has maximized its lead time, and consumer demand maximizes as well.
Why Is Just in Case (JIC) Important?
The just-in-case inventory management system is getting a fresh look because 2020 showed that suppliers aren't as bulletproof, and supply chains aren't as flexible, as previously thought. Businesses may run the numbers and decide the increased costs of a just-in-case inventory model may deliver a competitive advantage.
For example, recent disasters including the pandemic exposed emergent bottlenecks in the global supply chain. When entire regions must shut down for weeks or months, businesses cannot easily find new suppliers. The necessary groundwork for a backup relationship may not exist, and other regional suppliers may not meet manufacturer requirements or be unable to take on new customers.
And, the Atlantic hurricane season now starts earlier, lasts longer and produces storms of increased intensity that make it more difficult to transport goods by sea, disrupt operations at ports, increase supplier lead times and make it riskier to adhere to a JIT approach.
Besides natural disasters, international turbulence also threatens supply chain flexibility. The trade war between China and the United States and the United Kingdom's exit from the European Union are reminders that the free movement of goods across borders is not a given.
Businesses looking to hedge against the forces of nature or political unrest should evaluate a just-in-case inventory management strategy. Even modest levels of buffer stock can act as an invaluable safety net for manufacturers without straining budgets.
Advantages of JIC
The advantages of JIC are most obvious to businesses that are cautious about the future or whose circumstances make it challenging forecast consumer demand.
These advantages include:
Agility: If a supplier suddenly can't fulfill an order, if lead times unexpectedly increase, if customer demand spikes or manufacturers encounter any other distribution management challenges, the manufacturer can adjust on the fly without scrambling to acquire additional stock.
Scale: Businesses practicing JIC can experience higher storage costs, but they may be able to defray those expenses by earning discounts on bulk orders and benefiting from product consistency.
Customer satisfaction: Stockouts are bad for both the business and the customer. They’re also a drain on staff, who must now scramble to respond to complaints and process back orders.
Efficiency: There are costs associated with ordering inventory — shipping, customs, taxes and more. There's also the manual effort of filling out forms and wrestling with order systems. With JIC, companies order stock less frequently, so these activities take up less time and money.
Marketing: By producing more of some popular products than they project to need, companies can drum up business by sending out samples, creating in-store displays, bundling and other promotions.
Disadvantages of JIC
Even with the price breaks afforded by bulk orders, just-in-case is generally more costly and less efficient than other inventory control methods.
Congestion: Companies using the just-in-case inventory system need larger warehouses. Unless they can build or lease additional space, employees will be faced with cramped conditions that may impede efficiency.
Inventory shrinkage and spoilage: Ordering more inventory means keeping it for a longer time. That means there's a greater chance of stock becoming damaged or obsolete before it can be used or sold. That means the business may lose money on unusable stock or finished goods.
Cash flow: Even with bulk discounts, larger order sizes cost more money. Smaller businesses might be unable to sustain the requisite order volumes.
Inflexibility: What happens if a business is holding a large stock of products and customers suddenly don't want those items anymore? Just-in-case strategies make it more difficult and expensive for businesses to pivot in these circumstances.
Quality control: Finally, if a business commits to a large production run and then discovers flaws or errors after the fact, it can be saddled with a stockpile of goods that can't be sold without modification — or at all.
Examples of Just in Case (JIC)
Organizations that use a just-in-case inventory model today typically do so by selectively boosting their safety stock levels or shifting reorder points, either formally or on a guerilla basis, with managers squirreling away extra stock based on calculations, experience or simply a gut feeling.
Let’s say that Continental D-Ride, a fictional manufacturer and seller of custom RVs, needs to calculate an optimal safety stock level for the fabric it uses to upholster interior seating and create awnings. The assembly department uses about 75 yards of custom sun-, stain- and water-resistant material per day, though they’ve gone through 100 yards when doing a special order.
It takes about five days for a reorder of that material to arrive, though that can stretch to two weeks when the U.S. manufacturer runs into delays receiving the chemicals needed to treat the fabric, which come from overseas.
