Retailers are shifting back to “just-in-time” (JIT) inventory management strategies after moving away from them to "just-in-case" strategies during the recent years of pandemic disruptions and unstable supply chains, as the Wall Street Journal reported recently.
JIT involves keeping inventory levels as lean as possible to minimize holding costs while relying on accurate demand forecasts and supply chain visibility to ensure new stock arrives just as needed. We'll shed some light on why retailers are seeking out JIT inventory practices again after having been more reluctant about it in recent years.
Why Retailers Moved Away From Just-in-Time
During the COVID-19 pandemic and subsequent supply chain turmoil, many major retailers found it necessary to build up sizable safety stock.
Having buffer inventory allowed them to avoid stockouts amid unpredictable customer demand shifts and overseas factory shutdowns. However, maintaining high inventory levels proved very costly due to tied-up working capital, storage fees, spoilage, and extra labor required to handle the excess merchandise.
Facing these high inventory carrying costs, retailers aimed to liquidate built-up safety stocks by offering heavy discounts and promotions to sell the excess items. But clearing out the glut of inventory also ate into retailers’ margins. This experience revealed to retailers the significant financial downsides of straying too far from just-in-time principles for too long.
Returning to Just-in-Time
As pandemic effects stabilize, retailers have noted growing confidence again in their ability to accurately forecast consumer demand. Enhanced data analytics and demand sensing capabilities are enabling better demand predictions even in uncertain times. Additionally, overseas manufacturing and shipping visibility has improved considerably, allowing retailers to coordinate just-in-time inventory arrivals with greater reliability.
With supply chain turbulence easing and planning reliability increasing, major retailers are now making an intentional shift back towards just-in-time inventory methods:
- Walmart, Target, Home Depot and other retailers moved huge amounts of excess inventory in 2022 and are now being far more cautious about new inventory builds. It demonstrates a deliberate shift towards JIT principles.
- Inventories at many major retailers now sit well below 2021 levels and much closer to pre-pandemic norms.
- Numerous retail supply chain leaders are looking to keep inventory levels lower through closer coordination with suppliers and better demand planning. This indicates buy-in across the retail industry to revert to JIT methods.
Ongoing Considerations and Challenges
While aiming to optimize inventories, retailers also want flexibility to respond to shifts in consumer demand. Methods like faster inventory turns and coordination with suppliers for just-in-time restocking allow for this. AI-based demand forecasting further enables detecting and reacting quickly to changes.
However, some buffer inventory will still be kept to balance efficiency and preparedness. The pandemic revealed risks of overly lean supply chains, so most retailers will likely maintain more safety stock than pre-pandemic JIT models warranted. Ongoing economic uncertainty also merits some caution with inventory levels.
A number of factors allow major retailers to shift back towards just-in-time inventory management while also building in protective buffers against variability:
Enhanced Visibility and Control Across Supply Chains
Supply chain visibility entails having real-time tracking data and inventory insights across a retailer’s entire upstream supply network. This visibility enables identifying and reacting faster to potential delays or changes.
Many retailers invested heavily in visibility and monitoring systems after facing major gaps during COVID-19. Data platforms like control towers now integrate information across planning systems, suppliers, warehouses, and logistics partners. This holistic view prevents surprises and facilitates coordination.
Enhanced visibility also powers predictive analytics on delivery ETAs and potential bottlenecks. This further bolsters retailers’ capability to plan just-in-time inventory arrivals.
AI and Machine Learning for Demand Forecasting
Machine learning algorithms leverage vast volumes of historical and real-time data on sales trends, micro-market demand shifts, promotions and pricing, seasonal factors, and more to generate highly accurate demand forecasts. Updates ingesting the latest Point of Sale and inventory movement data enable continually refined projections.
Numerous major merchants now use AI to predict demand surges associated with weather changes, new competitors opening nearby, or viral social media trends pointing to hot new products. This precise demand sensing facilitates right-sizing inventory builds.
Enhanced Supplier and Logistics Partnerships
Companies are increasingly fostering close, collaborative relationships with key vendors and logistics companies. Information sharing and planning transparency with these partners enables aligning production schedules and shipment plans that support just-in-time inventory flows.
Some retailers implement Vendor Managed Inventory (VMI) programs, where suppliers take charge of monitoring stock levels and handling replenishment rather than relying on retailer purchase orders. This tighter coordination prevents mismatches between inventory arrival timing and demand.
Careful selection of logistics partners based on delivery reliability and transparency also minimizes disruption risks that could upend just-in-time plans.
Localized Distribution Networks and Ecommerce Channel Growth
Retail giants are looking increasingly into expanding networks of regional distribution centers located closer to end customers. Localized storage hubs with overnight delivery ranges facilitate rapid restocking that keeps stores perpetually in stock. Ship-from-store capabilities also let retailers fluidly move inventory between locations based on demand.
E-commerce channel growth with legions of urban micro-fulfillment centers enables direct-to-consumer shipping of just the right product quantities ordered. Combined with store networks, localized logistics prevent both stockouts from occurring and excess stock from accumulating.
Achieve Just-in-Time Efficiency with Enhanced Visibility
Balancing just-in-time inventory flows and supply chain resilience is an ongoing challenge, but advanced solutions like BoxHero empower your business to find the sweet spot.
BoxHero helps you gain visibility for precisely coordinating inventory arrivals with demand. Meanwhile, its predictive analytics can assist in identifying potential bottlenecks before they occur, allowing smart mitigation. Find out more today to see how we can assist you in your inventory management.