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OM in the News: The Case for “Just-in-Case” Inventory

February 17, 2013

amazon warehouseAn interesting article  in The New York Times (Feb. 13, 2013) proposes that major storms, like Hurricane Sandy, and longshoreman strikes are causing companies to rethink the popular JIT  business model, in which only small amounts of inventory are kept on hand, to fashion just-in-case inventory management. The shift has led retailers and logistics companies to alter supply chains by adding distribution hubs. Just-in-case inventory helps retailers keep merchandise on store shelves in the event a supply chain disruption affects one of the major distribution markets.

 Since the 1990s, JIT has made sense for companies looking to reduce the cost of keeping large inventories on hand. Technology enabled retailers and manufacturers to closely track and ship items to replace merchandise sold or components consumed in production. The model also reduced transportation costs, because goods would be shipped only as necessary. Now, more companies are trying to strike a balance between “carrying the minimum inventory possible, yet never running out of things.”

For example, Houston’s Ranger Steel,  a massive steel plate distributor, recently expanded its network of distribution centers. Until the late 1990s, Ranger  regularly trucked its products directly from Houston to customers throughout the US. “For a long time that concept worked like a charm,” said the company’s VP. “Then you started to see the spike in fuel pricing, and new governmental rules that made truck transportation very expensive.” So like many retailers and wholesale suppliers, Ranger has added 7 distribution centers to its network, cutting delivery times to 24 hours by moving its inventory closer to customers. Multiple, well-placed distribution centers minimize the time and distance spent on the final leg of delivery, when trucks are often nearly empty while transporting individual items. “The final mile is the most expensive cost per pound or cost per piece,” writes The Times.

Discussion questions:

1. Why is “just-in-case” being proposed as a JIT alternative at this time?

2. Is the concept of JIT fading?

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