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Shortages have proven to be a consistent issue for manufacturing businesses around the world. While consumers have shifted to a ‘just-in-case’ mentality as a result of pandemic uncertainties, manufacturers have not been able to pivot their approach as quickly, causing delays and disruptions. Manufacturers have now switched inventory policies from ‘just-in-time’ to ‘just-in-case’ because of shortages and supply chain interruptions in both manufacturing and retail.
Manufacturers that practice the ‘just-in-time’ inventory model, keep their inventory low by ensuring raw materials arrive right when necessary for production. This method is cost-effective, efficient in identifying problems before high-volume processing and reduces the need for warehouse storage. This approach has been adopted by 55% of manufacturers over the last decade and has been highly effective by focusing on an operation to consumption while carrying the lowest inventory possible.
While this method has been preferred by many, supply chain disruptions in recent years have forced many to reevaluate their current inventory process. The ‘just-in-time’ method yields a slow reaction time for fluctuating demand.
To better understand this issue, imagine you have raw materials on a truck in transit for a product that is going to be made tomorrow. If there is a sudden change in demand, you can’t cancel that order since the material is on its way. Or, if something prevents that delivery from reaching your facility on time, your inability to fulfill an order could risk losing customers. This process leaves businesses less flexible to quick changes in demand.
Recently, we’ve seen a shift in both consumers and organizations within the industry to a ‘just-in-case’ practice. This methodology helps your business become more resilient when it comes to production planning, ensuring material requirements even when there are issues in the supply chain.
The ’just-in-case’ approach focuses on risk management to ensure orders are fulfilled ahead of time, minimizing the chance of low stock. Manufacturers who use this practice will order based on anticipated usage. With this, finished goods are created in advance and in higher quantities than the expected demand. The surplus is then manufactured and stored ‘just in case’ of unexpected changes in supply or demand.
Using a material requirement planning (MRP) system to evaluate maximum and minimum stock, instead of basing things on cost and warehouse space, you can base it on the risk of product unavailability in your manufacturing process.
Regardless of approach, a materials requirement planning system can help prevent delays and streamline the inventory management process efficiently by facilitating better planning and scheduling. Some examples of how an integrated MRP can drive improvements include:
MRP systems allow teams to instantly access a plethora of information around lead times, due to ship, due to dock, and job planned start and planned finish dates. With current supply chain disruptions, this information is essential for companies hoping to meet customer expectations. Should there be a delay, being identified early enough will allow businesses to take steps to mitigate the disruption or communicate delays with the customer.
Whether following the ‘just-in-case’ or ‘just-in-time’ approach, implementing an MRP can streamline inventory management allowing employees to view live material supply and demand information.
The system automatically adjusts, should demand suddenly change, to amend scheduled orders. The ability to view the materials on-hand balance for each product helps prevent order delays due to material shortages.
The implementation of an MRP tool will help improve visibility between various company departments as every piece of information is entered and stored centrally. Not only does this prevent costly miscommunication, but it helps the entire production line run smoother.
Manufacturers need to operate in the most sustainable and efficient way possible to meet customer demand and ensure profitability. If you are considering the move to ‘just-in-case’ inventory, there is a lot to consider, and our team is here to help you with a smooth transition.
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