Using Data To Get “Just in Case” Inventory Management Right
The “Just in time” model of inventory management, based on principles pioneered by Taachii Ohno at Toyota rose in popularity from the 1950s to the 2020s. This manufacturing and inventory management method aims to reduce waste and boost inventory by minimizing the amount of safety stock used.
However, in the wake of global events over the past two and a half years, many decision-makers in the supply chain space shifted from focusing on speed and lean efficiency to resilience and preparedness.
In other words, many inventory managers have shifted from Just in Time to Just in Case. This inventory management style involves keeping more inventory on hand to shore up against the possibility of supply chain disruptions.
However, if it’s not implemented correctly, Just In Case inventory management can come with a range of problems of its own.
As consumers embraced e-commerce, warehouse space became even more costly.- In addition, warehouse locations are not always optimized. If you’re storing safety stock in a pricey location nearer to end consumers, this can mean longer delivery times and higher costs.
- Storing too many perishable items just in case can result in unnecessary waste and product spoilage.
In this blog post, we’ll explain how data allows you to get just-in-case inventory management right.
The Importance of Data
It’s no secret that accurate data is key to visibility. The importance of effective data in any aspect of the supply chain can’t be overstated.
When it comes to manufacturing or storing stock, the important thing to monitor is order data.
While if you’re using the Just In Time model, accurate data and forecasting surrounding demand make sure that you’re operating lean without missing anything, in the Just In Case model, it ensures that you’re carrying safety stock in the right amount and types.
Without the right data, it’s impossible to know what products to order. If you’re guessing what to order in terms of safety stock, or how much to order, you’re opening yourself up to issues like product loss or inefficient use of space.
In addition to immediate concerns, a lack of data can be a problem both up and down the supply chain. For example, if an operation is purchasing large quantities of safety stock that isn’t getting purchased, their supplier will still see those purchases as demand, and take that into account in their planning.
Similarly, James Heskett notes in a recent Harvard Business School Working Knowledge article, “In one simulation, students had little knowledge of inventory levels other than those for the company they were managing. In another, they had full information about inventory quantities at every level in the channel. I found significant value—expressed in lower inventories and fewer out-of-stock situations—in channel-wide inventory knowledge.”
Our Top Recommendation
To get an idea of what needs to be stored export 3-6 months of order data to analyze or create predictions using AI. This creates a foundation to optimize your inventory.
How You Can Use Data to Get Just In Case Inventory Management Right: Our Tips
Once your company is collecting the right data, you can optimize your operation with these four
key steps.
1: Optimize for Maximum Output at the Bottom of the Funnel
Once you are collecting the right data, you should optimize your supply chain for output at the bottom of the funnel. Our team has noticed that in a number of operations, businesses operating without data throughout the rest of the supply chain are primarily concerned with getting goods down the next step of the chain. By ensuring that the safety stock you order or manufacture is based on end customer sales, you minimize waste and ensure that customers are getting what they need.
2: Optimize Where Goods Are Stored
If you intend to store some safety stock just in case, an increase in warehouse cost is inevitable. However, using insights from your data, you can help lower the costs.
Analyze your order data to determine what goods are fast-moving and which are not. Fast-moving goods should be stored closest to consumers, rather than using high-priced central locations for safety stock storage.
3: 3PL Providers Can Effectively Optimize Space, Grow, and Focus
on Cost Per Order
3PL providers in particular might face struggles in this space. Clients working with the 3PL may, understandably, want to store as much safety stock as possible.
And, as a 3PL provider, it can be easy to aim to “fill the warehouse”. However, this approach can limit efficiency and the number of clients a 3PL provider can reasonably serve, however. Creating a system in which clients’ needs and pricing are based firmly on order data ensures that customer needs are met and that storage space isn’t being wasted.
This might also require restructuring in how you think about pricing. As a 3PL provider, your goal should be to structure your pricing in a way that allows you to minimize the cost per order while boosting velocity and timeliness.
4: Manufacturers, Distributors, and 3PL Providers Can Save Costs and Space By Mixing Pallets
Whether you provide 3PL services to other companies, are managing your own warehousing, or are working with a 3PL provider, it’s important to stay aware of options like mixing pallets. This helps minimize wasted storage space while still providing an adequate level of safety stock and service to end customers.
Our Example: If end customers are only purchasing one case, it would be inefficient for a manufacturer to send a 3PL provider 4 pallets of the item. This would be inefficient for everyone, as the 3PL provider would be wasting space and the manufacturer would be wasting product. Instead, the best solution would be for the manufacturer to send a mixed pallet of a few different slower-moving items, and the 3PL could pick them into pick bins for fulfillment.
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