One of the biggest challenges facing the owners of eCommerce businesses is managing inventory. If you don’t have an accurate picture of the inventory that’s in highest demand by your target audience, you may end up not having enough inventory to fulfill orders, or you could end up overstocking items that aren’t selling.
There are several different ways to approach inventory management. One approach that may be used to increase efficiency is known as a just-in-time inventory system, sometimes called JIT or JST Inventory.
What is a Just-in-Time Inventory System?
A just-in-time inventory system is an inventory management system in which goods are received from suppliers only when needed. Different businesses may have different ways of implementing this method, but the idea is that the production and shipping of products is based on actual orders. Raw materials for production arrive when production begins and not sooner. The goal is to eliminate waste and limit the amount of inventory on hand.
For an eCommerce business to be successful, client satisfaction has to be a top priority. Just-in-time inventory control helps to optimize inventory so that your company only has on hand what’s actually needed. This can help to improve your return on investment by reducing nonessential costs.
Benefits of Just in Time Inventory Control
There are several benefits of using JIT. Some benefits of using this method of inventory management include:
- Less waste – Since this system revolves around client demand, there’s less waste involving unneeded items. When you only order what you need, you don’t end up with excessive unusable inventory. This allows manufacturers to quickly move on to production of different items if necessary.
- Saves money – There’s a lower upfront investment since less money is spent unnecessarily on raw materials. Labor expenses may be lower when there’s less inventory to handle.
- Reduced storage needs – Unwanted and unsold inventory doesn’t take up valuable warehouse storage space. This may eliminate the need for a large warehouse and can also reduce storage overhead costs such as rent and electricity.
- Eliminates or reduces production delays – When only wanted items are being produced, there’s less chance your clients might be impacted by production delays.
Using this method can improve productivity and delivery times since the time and resources needed for order fulfillment aren’t being spent on unnecessary stock. Less inventory means less chance of items held in storage being damaged. It also means it’s less likely you will end up with stock nobody wants that has to be cleared at a lower price.
JIT can be especially beneficial to new businesses that don’t have a lot of cash available that would normally need to be tied up in inventory. This approach can help to reduce costs so it’s a good idea to use this method when you have limited warehouse space or limited staff to manage inventory or perform inventory audits.
Drawbacks to Just in Time Inventory
While there are many benefits to using the just-in-time system, there are a few possible drawbacks to keep in mind when choosing to use this method of inventory management. One risk that businesses take when they use just-in-time inventory control is that a disruption in the supply chain means there’s usually no backup stock to fill new orders. This could end up delaying production and delivery when clients place additional orders. This type of disruption means sales could come to a halt.
If orders for products are more than the amount forecasted, shortages can create delays in fulfilling orders. For just-in-time inventory to work, your business needs to be able to rely on timeliness and top performance from suppliers. There are no guarantees that suppliers can consistently deliver items promptly. Sourcing raw materials locally can help shorten the time it takes to receive materials.
Tracking and Organizing Inventory
Just-in-time processing requires accurate data to manage inventory, meaning that all inventory has to be carefully tracked and organized. It’s imperative that your eCommerce business accurately determines inventory forecasts.
An effective way to do this is by using real-time inventory tracking with SKUs, which are stock-keeping units. The technology behind SKUs makes it possible to track stock digitally. This can help you to be aware of what items are in the highest demand and when items need to be replenished.
Is Just-in-Time Inventory Management Right for Your Business?
Just-in-time inventory management is often a good choice for small businesses that need to limit the amount of money they invest in inventory upfront. With fewer items in inventory, the return on investment may be higher. Another benefit to keeping fewer items in inventory is improved quality control. With fewer items to manage, there’s a better chance of a lower rate of breakage and improved ability to find production errors.
A just-in-time system can cut costs and reduce waste but there’s little room for error or supply chain disruption. In order for a just-in-time system to run smoothly, it’s important to accurately forecast orders and track current stock using available real-time technology.
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ShipHero is a US-based, leading solution provider in the fast growing eCommerce fulfillment space. ShipHero served over $5 billion of eCommerce orders in 2020 and is growing rapidly. ShipHero provides warehouse management software for brands that operate their own warehouses as well as outsourced fulfillment as a service from ShipHero owned and operated North American warehouses. Some notable customers include Universal Music Group, Glossier and Canadian Tire. ShipHero is a Shopify Plus partner and more than 10% of Shopify Plus stores globally use ShipHero.