The RV assembly floor manager sees that spring weather is forecast to arrive early and, based on years of experience, predicts an uptick in orders. But Continental D-Ride’s founders, cognizant of the popularity of JIT and looking to maximize liquidity, have mandated a standard safety stock calculation:
Safety stock = (maximum daily usage − average daily usage) x lead time
So the officially designated safety stock level is 25 x 5, or 125 yards.
Continental D-Ride uses this formula to calculate its reorder point (ROP):
Reorder point = (number of units used daily x number of days lead time) + number of units safety stock
Under a JIT model, the company might calculate that this way:
ROP = (75 x 5) + 125 = 500
When inventory falls below 500 yards, the company reaches the official reorder point.
Because ordering is largely a manual process and Continental D-Ride operates on spreadsheets, managers regularly build in “padding” and initiate orders before the designated ROP, or in excess of expected reorder volumes. Thus, the JIT strategy that the owners designed to maximize cash flow and keep the assembly floor from becoming too cluttered is a de facto JIC model.
That may work in the company’s favor if orders do in fact jump — or it may lead to an inability to invest in other needed materials, labor or machinery.
A better strategy is to implement software that can help with forecasting and supply chain management, and for the owners and floor managers to sit down and agree on a JIC strategy in certain areas of the business where supply chains are brittle.
Just in Case (JIC) Inventory With Software
One advantage of JIC is that companies don't need to commit to it irrevocably or for every product, or even part. Businesses can increase their buffer stocks' size if they forecast supply chain uncertainty or increased demand and reduce these stocks during times of relative stability. Their difficulty lies mostly with analytics: What volume of safety stock should they order, and when should they order it?
Businesses using modern inventory management software can enjoy the benefits of a just-in-case inventory system while minimizing its drawbacks. Facility managers can set preferred stocking levels for automatic replenishment and track supplies across multiple sites — critical inventory management features for businesses that use multiple warehouses or assembly plants or do fulfillment from retail locations.
With additional features such as advanced analytics and automated warehouse slotting, users can maximize their efficiencies under a just-in-case strategy.
While use of the just-in-case inventory model has declined over the years — at least officially — the pandemic and more global uncertainty are driving many businesses to take a second look at JIC as a way to hedge their bets.
By combining JIC with forecasting and inventory management software, retailers and manufacturers can get the best of both worlds: insurance against an unpredictable supply chain for the lowest additional cost over JIT.
Just in Case (JIC) FAQs
Q: What is just-in-case inventory?
A: Just-in-case is an inventory management model in which businesses order more raw material than they need and/or produce more products than they expect to sell. That safety, or buffer, stock helps businesses shield themselves from certain risks, including spikes in customer demand or unexpected supply chain disruptions. However, there are associated costs, as for storage, and dangers, such as that items will become damaged or obsolete. In addition, cash is tied up in stock and unavailable for other investments.
Q: What is the concept of JIT?
A: Just-in-time (JIT) contrasts with just-in-case (JIC) in that businesses that embrace a JIT strategy strive to hold as little inventory as possible, with minimal buffer stock. Ideally, they produce only the inventory they expect to sell and begin using parts and raw materials as soon as they're delivered. However, as with JIC, there are risks. If needed materials don’t arrive, assembly lines may sit idle, and customer orders may be delayed.
Q: What is the difference between JIT and JIC?
A: Just-in-time (JIT) and just-in-case (JIC) models each offer distinct advantages and disadvantages. With JIC, businesses are more resistant to supply chain shocks and demand spikes, but they spend more on storage and have a higher risk of obsolescence. Meanwhile, JIT practitioners have lower inventory costs and can pivot faster — if customer demand changes, they can start manufacturing different products as soon as they can retool. However, they are much more vulnerable to blips in the supply chain.
Q: Who can succeed with JIT inventory?
A: Companies able to forecast customer demand with high accuracy and that have built resilient supplier networks can thrive with JIT inventory control methods. The automobile industry, where JIT started, is an excellent example. Auto manufacturers always know how many cars to produce because car dealerships must order in advance. They also work with hundreds of OEM suppliers that are audited continuously to ensure high reliability. Therefore, JIT is the ideal model for industries with high certainty around demand and supply.