That’s right—five challenges with just-in-time inventory, one solution. In the blog, Five Advantages of JIT, we discussed the advantages of just-in-time inventory. But everything is not perfect. We will flip it over and discuss the challenges or disadvantages of just-in-time inventory. It is easy to point your finger and talk about negatives, but today, we are here to provide a solution, The Solution!
But today we’re flipping it to explore businesses’ challenges when implementing just in time. We will not stop at the disadvantages but also provide a solution, The Solution! Picture this. A finely tuned supply chain delivers what’s needed and when needed, but what happens when suppliers falter?
Demand spikes unexpectedly or external factors wreak havoc. What can you do about the adversities you may experience with Just In Time Inventory Systems? There are challenges in most systems. Just In Time Inventory System is no different. We will review these five challenges.
- Supply Chain Disruptions
- High Dependency on Suppliers
- Limited Buffer for Demand Fluctuations
- Vulnerability to External Factors
After discussing these five challenges, we will review the solution. Let’s discuss each challenge.
Challenge Number One
Supply chain disruptions. As you might have guessed, JIT’s reliance on seamless supplier deliveries can become a double-edged sword. The domino effect can ripple through your entire production line when suppliers encounter delays, quality issues, or disruptions. Imagine a smartphone manufacturer relying heavily on just in time. A supplier’s manufacturing hiccup resulted in a month-long delay in delivering vital components, haltering production. The lesson? While just in time optimizes, it also magnifies the impact of supplier hiccups. Transportation is one of the wastes in Six Sigma. Reducing transportation waste can be challenging, but you must spread the wealth. If you are shipping a parcel, Use all the resources, UPS, USPS, and FedEx. Do not limit yourself. If you are shipping over the road, use at least two companies. Three would be better. If you are shipping internationally, contract with FedEx and DHL. If you are shipping containers around the world, contract with large vessel firms and smaller vessel firms.
Challenge Number Two
A high dependency on suppliers. Just In Time thrives on supplier reliability. But what if a critical supplier experiences financial trouble, production bottlenecks, or even goes out of business? Take the case of an automotive manufacturer. Their primary steel supplier unexpectedly declared bankruptcy, leaving them scrambling to secure materials and causing severe production delays. This highlights the importance of diversifying suppliers and establishing contingency plans to maintain just in time’s delicate balance. What is wrong with a secondary supplier that provides x percent of your product? Diversifying your raw materials and finished goods to multiple suppliers Is good. Will this secondary supplier cost more? Probably yes. Providing your secondary suppliers with a glimmer of hope will provide security for that supplier.
Challenge Number Three
Limited buffer for demand fluctuations can cause chaos. Just in Time excels in steady demand environments, when demand suddenly spikes due to promotion, seasonality, or market trends, The tight inventory control of Just-in-Time might struggle to keep up. imagine a toy retailer during the holiday season. A sudden surge in demand for a popular toy caught them off guard, leading to stockouts and missed sales opportunities. In such scenarios, the lack of inventory buffer becomes apparent, urging businesses to balance JIT’s precision with the need for flexibility. You may need to adjust for a busy or slack time in your business when calculating min max, buffers, safety stock, and other variables.
Yes, this is extra work, but extra work that will have a good return. To vamp up your production next quarter, you may increase these buffers. Only increase some of the weight, enough to raise your safety stock. This will allow you to bring in more now and then later. Remember, if it was easy, everyone would be doing it!
Challenge Number Four
Vulnerability to external factors. JIT’s elegance is grounded in predictability, but external events like natural disasters, geopolitical tensions, or sudden market shifts can introduce unprecedented chaos. Consider an electronics manufacturer relying heavily on a single geographic region for components. A natural disaster, like COVID-19, disrupted the supply chain and revealed the vulnerability of overreliance on a single source. Just in time, dance with predictability can falter in the face of unpredictability.
