A just-in-time renaissance ushers in a new mantra: 'just in case'

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Just-in-time (JIT) is on the rebound, but with a few twists.

Back in 2020/21, supply chain gurus pronounced the end of the JIT concept. The disruptions unleashed by the pandemic and subsequent supply chain turmoil exposed the vulnerability of what had been the dominant supply chain model and forced companies to re-think their strategy.

The new mantra was just-in-case (JIC), marked by an effort to make supply chains more shock-resistant, with a heavy dose of inventory to avoid the stock-outs that were producing empty store shelves and long wait times.

In 2022, SAP published a study which found that 64% of companies were pivoting from JIT to JIC.

As demand cooled, inventory levels surged, and reached a peak in October 2022, when they were up 18% year on year. At apparel seller PVH, which owns the Calvin Klein and Tommy Hilfiger brands, inventory was up 34% at the end of the fourth quarter of the year.

The twin shock of bulging inventories and rising costs as inflation soared hit retailers’ and manufacturers’ appetite for stockpiling. McKinsey noted that ‘right-sizing’ inventory emerged as a major focus for companies.

On top of the warehousing costs, excess inventory means firms pay for goods before they need them and face the potential prospect of them becoming obsolete before they can be sold, noted Bob Imbriani, SVP international of forwarder Team Worldwide. It also ties up working capital and leaves less space for new products.

Companies were further encouraged by the dissipation of the congestion that had clogged up supply chains. The Global Supply Chain Pressure Index of the Federal Reserve Bank of New York, which measures 27 data points and is updated monthly, shows the peak of pressure in December 2021, followed by decline. This plumbed new depths in October with a reading of -1.74, lower than pre-pandemic levels.

These developments made JIT a lot more tempting again. According to some observers, it never really went away, while some see a renaissance. Either way, it is coming back into focus, but not in the same way. For one thing, supply chain disruptions have not disappeared.

“We seem to experience them more than ever before,” said Mr Imbriani, pointing to the current issues with the Suez and Panama canals.

What appears to be emerging is a JIT approach that includes elevated safety stock levels rather than all-out inventory build-ups. Some of this can be achieved through optimisation of transport capacity, Mr Imbriani pointed out.

A company that used to fill a container with 1,500 boxes may stretch the load to 1,800, which actually reduces the transport cost per item and increases stock levels to a moderate extent, he explained.

At the same time, there is a stronger focus on de-risking supply chains. Mr Imbriani has observed two major trends in this direction: an effort to shorten supply chains through near-shoring; and growing interest in vendor-managed inventory (VMI), whereby vendors are required to keep inventory close to their customers’ facilities.

VMI has been around for a long time, chiefly for manufacturers’ supplies of raw materials, but it is now extending to parts, and even finished goods, he noted.

Cargo owners are also more tuned-in to the state of the supply chain and the whereabouts of their shipments, he said. A growing number of clients have asked Team for updates on shipping conditions, which prompted the forwarder to produce weekly, as well as bi-weekly and monthly, reports on conditions out of Asia, Europe and South America for customers.

Clients are also paying closer attention to the tracking process, Mr Imbriani reported. Historically, they were not too concerned over the individual milestones on the journey, but now they follow their shipments more closely.

This suggests a more intense dialogue between cargo owners and logistics providers, which would fit into another theme that emerged during the disruptions of 2020/21 – the need for a shift in relationships from a transactional to a more collaborative approach.

Short-term temptations seem to be getting in the way, though.

“Most companies look at a collaborative environment. However, a lot of forwarders and carriers are trying to break that down,” Mr Imbriani commented. They are aggressively pushing space availability and low rates for short-term deals, and shippers embrace this, he observed.