Supply chain best practices have trended toward Lean inventory and production models for decades. The basis of modern Lean practices began with the development of the Toyota Production System in the mid-20th century, with one of the premier concepts of this model being a practice called “Just-in-Time.” In a Just-in-Time production model, all parts and components used to produce a finished good arrive “just in time” for use on the assembly line.
Under Just-in-Time, manufacturers drastically reduced costs associated with their held inventory. This practice spread to retailers and distributors, who implemented Just-in-Time inventory management practices based on sales projections and forecasts to ensure finished goods would only sit briefly in distribution and fulfillment centers.
Over the past decade, Just-in-Time capabilities have been streamlined further thanks to advances in technologies like artificial intelligence and machine learning until every link in the supply chain learned how to carry as little inventory as possible. Then a global pandemic took the world by surprise.
Creating New Best Practices, Just in Case
As outbreaks of COVID-19 shut down production worldwide, businesses began to realize the flaw in Lean inventory methodologies. Manufacturers couldn’t access raw materials from suppliers, who then couldn’t deliver parts and components to their original equipment manufacturer (OEM) customers. As a result, OEMs couldn’t produce finished goods to sell to retailers, and retailers couldn’t restock their shelves.
Though recovery efforts from COVID-19 are ongoing, supply chain leaders around the world have recognized the need for a better balance between efficiency and cost. So now, businesses are transitioning from Just-in-Time to what has become known as a “Just-in-Case” strategy. Just-in-Case refers to the practice of holding large amounts of inventory, enabling a company to avoid stockouts entirely.
What Will a Post-Pandemic Inventory Strategy Look Like?
Spending a little more to hold extra safety stock in a warehouse is now considered justifiable if it will mitigate the next supply disruption that comes along. Even though C-suite executives and supply chain leaders have demonstrated a willingness to spend more on supply chain strategies that will mitigate disruption, a literal implementation of Just-in-Case inventory practices is probably not financially sustainable for most organizations.
Instead, new inventory management strategies should attempt to balance the Lean efficiencies of Just-in-Time with the higher inventory levels proposed by Just-in-Case. By making sacrifices on both ends of the spectrum, businesses will achieve some of the main benefits of each strategy. A good post-pandemic inventory strategy will contain elements such as:
- Multi-sourcing. One of the first things procurement teams learned during the pandemic was that having a single provider for a particular widget, material, or finished product created a significant opportunity for disruption. Moving forward, procurement leaders will strive to have multiple sources for everything they need. Ideally, each supplier will also be located in a different region.
- Regionalization. An ocean between suppliers and customer markets has proven less than ideal for many U.S. retailers and other businesses. Supply chain stakeholders now understand the importance of shortening the supply chain for critical goods and components. Updated inventory strategies will seek to source goods domestically and from nearshore locations to avoid disruptions caused by shortages in ocean capacity, airfreight capacity, containers, and other recent issues.
- Safety stock. Retailers, manufacturers, and other businesses are still trying to figure out the appropriate level of inventory they should carry. Filling a warehouse with several years’ worth of inventory isn’t feasible for most companies. Still, neither is running out of inventory after a particularly disruptive week in the supply chain (the Ever Given situation in the Suez Canal may come to mind here). Over the next several years, supply chain, logistics, and procurement leaders will need to establish new best practices regarding ideal safety stock percentages for their respective industries.
About Phoenix Logistics
Strategic Real Estate. Applied Technology. Tailored Service. Creativity. Flexibility. These fundamentals reflect everything we do at Phoenix Logistics. We provide specialized support in locating and attaining the correct logistics solutions for every client we serve. Most logistic competitors work to win 3PL contracts, and then attempt to secure the real estate to support it. As an affiliate of giant industrial real estate firm Phoenix Investors, we can quickly secure real estate solutions across its portfolio or leverage its market and financial strength to quickly source and acquire real estate to meet our client’s need.