Challenge Number Five
Quality control challenges. JIT’s swift pace can sometimes leave little room for rigorous quality checks, raising concerns about product quality and integrity. Imagine a pharmaceutical company practicing JIT for drug
manufacturing. In their quest for speed, they overlook comprehensive quality checks, leading to a recall due to subpar medication. It’s a reminder that just in time requires careful balancing between speed and quality assurance.
There you have it, five challenges just in time inventory management presents to businesses. Don’t go away just yet. We are gonna reveal the solution that is twice now, did you catch it? Solution singular.
There is no possible way to avoid any one of these challenges at any given time. However, there are ways to Minimize your risk in the case of any of these events.
Each challenge described is a Risk. What is a solution? A Business Continuity Plan, BCP.
Business Continuity Plan
What is a Business Continuity Plan? Business Continuity Planning is the development of plans to handle issues that may cause business interruptions.
What is a business interruption? A business interruption is defined as abnormal business operations due to an event. This will vary from company to company. For example, a power outage at a bank could be placed on the higher end of the spectrum. However, the same power outage for a warehouse operation may be classified as a middle-of-the-road disruption.
Another example would be a down internet service for a call center that uses VoIP phones. This would be a severe loss of business. That same down internet service for a mom-and-pop store may be less critical because they still use a landline.
MTD or MAD
The first step is to define your maximum tolerable downtime or the maximum allowable downtime. This is the length of time you are out of stock of an item or items. Be realistic. Using zero is not realistic.
Before moving to the risk assessment, you should understand two important principles. The first principle is the different types of threats to business functions.
Threat Types
- Mother Nature, natural threats, floods, tornadoes. Hurricanes, earthquakes, wildfires, snow or ice storms
- Facility threats happen to your facility: fire, explosion, power failure, water damage, loss of access, and mechanical failures
- Personnel threats, strikes, epidemics, hazardous materials, transportation problems, or loss of key personnel
- Technology threats, viruses, hacking, data loss, hardware failure, software failure, network failure, phone system failure, or loss of internet service
- Operational threats, financial crisis, loss of key customers or suppliers, equipment failures, regulatory issues, bad publicity. Or, lack of due diligence
- Social threats, riots, protests, sabotage, vandalism, workplace harassment or violence, threats of labor unions, and social media
Before making a plan, you need to understand what Threat is attacking your business.
These different threat types can happen to you, happen to your supplier, or any route from your supplier to your facility. Example: In 2022, a hurricane hit the northwest and central Florida areas hard. It was so bad many deliveries were delayed to South Florida. As a result, many grocery stores in South Florida were 50% empty. No food. South Florida felt the effects indirectly. This can happen to your business—events that happen not directly to you but can affect you.
The second principle is the different threat levels. There are five threat levels.
Threat Level One
A threat is continuing one or more business unit functions due to losing a single but critical resource at one of your company facilities.
Threat Level Two
This Threat is to the continuation of many business units. Functions due to an event that prevents access to one of your company’s facilities but does not damage critical resources.
Threat Level Three
A threat to the continuation of many business unit functions due to an event that damages or destroys many critical resources at one of your company facilities. This is a combination of multiple Level 1 threats.
Threat Level Four
A threat to the continuation of many business unit functions due to an event that destroys one of the company facilities. And most, if not all, of the critical resources in that facility. This is the highest threat level for a company with a single facility.
Threat Level Five
A threat to continuing many business unit functions at multiple facilities.
Risk Adversity
You must know the Threat Type and the Threat Level to your business before making a plan. Now, let’s move forward with the Risk Assessment Chart.
What is your company’s risk adversity? What is your company’s preference for avoiding or minimizing risks and uncertainties when making choices. Here are examples on both sides of the spectrum for Business Continuity.
- Extreme Side: We have three 45 foot trailers set-up with desks and computers fully formatted to our business standards. This site is considered as a Hot Site. In case of a situation that we cannot work in the Main Office, we will transport our employees to this site, so we can continue to work.
- Opposite Side: When it happens, we will deal with it.
On the Extreme Side, the company is spending more Money for less Risk.
