The just in time inventory management system started as a manufacturing process. Over time, it has become popular in many sectors of the economy. Ecommerce companies use just in time inventory to stay nimble in the face of changing consumer desires.
The opposite of just in time inventory is just in case inventory. A just in case system involves holding contingency inventory. This ensures that you will have enough product on hand to fill orders if your supply chain breaks down. Which of these strategies is best for your company depends on your products and your markets.
If you have stable demand for a product that rarely changes, there can be advantages to having more stock on hand. However, if your product lineup changes each year, each season, or even more often, consider just in time inventory. It can help you reduce costs, free up capital, and sell through more of your stock.
TL;DR:
Key takeaways
Just-in-time (JiT) inventory reduces warehouse costs and allows faster response to consumer trends.
JiT systems require robust supply chain management and can be vulnerable to disruptions.
Finding the right balance between JiT and safety stock is essential for ecommerce success.
Industries like restaurants, fast fashion, and dropshipping naturally use JiT principles.
How does just in time work?
In manufacturing, just in time (JiT) processes get the parts needed to make a product to the factory at the moment when they are needed. The process was pioneered by Toyota, and many car manufacturers use JiT.
Just in Time (JiT) Inventory: An inventory management approach where products arrive just as they’re needed for fulfillment, minimizing storage costs and allowing businesses to respond quickly to market changes. Originally developed by Toyota for manufacturing, JiT has been widely adopted by ecommerce companies seeking to optimize their supply chains.
For ecommerce companies, just in time inventory means lean inventory management. You order products to arrive just in time to be shipped to customers to fill orders.
When you use JiT inventory, you shorten your demand forecasting window because you don’t have to plan as far ahead. You can manage your inventory based on what’s selling well, almost in real time. The JiT strategy works best when your supply chain is strong and the turnaround time is short.
Automation has made just in time inventory management easier than ever. Artificial intelligence (AI) creates efficiencies in every link of the supply chain. Computer modeling allows you to more accurately predict timeframes for manufacturing and transport.
However, just in time systems require constant maintenance to be successful. A JiT system is fragile. You need to be ready to quickly change your plan. This will allow you to keep your products in stock and adjust your product mix based on consumer demand.
Pros and cons of just in time inventory
Just in time inventory has some big benefits. However, there are also drawbacks you should be aware of.
PROS:
Reduced overhead and warehouse space costs
Frees up capital for marketing and business expansion
Quick response to consumer trends and market changes
Less excess inventory that can’t be sold at full price
CONS:
Requires robust systems to manage supply chain
More vulnerable to supply chain disruptions
Risk of stockouts and backorders between shipments
Requires constant maintenance and monitoring
Strategies for successful just in time inventory management
Utilize automation software and apps to manage your supply chain without constant manual oversight. AI-powered solutions can track inventory levels and alert you when it’s time to reorder.
Diversify your supplier network by using multiple suppliers for the same products, ideally in different geographic regions. This creates redundancy that protects against localized disruptions.
Maintain open communication with suppliers by sharing sales projections and staying informed about their production capacity. Make your suppliers partners in your JiT system.
Consider outsourcing order fulfillment to a third-party logistics provider (3PL) that specializes in inventory management. This gives you access to expert systems and frees you to focus on growing your business.
Examples of just in time inventory
While the just in time lean management system has been developed and refined in recent decades, some industries have used it for much longer.
Restaurants
Food preparation is built around a just in time inventory model. Because many of the raw ingredients for food preparation are not shelf-stable, a chef will buy meat and produce each day. The chef has to estimate in the morning what diners will order during the dinner service. Food preparation is also just in time at most restaurants. Meals are only assembled and cooked once someone orders them. This system does more than help restaurants serve hot, fresh food to customers. It also allows the restaurant the greatest flexibility to fill unpredictable customer orders with the ingredients it has on hand.
Large manufacturers
Many of the biggest companies in the world use just-in-time processes for manufacturing and inventory management. These include Apple, Tesla, General Motors, and Dell. Retailers like Walmart and Target employ just in time stocking, especially for seasonal items.
Fast fashion
Just in time systems have led to the creation of a whole industry segment: fast fashion. Chains like Zara and H&M don’t order ahead for a whole season. Instead, new garments are designed, manufactured, and marketed with a lightning-fast turnaround. This allows fast fashion brands to keep up with fashion trends that can change with an Instagram post.
Print on demand
Technological change has even brought just in time processes to one of the world’s oldest industries: book printing. Publishers no longer have to guess how big a print run should be. Print on demand technology allows them to print a copy of a book after a customer places an order. Printing and binding are so fast and automated that customers still receive their reading material quickly. Print on demand also saves on shipping, because books can be printed and shipped from locations around the world, close to the customer.
Dropshipping
In the ecommerce world, dropshipping is a form of just in time inventory. With the drop-shipping business model, you don’t purchase products from the manufacturer until one of your customers places an order. The ecommerce seller carries no inventory. However, rather than true just in time, dropshipping simply outsources inventory management and storage to the dropshipping supplier.
How to find your inventory management sweet spot
Key Takeaway: The ideal inventory strategy for most ecommerce businesses falls between just-in-time and just-in-case. Stock enough to meet demand until the next shipment arrives, plus a safety buffer to protect against supply chain disruptions. This balance optimizes your inventory turnover ratio while protecting against stockouts.
Your inventory management strategy will probably fall somewhere between just in time and just in case. You don’t want to get stuck with a lot of unsold merchandise at the end of a season. But you also don’t want supply chain glitches to leave you with empty shelves. That could cost you sales.
Ideally, ecommerce businesses should have enough stock on hand to meet demand until the next order arrives from the manufacturer. In addition, you want to keep some safety stock to ensure against supply disruptions. When you optimize your stocking levels, you increase your turnover ratio. You also pay less for storage. You might even be able to stock more SKUs within the same amount of shelf space.
At Red Stag Fulfillment, we work with our clients to optimize their inventory management. We help you figure out your restock levels based on the time it takes to get your products from the factory to the warehouse shelves. Red Stag Fulfillment team members are steeped in lean management practices like just in time inventory management. We know that our clients’ success leads to our success. We are excited to partner with you to grow your business and ours.
Frequently asked questions
What is the difference between just in time and just in case inventory?
Just in time (JiT) inventory minimizes stock levels by ordering products to arrive just when needed for fulfillment. Just in case (JiC) inventory maintains higher stock levels as a buffer against supply chain disruptions. JiT reduces storage costs and increases flexibility, while JiC provides better protection against stockouts.
What businesses benefit most from just in time inventory?
Businesses with changing product lines, seasonal items, or products that evolve quickly benefit most from JiT inventory. Fashion retailers, electronics sellers, and companies with limited warehouse space or capital see the greatest advantages. JiT is also ideal for businesses selling perishable goods or items that quickly become obsolete.
How can a 3PL help with just in time inventory management?
A third-party logistics provider (3PL) can optimize your JiT inventory by offering sophisticated inventory management systems, real-time stock level reporting, and expertise in forecasting demand. 3PLs can also provide strategic warehouse locations for faster delivery, automated reordering processes, and better rates from shipping carriers, all while freeing you to focus on product development and marketing.
