As a retail business, you know about the critical importance of efficient inventory management. One false move here and you could face problems such as overstocking or understocking your store. That leads to frustrated shoppers who struggle to find anything and a drop in your sales. But what if you could ensure you always have the right amount of stock when you need it
Therein lies the beauty of efficient inventory management. When done correctly, it leads to a better brand image for your business, happier customers and more sales and profits. There are a few different inventory management methods and strategies that you can use to achieve this. For the sake of this piece, we’re only going to focus on one - just in time inventory management.
About the contributors
Cheré Joubert joined DotActiv in 2019 as a space planner for the Health and Pharmacy Department at Dis-Chem. Since then, she has changed roles to category planner. She has a BConsumer Science in Food Retail Management.
Karike Pieters joined DotActiv in 2019 as a space planner for the Health and Pharmacy Department at Dis-Chem. Since then, she has changed roles to work as a floor planner. She has a BSc Degree in Consumer Science from North-West University.
Runet Kritzinger has been with DotActiv since 2015 and currently manages the Makro Food and Liquor account. She has a Bachelor of Consumer Science with a Business Management degree from North-West University.
Sanmari Roberts joined DotActiv in 2021 as a space planner and works on various ad-hoc accounts, including Premier Foods, Danone and Dr. Oetker. She has a BPhil (Honours) in Marketing Management from the IMM Graduate School.
What is just in time inventory management?
Just in Time inventory management, also referred to as JIT, is an inventory management method in which you would hold just enough stock in-store to meet consumer demand and no more.
That means that it could be risky if it goes wrong - we mentioned it before - one false move and you could end up with an empty shelf and no stock in your storeroom. But there is a good reason for using this inventory management method.
Its primary purpose is to ensure that you reduce your inventory holding costs while simultaneously increasing your turnover. In short, it can help you reduce the costs of running your business.
Imagine this: you are a small retailer and don't have much storeroom space, so you can't order a large amount of stock at one time. However, if you were to implement a method such as Just In Time, and you have your systems in place, you can ensure you receive the right amount of stock at the right time to meet the needs of shoppers.
By reducing your spending on excess stock, you can increase your cash flow and optimise your supply chain based on the demand of your customers. Those are a few of the benefits - we touch on others below. There are, of course, also risks involved with this method - there will be risks for any inventory management method you choose.
It's why we wouldn't recommend it to any retailer. For example, if you have fluctuating inventory levels, it would be best to be cautious. Instead, consider all variables that cause irregularities in your stock levels. Should you neglect to incorporate these variables into your inventory planning, you could find yourself without safety stock.
That is not to say you can’t at least attempt this in your business. If you do, you must have a system that allows you to track and organise your inventory. It’s just as vital that you attempt this using specialised software rather than completing it manually.
Why should you consider just in time inventory management?
As much as it might not be a method for everyone, there is still much you can gain from implementing a just in time inventory management method in your business. Below are a handful of benefits to using this method.
1. You can reduce inventory wastage
Firstly, you can eliminate overproduction, which happens when the supply of an item in the market exceeds the demand. That leads to an increase in obsolete or dead stock, which can increase your waste and consume space.
On the other hand, you can use the JIT process to strategise the arrival of your seasonal products as consumer demand picks up for the specific items.
For example, if you’re a clothing retailer, you can receive winter items in time so that you need seasonal demand, but not stock too much. When balanced, you’ll be able to sell out all of your stock during the season so that once it ends, you’ll have little to no stock left.
2. You can decrease your warehouse holding cost
As mentioned earlier in this article, by reducing the amount of your stock in your storeroom or even your warehouse, you can reduce your holding costs. That makes sense when you consider how expensive warehousing can be. Couple that with excess inventory and you could, quite easily, double your holding costs.
By implementing just in time inventory management, you only need to order what you need so there is no risk of accumulating inventory that won’t sell. You could reduce the number of items in your warehouse or, quite possibly, eliminate warehousing.
3. You can improve your cash flow
We’ve written about this before - rising inventory value is a problem that you should be aware of because of the damage it can have on your business.
Let’s say, for example, you decide to invest $10-million in stock. Of that, $3-million goes unsold. You’re thus stuck with stock that you can’t sell. What’s more, you can’t use the money for anything else, including using it to complete much-needed repairs to a store or looking after your staff.
With a just in time inventory method, you are only ordering stock that you need at the right time. With the improved cash flow, you can focus on all of the other important aspects of your business.
4. You can improve the retailer-supplier relationship
With just in time inventory management, it’s all about offering the products to your customers when they want them. If your supplier can deliver the stock on time, every time and they sell as expected, the obvious result is a better relationship. You can thus ensure that your supplier will not let you down.
More than that, as a supplier, you can negotiate for more space. Because your products are selling as expected, you argue that you deserve that extra shelf space. Any retailer in such a situation would find it difficult to find reasons why you don’t deserve more.
What can happen when you get just in time inventory management wrong?
If you opt to implement just in time inventory management in your business, it’s critical that you realise that there are potential issues that you could face. These issues could increase if you fail to implement this method correctly.
Firstly, it all comes down to coordination. ‘Just in time’ means that the success of this business strategy depends on how precisely you can coordinate with your suppliers and manufacturers. Because you have no inventory buffer, if anything goes wrong, it can quite easily lead to a situation where you are left without stock.
If you find yourself regularly struggling to keep track of everything, it’s critical to first get that right before you implement such a method. Specialised software that doesn’t cost too much but still does the job of helping you is worth considering.
Secondly, you require input from your manufacturers and distributors. The dependency on these parties would increase the possible risks for you if you don’t have either of their full cooperation. That’s why it’s critical that you have a good relationship with them.
If you have a dependence on your suppliers, you must ensure to have detailed supplier contacts. In doing so, you can ensure they stick to strict delivery times and if they fail to deliver consistently, have a clause that means they risk losing out on opportunities.
Thirdly, it would be difficult to track your inventory - what comes in or goes out of your business. Again, with specialised software, you can minimise any human errors. Through the use of software, you can also have a better idea or plan better when seasonality kicks in or if there are changes in demand.
Just in time inventory management is a method worth considering, but you do need to be organised and prepared before you implement it. Do you need help managing your inventory efficiently? Visit our online store here for more information or book a custom exploratory consultation.