After researching inventory management more extensively, I came across an article that was based on a Q&A session with senior director, Meeta Kratz, at Grainger, an industrial supply company. Meeta says that she has noticed that more and more manufacturers are switching to “just in time” inventory to reduce extra costs associated with holding excess inventory. She says that this is an important shift because companies are now learning that switching to “just in time” inventory is allowing them to be more efficient with their inventory management systems and taking excess costs out completely out improving their profit.
While I understand the approach that “just in time” inventory helps to reduce costs associated with excess inventory if a company were to have good data to make good forecasts this problem would exist. The problem with “just in time” inventory is the need for a strong supply chain to make sure that you will receive the products just in time but on time. Failure to have strong suppliers will make a company’s customers unhappy due to their shortage or late shipments due to the original suppliers. This problem would be eliminated by taking the time to analyze the previous data and make accurate forecasts for future orders. Relying on “just in time” inventory, while can be effective” is risky if a company’s supply chain is weak and has no experience dealing with this kind of inventory system before.
When asked about the elements of a good inventory management system, Meeta responded, “Customer-centric, Based on actual usage data, Flexible, Supported by Experts.” These key elements simply cannot be achieved effectively with “just in time” inventory. If you want to be customer-centric you must be able to be flexible with your customers needs. Different customers may have different needs. The fact that actual usage data should be used in a good inventory management system shows that forecasting is essential to good inventory management. If you use data appropriately you can make sure you have enough products in stock at any time without extreme costs.
While I understand that some companies, such as Dell, have great success using “just in time” inventory I still believe that switching to this type of inventory puts a company at risk for not being able to supply their customers with the products they need and risk having shortages and losing customers. Looking at element four, “supported by experts,” this proves that if you have experts looking at your data and double checking forecasts then having “just in time” inventory is less effective and riskier than having a regular inventory replenished frequently.
Do you guys think “just in time” inventory is a good system to move to, just to reduce costs? What are the risks associated with it?
8 thoughts on “Inventory Management: The New Approach”
I would have to say “just in time” inventory is a good system to move to for specific products. I believe there are more companies out there who would benefit a great deal from the “just in time” inventory. I also think some companies should not switch because the “just in time” inventory process will not work as effectively for them. Dell has proven that “just in time” inventory works well for them and when thinking about future business plans, I will probably try and model an inventory system after Dell.
I believe that “just in time” inventory is a great system because it can reduce unnecessary costs. With the original system, companies can lose profit through giving discounts on less popular items and through not selling items at all. Sometimes, this can also lead to a negative net income or it can take more time to begin receiving profit. I agree with you that there are risks in using this “just in time” inventory system, however, this system reduces the chances of falling into a great debt for the company. If products are not made, there are no expenses whereas if products are all made and not sold, there will be a high number in expenses.
I also believe “Just In Time” inventory helps not only management but the customers of that particular store as well. The reason being, is that JIT allows you, a manager, to carry only the necessary stock that you need in your store and not have to worry about bulk or excess product that you might take up more of your time trying to figure out what to do with it. But, with every system, there are downfalls. And with JIT it is possible that you could run out of a particular product and end up losing sales and therefore revenue for your company. So, it is a fine line you must be able to balance as a manager
I believe that the “Just in Time” model can be higly effective to a company that benefits from customizing their product directly for the consumer. I think that any company that does’t customize their products wouldn’t always benefit from this model due to the riskiness of the product not being available when the consumer would want it. Having the product in stock when a customer in stock is essential for a company that doesn’t customize.
I would like to play a bit of a devil’s advocate on this topic. I think JIT model is very effective but only for large mature companies with very strong relations with their suppliers. I’m sure all of you have heard Murphy’s Law “Anything that can go wrong, will go wrong”. Frankly I do not believe many small to medium sizes business can risk going with the JIT model, risking disappointing there customers.
While I do believe that “just-in-time” inventory has benefits such as reducing costs of excess or unwanted inventory, it may not always be the best option. For customers who have blanket orders and require the same amount of product for each shipment, JIT is great. However, what if a customer calls and asks for more or less of that product? The company that uses JIT will either not be capable of filling that new PO, or they will have waste anyway. In my opinion, if the raw materials have a shelf life and will not go bad, having additional inventory is not such a bad idea if there is enough space in the facility.
Having previos experience working at a popular retail store, JIT method is often too late. I work at a store where our inventory shifts every couple weeks. This means new colors, new styles, and new pieces. This extremely quick turnover requires a Very efficient replen system. Each store is given the maximum number of units according to classification of the size of the store. Meaning, an A store would receive twice as many size runs of an item than a C or D store. I believe that in retail, although there is limited space for inventory in the back, it is best to over-stock so you are at least able to account for the demand of the product. There is Nothing worse for a retail company than people wanting the product and not having enough of it at the store to satisfy the demand.
In terms of a manufacturer point of view, JIT inventory method would be very effective. It will allow manufacturers to train their employee to work at different stages of assembly line rather than focusing on stocking goods. Therefore, well trained employees will be able to focus on quality of production that will lead to customer satisfaction and at the meantime reduce defect rates. On the other hand, JIT inventory method could be relatively complex, especially when a company is involved with multiple suppliers. All goods must meet certain quality requirements to avoid defects products, also when it comes to ordering smaller amounts of goods that company may encounter difficulty meeting minimum orders.