The Just-in-Time Inventory Method Can Help Resellers Decrease Overhead Costs
Just-in-time (JIT) refers to an inventory strategy many manufacturers use to eliminate waste and reduce overhead storage costs. Using this model, the manufacturer only orders… continue below
Just-in-time (JIT) refers to an inventory strategy many manufacturers use to eliminate waste and reduce overhead storage costs. Using this model, the manufacturer only orders materials as needed, unlike the just-in-case (JIC) strategy, whereby businesses keep stock to avoid delays in the production cycle.
Henry Ford first described this idea in 1923: “If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever…That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials.”
Interestingly, Ford was not the first company to execute this model. The self-service grocery chain, Piggly Wiggly, first implemented the JIT strategy followed by Toyota, under which it became the lean production model.
Today, sundry businesses employ the JIT approach—from manufacturers to technology resellers. This is because there are stronger supplier programs available and the markets are more volatile. Keeping stock is a risk many businesses cannot afford to take.
JIT Allows Companies to Transition through Products Painlessly
If a product decreases in demand or grows obsolete, then existing stock becomes harder to move. And every day it sits, the less value it retains. From an investment standpoint, this is a scary situation. Besides these idling concerns, businesses must also consider the risk of damage and the cost of warehouse space.
Many businesses grow unnecessarily committed to the products that they stock because they fear waste. Under the JIT model, though, a business can cycle through different products without waste or additional investment. This makes the model much more versatile for technology businesses needing to adapt to slight changes in demand and technology.
JIT Fosters Stronger Distributor Partnerships
Historically, the largest problem with the JIT strategy is coordination. If the supplier or distributor cannot equip the reseller in time, then there are delays in the production cycle. For manufacturers, this could mean temporary holds on operations until materials arrive.
To avoid coordination issues, the relationship between supplier and receiver must strengthen, particularly in regards to communication. Consequently, these partnerships become multi-faceted and can supply a business with other value additions. For example, JIT inherently saves inventory costs but it also creates greater product diversity. A distributor holds more than just one type of product, allowing businesses to sample a wider scope of product in lesser quantities.
Likewise, distributors lend new support channels, sales materials and purchasing powers. Such tools are available through reseller programs that focus on more than supply-and-demand, but rather on growth enablement.