Persistent supply problems lead to a rethink
For many years, cost reduction was the most valuable asset in logistics. But since the onset of the COVID-19 pandemic and increasing global tensions, we’ve seen little sign of the former resilience of supply chains. In the meantime, many companies are rethinking and prioritising the security of their inventory – often at the expense of profits. However, in order to retain existing customers and be regarded as a reliable partner, logistics processes must be adapted to customer demand.
Logistics has two basic inventory strategies: just-in-time (JIT) und just-in-case (JIC). The former refers to delivery on time and in exact quantities, in order to keep storage costs at the point of processing and capital commitment as low as possible. This approach allows companies to react flexibly to changes in demand and manage their production effectively.
The latter involves securing sufficient stock to be prepared for any kind of eventuality, in other words to cover risks and avoid bottlenecks. The customer is always at the centre, which is why the term “just-the-customer” is also used.
Case study: how to manage supply bottlenecks and rising prices
There’s a clear trend towards just-in-case strategies, since production downtime incurs higher costs than warehousing. Recent studies from the USA, Great Britain and Germany underline the trend towards greater safety. As a survey by the Ifo Institute showed, more than 40 percent of the industrial companies surveyed were planning to significantly change their procurement in 2022 – or had already done so.
Measures ranged from increasing the company's own inventories to a broader positioning of suppliers and better monitoring of existing value chains. According to the study's authors, there was at least a partial shift away from the principles of just-in-time production.
Just-in-case in practice
In practice, just-in-case means increasing inventories, so that there are always enough materials or products available to cope with possible bottlenecks or disruptions in the supply chain. At the same time, it’s important to control storage costs and avoid excess inventory becoming the norm.
When taking these issues into consideration, classification of products is important, as some have a greater risk of irregular lead times or demand than others. For example, ABC analysis can be used to categorise stock items and assign different warehousing strategies to each group.
Intelligent software solutions can be hugely helpful in implementing a just-in-case strategy. These tools not only create accurate forecasts of demand, but also control supply chains and warn of irregularities at an early stage. Demand estimates which are as accurate as possible, as well as intelligent calculation of safety stock levels, are of vital importance. These days, there are already AI-supported forecasting methods, planning algorithms and simulation tools for sales, production, distribution and procurement.
Also indispensable is a digital warehouse management system (WMS) which provides real-time inventory insights, monitors shipments and incoming and outgoing goods, and provides assistance in optimising storage space.
In addition, close connections with suppliers are more important than ever. It’s vital to strengthen contacts so that supplier relationships can develop into reliable partnerships. In difficult times when shortages are common, long-standing trusting relationships between buyers and suppliers quickly pay off: retailers often reserve several batches of sought-after products for their loyal regular customers.