Just-in-Time vs Just-in-Case Sourcing: Which one works better for your supply chain?

The sourcing strategy you choose plays a pivotal role in supply chain management. In this article, SPARKD Partners discusses the "just-in-time" vs. "just-in-case" sourcing strategies and highlight their key characteristics, benefits, and considerations, so you can make an informed decision about which method to use.

Just-in-Time Sourcing:

Just-in-time (JIT) sourcing is a strategy that focuses on optimizing supply chain efficiency by ensuring that materials or components are delivered precisely when they are needed for production or assembly. The key focus is a lean supply chain – one with minimal inventory holding costs, lead times, and minimal waste.

This approach relies on accurate forecasting of demand and close collaboration with suppliers to enable seamless coordination and timely delivery of goods. It assumes that your supply base is flexible and adaptable enough to be able to respond swiftly to any changes in customer demands or market conditions. This means having minimal inventory on hand so that lesser capital is tied up in inventory. The lower carrying costs and minimal wastage (in case of inventory obsolescence), improves the cash flow and profitability of the business. A company that employs JIT sourcing is highly productive as their business is highly responsive to exactly what customers require.

However, there is also risk attached to this approach. Most notably, the basis of this methods' success depends upon accurate demand forecasting to set the levels for production. Inaccurate forecasts will lead to stockouts or excess inventory – there is little room to protect against unexpected changes in demand. And as unexpected global events go, COVID-19 demonstrated precisely how lean supply chains crumble in the face of disruption. In the wake of that, the team at SPARKD sees more businesses leaning towards the Just-in-Case (JIC) sourcing methodology instead.

Just-in-Case Sourcing:

In contrast to JIT sourcing, JIC sourcing adopts a more conservative approach by maintaining higher inventory levels as a buffer against uncertainty and unexpected fluctuations in demand or supply. This strategy prioritizes risk mitigation and aims to minimize the risk of stockouts and production delays.

JIC sourcing involves holding additional inventory as a precautionary measure to safeguard against unforeseen disruptions or variability in demand. This is known as "safety stock". By maintaining a level of safety stock, the business is protected from fluctuations in demand, as they can draw down on or build up their safety stock buffer when required. While this translate to higher inventory levels, it also minimizes the potential negative impacts of raw material shortages or sudden surges in demand.

With a higher degree of flexibility, businesses can also respond better to unexpected situations and might gain a favourable reputation for higher customer satisfaction. On top of that, it forces supply chain leaders to prioritize supplier diversification. This adds a layer of complexity to the supply chain as it moves business away from relying on sole-/single-sourced products, significantly reducing the risk of supply chain disruptions.

Conclusion

SPARKD Partners' recommendations focuses on a few key aspects to cushion against the downside risk of disruptions. These include:

1. Supplier diversification, especially against single-/sole-sourced products.

2. Safety stock – depending on your industry, this could refer to a safety stock of 1-3 months' worth of inventory.

3. Product alternatives, which requires close collaboration with your technical team to evaluate products which might be interchangeable with one another.

As a result of the severe supply chain disruptions from COVID-19, SPARKD Partners has seen more companies leaning towards the JIC Sourcing methodology, where risk mitigation is of utmost importance. In working on our previous sourcing projects, we have also found the practical value of embedding some layers of protection in supply chains.

Click here to read about how SPARKD Partners increased the manufacturer's safety stock to 2 months' worth of product, and improved logistics pathways to decrease overall production lead time from 16 weeks to 2 weeks.

This article was produced by the team at SPARKD Partners as part of its August Articles - a series of Supply Chain articles published every Tuesday and Thursday for the month of August. Click the button below to read more of our articles.