A new way to buy? Warehouse image

A new way to buy?

At the start of this year, GEP published a paper questioning whether traditional procurement models were suitable for a post-pandemic world. The argument was that in a world where risk and supply chain volatility are high, sourcing goods to arrive as and when they are needed – known as Just in Time (JIT) - might not be a sound model to use. They made the case instead for companies to hold a certain amount of stock in reserve, to be used as and when required. The model, known as Just-in-case (JIC), advocates a hefty buffer stock for when demand outstrips supply.

Opinions among experts are split. JIT originated in Japan in the 1970s when the car manufacturer Toyota sought to meet consumer demand by reducing flow times, waste and costs within the production system. The aim, according to CIPs, is to have ’zero inventories across the organization and its supply chain.’ It is a highly efficient model given the right conditions – it just so happens that a pandemic is not the right conditions.

Why the calls for JIC?

Throughout 2020 and for most of 2021, supply chains have been disrupted. To that end, holding onto additional stock is a natural reaction for companies burnt by shortages. But is that effective? In the short term, yes. Holding a level of stock means that businesses can meet demand for products or services when required to; it shields them from sudden or unexpected demands in supply and protects them from production or quality issues.

Moreover, JIC allows companies to diversify their supply base and reduce their dependence on key suppliers, further reducing exposure to risk. This approach can ensure steady supply during critical periods and prove to be more cost-effective in the short term. To that end, holding more inventory does make sense – though it isn’t a cure all.

The real issue…

While holding more stock would certainly have alleviated supply issues during the pandemic, it isn’t without its issues. Holding onto more stock inevitably means more money tied up in inventory as well as the problem of finding somewhere to store it. Over the long-term, it’s not that cost-effective either, especially given that cash is tight for a lot of organisations.

A more effective solution is to deal with the underlying problem: an ability to deal with the unexpected. For that, companies need to have better supply chain planning, greater visibility over their supply network as a whole and to form flexible and collaborative relationships.

This approach bakes in resilience and mitigates risk from the start, because rather than selecting suppliers based on price alone (i.e. the lowest cost), you select them based on adaptability. With a clear visibility over your suppliers’ networks, you are much more aware of risks too. Indeed, many companies suffered supply shortages during the pandemic not because tier 1 suppliers failed, but because their tier 3 and 4 failed.

The way forward

While JIT might have leaned out supply chains too far, it doesn’t wholly justify a lurch to JIC. Both have their merits. The principles of JIT that have made it successful still hold firm – it’s just a case of evolving them. Supply chains will always face disruptions, whether localised or global. It is impossible to predict when they will happen and what will ensue; to that end, being resilient and ready for them is essential.

The answer lies in the way we think about both JIT and JIC, and working toward a model that uses the best of both. It should be remembered that the idea behind JIT is to reduce waste and not eradicate it, and that JIC does not have to be all about bloated stock levels and long throughput times.

Taking advantage of the best technology has to offer can get the best from both models. Using data to monitor the market can help to identify at risk supply nodes. That in turn informs proper planning based on visibility over inventory – both at the company and market level. That type of strategic approach allows for backups in the form of targeted inventory buffering, and a lean, cost-effective supply chain that has built-in resilience and flexibility.

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