Has ‘Just in Time’ Proved Itself Amid Inventory Gluts?

“Just-in-case” inventory systems were all the rage as extensive out-of-stocks arrived due to pandemic-driven supply chain disruption, but “just-in-time” strategies are now again being praised as a rebalancing of global trade has led to bloated inventories.

Just-in-time methods, developed in the 1960s and ‘70s and sometimes compared to lean manufacturing, focus on keeping inventory levels as low as possible, encouraging frequent, smaller shipments to match customer demand. Just-in-case systems, in comparison, accept higher levels of buffer products, parts, and materials to ensure there’s always enough stock to meet market demand, even in unpredictable times.

"Mega-retailers are returning to 'just-in-time' inventory strategies, killing the 'just in case' promise of the pandemic's supply chain snarl," said Susquehanna analyst Bascome Majors in a recent note, according to Reuters.

Majors’ analysis of 20 years of data found that inventories at the four highest-volume publicly traded importers of goods via ocean container ships in the U.S. — Walmart, Target, Home Depot, and Lowe's — were down a combined 4% in the second quarter, the largest year-over-year decline since 2015.

Majors expects retailers' “third-quarter inventory builds to be greater than last year's 6% quarter-over-quarter growth, but below the 14% average for the pre-COVID years of 2015 through 2019.” The cautious stance reflects concerns that soft holiday spending will again lead to excess inventories requiring hefty promotions.

“If the consumer spending environment slows more than retailers expect, and all of a sudden you start having concerns around inventories, that’s when most retailers would probably pull the markdown levers to make sure they move through that inventory,” Brian Yarbrough, an analyst at Edward Jones, told Marketplace.

If spending doesn’t pull back, retailers will get the benefits of leaner shelves and more full-priced selling, according to Yarbrough.

In a column for Bloomberg, Brooke Sutherland, a Bloomberg Opinion columnist, wrote that while over-ordering to avoid shortages “became the mindset of the moment” during the pandemic, companies are now seeking to avoid the costs of holding excess inventory, driven by higher interest rates, storage costs, and other factors. She wrote, “There’s some debate about whether this destocking trend is a sign of weakening economic demand or merely stabilizing supply chains, but what is clear is that companies are increasingly deciding pandemic-era buffers are no longer necessary.”

Still, in a column for Harvard Business Review, Jonathan Colehower, global supply chain strategy practice Lead at UST, the California-based IT services company, said he believes supply chain managers “need more flexible, dynamic connections between trading partners” to adjust to volatile demand and unforeseen events. He believes technology can help, including artificial intelligence/machine learning technologies that can “enhance the accuracy of demand forecasting, enabling companies to anticipate market trends, fluctuations, and customer preferences with unprecedented precision.”

Technology advances can also elevate network-wide inventory visibility and improve collaboration across the supply chain to help better respond proactively to market changes. Colehower wrote, “By keeping our supply chains in a constant beta state and investing in the technology and insights needed to continually elevate them, a global supply crunch can be avoided.”