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Recent Supply Chain Disruptions are Making the Case for This Shift in Inventory Management
Since the start of 2020, shortages have been an almost constant issue for manufacturing businesses around the world. While we saw consumers adopting a ‘just in case’ mentality when it came to buying household commodities, not all manufacturers were able to pivot their approach as quickly, creating delays and disruption. A number of manufacturers we’ve spoken to have declared the end of just-in-time inventory policies in favor of increased just-in-case stocking as a result of supply chain interruptions and product shortages in manufacturing and retail.
With the Just-in-time model (JIT), a business will manage their inventory so that raw materials arrive as close to the time of production as possible. This is obviously the most cost-efficient way to manage your inventory, helps you identify quality problems early before producing a high volume of products, and prevents valuable warehouse space being taken up storing stock. The model enhances cash flow and reduces the amount of capital needed to run the business. As a key concept in lean manufacturing, and under normal circumstances, this approach has been adopted by 55% of manufacturers over the last decade. It has been deemed highly efficient by focusing on operating to actual consumption and carrying the lowest possible inventories.
However, ongoing supply chain disruptions have forced many to reevaluate whether or not the ‘just in time’ approach is still viable. This methodology has shown to cause slow reaction times due to surges in demand and even decreases in demand.
One of the challenges that can be illustrated is when you have raw materials on a truck and in transit for a product that’s going to be made tomorrow. If there’s a sudden change in demand, you can’t simply cancel that order of materials in transit. The methodology is not 100% foolproof in terms of making yourself able to react to decreases in demand.
Over the course of the past couple of years, we've seen many of our customers and many other organizations within the marketplace move to a just-in-case (JIC) manufacturing strategy. This means building in a resiliency factor to your planning to help ensure you’re able to meet production requirements in case of supply chain issues.
By minimizing the chance of low stock, the just-in-case approach is focused on risk management and ensuring orders are fulfilled ahead of time. Manufacturers will base orders on anticipated usage and tend to always have high inventories. In this production model, finished goods are created in advance and in greater quantities than expected demand. The surplus is manufactured and stored 'just in case' demand spikes unexpectedly or the supply of raw materials and components runs out.
From a technology perspective this means being able to evaluate your minimum and maximum stock levels within your material requirement planning (MRP) system so that things are not based on cost or warehouse space but are instead based on the risk of a certain product not being available within your manufacturing process.
Whichever approach a manufacturing business takes, a material requirements planning system can help prevent delays and streamline the inventory management process. By facilitating better planning and scheduling, MRP systems are designed to drive efficiency.
More detailed reporting
Given the wealth of data collected, an MRP system allows teams to instantly access key information around lead time, due to ship, due to dock (intercompany transfers and purchase orders), and job planned start and planned finish dates. With ongoing supply chain disruptions, this is an essential requirement for a manufacturing business hoping to meet customer expectations. Should a delay be identified early, steps can be taken to mitigate the disruption or communicate with the customer.
Whether the business is following a just-in-case or a just-in-time approach, inventory management is streamlined through the implementation of an MRP, with employees able to view live material supply and demand information on screen.
Should demand suddenly change, the system can automatically make adjustments or amend scheduled orders. The ability to also view the materials on-hand balance for each product will also help to prevent order delays due to material shortages.
The implementation of a specialized MRP tool will improve visibility between departments, as every piece of information is entered into the system and then stored centrally. Not only does this reduce the chance of costly miscommunication between departments, it also helps the entire production line run more smoothly.
As the 2021-2022 global supply chain crisis has shown us, manufacturers need to be operating in the most efficient way possible to meet customer demand and ensure profitability. If you are considering moving to a just-in-case model, there are a lot of different things you need to look at and consider, and the Deacom team is certainly here to help you with that transition.
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