On the Opposite Side of the spectrum, the company is spending Less Money and assuming More Risk if an crises occurs. This type of company believes incidents will happen, but they are rare and far between. The chance of it happing to them is a small chance.
Risk Assessment Chart
Recently, I have started to use Notion to create a Risk Assessment Chart. In the past I have used spreadsheet software such as Excel or Google Sheets. You use which you prefer to create the Risk Assessment Chart. It is your choice. It can be old fashion pen or pencil and paper.
Scoring System
Define your scoring system. I recommend a tight scoring system from 1 to 5. 1 being the lowest, 5 being the highest.
There will be 8 columns used on your spreadsheet.
First column: Risk impact opportunities. You will define the incident. A supply chain disruption may be due to a vessel carrying your products being attacked by pirates.
Second column: Likelihood of the event occurring from 1 to 5.
- 1. Almost Impossible
- 2. Unlikely to Occur
- 3. Possibly to Occur
- 4. Likely known to Occur
- 5. Expected as an Everyday Occurrence
Third column: Impact on the business if the risk impact opportunity happened. On the same scale, 1 to 5,
- 1. Insignificant
- 2. Minor
- 3. Moderate
- 4. High
- 5. Severe
Fourth column: Risk score. This is the likelihood multiplied by the impact.
- Likelihood of 1 to 8 is a Low Risk
- Likelihood of 9 to 15 is a Medium Risk
- Likelihood of 16 to 25 is a HIGH Risk
Fifth column: Existing plan. If you do not have anything now, leave it blank. If you do, write a summary of your existing plan.
Sixth column: New plan. Summarize it. Let’s define where you can find the full plan.
Seventh column: Business area or department. If this risk involves all personnel, I recommend entering all in this box.
Eighth column: Person responsible for the execution of the new plan.
Be assured planning is the key. No one plans to fail, only fails to plan. It would be best if you started defining essential events. And start developing ideas to overcome these events. When an event happens, a plan needs to be executed. Planning is not a sign of weakness but strength and caring. Here is the link to my Business Continuity Plan SlideShare presentation, which you can download. This slideshow also includes the steps to develop a business continuity plan.
As we reach the end of this two-part series, we’ve embarked on a comprehensive exploration of just-in-time inventory management. This strategy promises remarkable advantages while posing undeniable challenges. Today, let’s reflect on the key takeaways from our journey and equip you with insights to navigate the world of JIT more effectively.
In the first blog, we embraced the pros of JIT, where efficiency, cost savings, and responsiveness took center stage. Reduced holding costs unlocked financial freedom, lowered inventory investment, fueled growth, and decreased waste, resonated with sustainable values. Improved cash flow and enhanced responsiveness empower businesses to adapt swiftly to market shifts.
In this video, we delved into five challenges of just-in-time inventory, unveiling the potential pitfalls that require careful consideration. Supply chain disruptions, high dependency on suppliers, and limited buffers for demand fluctuations highlighted the need for resilience and contingency planning.
Vulnerability to external factors and quality control challenges underscored the importance of balancing precision and preparedness. We covered five different challenges of just-in-time inventory management. Some of these may affect you or may not. Everyone is different, and you may have a different set of challenges. So what’s the bottom line?
Just In Time Inventory Management isn’t just a strategy. It’s a dynamic balancing act that demands strategy, adaptability, and informed decision-making. It’s about optimizing your operations while understanding the potential risk involved.
Remember, success with Just In Time Inventory lies in recognizing your industry’s unique demands. Building strong supplier relationships and prioritizing resilience in the face of uncertainty. It’s about leveraging just-in-time strengths while fortifying its weaknesses.
Knowledge is your greatest ally, whether embracing the pros or tackling the challenges. Stay curious, stay informed, and remember mastering the art of just-in-time inventory management is a journey that’s well worth embarking on. To read the first blog, 5 Advantages of J-I-T, Click Here. Look at the positive side of Just In Time.
Thank you for joining us on this exploration. Until next time, keep optimizing and forging ahead with confidence in your inventory management endeavors.
Have a great day and be safe.
