From Our Print Edition

The current supply chain crisis has some industry observers wondering if a ‘just-in-case’ approach might make more sense.

“Has the supply chain crisis exposed the underlying risks of just-in-time inventory management? Should just-in-time approaches at retail be retired, adjusted or brought back once the supply chain bottlenecks are resolved?”

That’s the recent question put to a panel of retail experts by our friends at online news and discussion forum retailwire.com. Why is the practice of just-in-time inventory management suddenly coming into question? According to results of a retail survey by Blue Yonder and Retail Systems Research shared by RetailWire, supply chain metrics too focused on efficiency at the expense of flexibility represent the biggest internal roadblock to a more effective supply chain. But many retailers are reluctant to change things up.

Lean inventories allow companies to optimize working capital, explained UPS CEO Carol Tomé at a recent industry event chronicled by Financial Times.

Could a shift from ‘just-in-time’ to ‘just-in-case’ inventory management help prevent scenes like this?

 “Pre-pandemic, that worked pretty well. But when the pandemic hit and everything was shut down, including manufacturing…well, that just-in-time inventory didn’t work anymore.”

Just-in-time drives efficiencies, yes, but it reduces diversification, and that quickly became a problem for many retailers, said Jason Kra, president at Li & Fung, at a recent conference. He emphasized the importance of redundancies — holding extra inventory, flexible contracts, alternative supply sources, etc. — that provide a buffer “just in case” things go south.

Still, a Wall Street Journal article from November reveals that many companies plan to return to pre-COVID inventory levels once trading conditions normalize because holding excess inventory ties up too much capital and requires warehouse space, oversight and insurance that retailers just can’t afford. And in the grocery business, lean inventories also help ensure items with sell-by dates are moved out in a timely fashion.

So what’s a company to do? Here’s what some of the experts had to say:

“The issue, in my opinion, is less about inventory quantities and more about supply chain diversity, which leads to agility. Single-threaded and long supply chains work reasonably well in ‘normal’ times, but the past couple of years have exposed how vulnerable they are to abnormalities and crises. Diverse networks that are kept active, nurtured and optimized will lead to greater resiliency and can help minimize the need for just-in-case stockpiling.” — Dave Bruno, director of retail market insights, Aptos

“Sure, it makes intuitive sense to adjust the ‘error bars’ somewhat to make supply chains more resilient, but ‘safety stock’ is a dreadful misnomer, as it ensures a higher tie-up of working capital and leads to product perishability and markdowns. That’s why just-in-time sourcing, brittle as it may be, has been so attractive to retailers and manufacturers. But there is another damaging practice at work that acts as a force multiplier when things go off the rails: the mindless pursuit of economies of scale. Super-sized container ships are the poster children for this, as last year’s Evergreen Suez Canal debacle and the bottlenecks at U.S. Pacific ports have painfully proved. A new thought process is needed around supply chain resiliency. — Retail tech marketing strategist James Tenser, president, VSN Media LLC

“Just-in-time methods are supposed to have redundancies built in, including alternative supply sources and secondary suppliers with contracts in place… Eliminating JIT doesn’t make sense, especially as inventory carrying costs range from 20% to 30% of total inventory value. Holding onto excess stock translates into much lower profitability and, in some cases, can even become a loss. JIT is a powerful technique…used for everything from agile development to on-the-fly manufacturing. The technique isn’t the problem; the execution is.” — Retail thought leader Ananda Chakravarty

“It would be wrong to read into what people are saying as ‘Build inventory and hold just-in-case stock.’ That would be a major retrograde step and would not help retailers at all… Holding additional just-in-case stock not only ties up capital and warehouse space, it most definitely also reduces a retailer’s operational flexibility and leads to redundant stock, markdowns and write-offs as stock goes out of date. Holding an appropriate amountof safety stock is what’s required. Adding flexibility with alternate sourcing is very sensible but holding excessive just-in-case stock is not, and we must be very careful not to take a step backward.” — Andrew Blatherwick, chairman emeritus, Relex Solutions

“The just-in-time paradigm has simply been taken too far. We now live in an era when all kinds of unpredictable things are going to happen. So while I’m not a proponent of piling on the inventory, I am a proponent of keeping sourcing options open. All-China-all-the-time (yes, I know Vietnam is a big source, too) just doesn’t work for more reasons than I can list.” — Paula Rosenblum, managing partner, RSR Research

“The options to keep additional supply for the ‘just-in-case” and tie up capital, warehouse and insurance costs may be high, but the alternative may be higher. Every business needs to understand their metrics and maintain a reasonable and responsible balance.” — Zel Bianco, founder and CEO, Interactive Edge

To read more expert opinions, check out the Jan. 13
discussion on RetailWire’s website.