Prior to the pandemic, just-in-time inventory — the supply chain management strategy of keeping “just enough” inventory in stock to satisfy expected demand — was considered conventional wisdom. But in the aftermath of COVID-19 and the product shortages that were omnipresent, organizations are reconsidering that erstwhile best practice. Indeed, according to a recent survey conducted by SAP, close to 66% of organizations are adopting a just-in-case approach to inventory and supply chain management.
What is just-in-case inventory?
At its essence, just-in-case inventory is the inverse of just-in-time. Instead of maintaining the bare essentials in terms of product offerings to fulfill sales goals or to avoid shelves emptying prematurely, just-in-case prioritizes having a surplus of inventory — “just in case” demand for merchandise exceeds supply. In short, it’s an “everything and the kitchen sink” approach to inventory management.
What are the business benefits of just-in-case inventory strategies?
1. Increase competitiveness
When items are out of stock and customers are unable to purchase what they’re looking for, it represents a missed sales opportunity. That’s because buyers know that if they can’t find a given product, they won’t stop searching; they’ll try to buy elsewhere — and will likely be successful. That lost sale may not be one-off instance either, if the alternative suppliers’ good are of higher quality or sell for a more reasonable price.
Just-in-case inventory helps to keep loyal customers loyal by ensuring they’ll come to you first for items they need to have, and can potentially get buyers to switch if their go-to supplier is experiencing sourcing issues.
2. Add demand forecasting flexibility
Just-in-time inventory advocates laud this strategy for its cost savings since it lessens the risk of having to absorb the expense of buying excess product. But this approach can make demand forecasting more challenging since there is so little room for error between what is enough and what is too much for merchandise. Just-in-case leaves more wiggle room for demand forecasting since the strategy presupposes that demand will fall short of supply. Just-in-case inventory also makes planning simpler for other affiliate suppliers who have their own production costs to arrange.
3. Leverage bulk discount offering
There’s a reason why “buy one get one” offers are as popular as they are: Bulk buying saves money for consumers — and for businesses. It does so by allowing companies to make more efficient use of their resources, saving time on production processes and cutting costs associated with packaging and receiving.
Adopting a just-in-time inventory strategy also adds flexibility to how you go about selling your products. If you wind up selling substantially less than what you have in inventory, you can review what it will cost you to reduce the price of certain products while still turning a profit or make a BOGO offer of your own to stimulate buyer interest.
4. Avoid supply chain snags
While supply chains are operating more nimbly, the bottlenecks haven’t entirely cleared. Close to 50% of respondents in the SAP survey said they anticipate more raw material shortages in 2023. Continually shoring up inventory can help you avoid production hitches when supply chain snags occur.
