Just In Time Doesn’t Always Work
The issues in Japan, while quite extreme, have caused many to rethink Just-in-time (JIT) strategies that are commonly utilized for cost control. The theory being that inventory is a costly investment and if you schedule delivery of required inventory of either parts or finished goods to match what your demand is, and thus have little sitting inventory, the cost savings are huge. In essence, your manufacturer is your warehouse and holds your inventory, delivering “just in time” for you to utilize and sell, thus limiting your investment. This has worked out to be an excellent strategy for many and is universally utilized. However, the recent events in Japan have caused many to reconsider its use and question its value.
Simply sated, the catastrophe Japan has endured has caused many factories to go out of production. This has had a ripple effect across many industries as the marketers scurry to figure out how they can now get new inventory as their pipeline empties and there are no warehouses here to fill their orders. That’s a problem of great magnitude. It is, of course, beneficial to limit one’s inventory expenses but not at the cost of losing a sale or–worse yet–ceasing business altogether. That’s an unacceptable result. This can put your business out of business. While Japan is suffering from an extremely unusual, unpredictable and unlikely chain of events that resulted in this massive failure of business, the point is still being driven home to many that JIT delivery systems, while cost-efficient, leave you vulnerable to interruptions.
Let’s see how this shakes out. My guess it that it will become business as usual, yet I am also certain many smart business people may be tucking away a little more inventory than they are accustomed to, just in case. Others may soon reconsider having only one source of supply and others may yet determine we are safest being supplied by more expensive options here in the States. It is a situation and a strategy worthy of reconsideration if you are sourcing JIT inventory.
