Just-in-time inventory strategies help retailers stay competitive
Keeping “just enough” inventory on hand to cover demand is a strategy retailers can use to keep more of a company’s value in cash, increase its liquid assets and offer more access to investing options.
The JIT model across industries
Just-in-time (JIT) strategies have been popular in the auto and manufacturing industries since the 1970s, but today are gaining momentum in retail, as that segment increasingly embraces business automation.
The methodology is being considered as a method for improving retail profitability and operations.
Toyota many years ago made the JIT inventory system a mainstream model of efficiency.
Instead of ordering excess product, JIT managers focused on ordering just the amount of parts that were needed to get through a production cycle, thereby reducing the amount of “buffer” product.
Unused buffer is, ultimately, waste; in retail, that buffer is excess inventory.
JIT works better with better data
One tool retailers can use today that wasn’t available in the 70’s is data analytics.
The collection and analysis of big data makes it possible for any retailer to forecast demand reliably.
Every item sold can be tracked, as well as when it was sold, how many people walked by the store, how many of those came inside, how foot traffic changed when it rained, etc.
Although major big box retailers such as Best Buy and Target may be able to easily afford large quantities of inventory to fill their shelves, new and boutique retailers don’t have such large bankrolls.
They often are challenged to keep up with demand without spending a significant amount of cash on inventory.
A JIT strategy of supply-chain management provides flexibility, because the model is set up to minimize inventory on-hand and in storage.
That lets them order to meet demand, and not be stuck holding inventory that doesn’t sell if trend forecasts go sideways.
JIT retailers won’t be tying up capital in inventory, so they’ll have cash on-hand to invest in competitive endeavors or in other opportunities.
Tying up money in inventory means a retailer can’t react swiftly to a sudden consumer trend, because there’s no liquid capital available.
So retailers are forced to respond by quickly offloading their old excess inventory to make room for — and pay for — products that are in demand.
Compounding the situation, the stale stock is usually sold off at a steep markdown. JIT delivery of inventory frees up space in the warehouse and reduces “dead” inventory.
Shorter lead times
Shortening lead times with suppliers also creates a JIT atmosphere.
Waiting one week rather than three for shipments means a smaller inventory buffer is needed to cover spikes in demand.
By working with suppliers and vendors, retailers can shorten lead times, and gain more freedom to run a lean inventory system.
When retailers err on the side of ordering too little, the result is a poor selection — and experience — for customers.
Data is the backbone of inventory planning function and is vital to providing a good experience that entices customers to return.
