Just In Time

Traditionally, companies use warehouses to stock the components required to manufacture their products. This is problematic for two reasons.

1. Warehouses are expensive. They occupy precious land, are expensive to build and maintain, locks capital into inventory, and require personnel.

2. Warehouses hide problems. If the suppliers have a late delivery but the warehouse still has stock, no one will notice. Therefore, suppliers are allowed to operate sloppily.

To avoid these two problems, some companies adopted a Just In Time philosophy. They request suppliers to deliver the components at the exact moment they are needed. This has two beneficial effects.

1. It reduces storage costs. The warehouse can be smaller, costing less to build and maintain. Less capital is locked in inventory. Less personnel is required to handle the components and maintain the warehouse.

2. It surfaces problems. If there is little or no stock on the factory grounds, production must stop if a supplier is late. This surfaces logistical problems and makes it urgent to solve them. As a result, the operations of the company and its suppliers become more reliable.

However, Just In Time has one flaw. It makes the company fragile to supply chain disruption. For example, the recent pandemic that hit global logistics crippled companies relying on Just In Time suppliers.

The solution is to keep some stock, but make it hard to access.

For example, a signature from the Operations Manager might be required to pull stock from the warehouse. This way, you have some protection against logistics disruption, and you partially cut storage costs and surface problems.