Major natural calamities and events like Hurricane Sandy have forced companies following Just in Time
inventory management plan to shift to Just in Case inventory management plan . Companies
employ this technique to increase efficiency and decrease waste only as they
are required to reduce their inventory levels and cut off the tied up costs. Thus
any catastrophic event may halt the manufacturing process, which adversely
affects the sale and profits. A Just in
Case inventory management plan however allows to keeps large inventory which
reduces the risks of loss of sale, however increases the tied up capital costs.
This shift has led retailers and logistics department to
alter supply chains by adding distribution centers. This is creating a growth
in the real estate markets outside the traditional seaport hubs too. Just in Case planning reduces the
vulnerability of Just in Time planning by stocking the merchandise in different
regions, which can be used as a backup in case any region’s supply chain is
disrupted by an event. For example the
Hurricane Sandy which hit New York and New Jersey, and the 2002 lockout of
International Longshore and Warehouse Union workers from the West Coast
seaports delayed the unloading of container ships.
Ranger Steel, a company based in Houston, the largest
privately owned steel plate distributor in the US, used to ship their products
from the port of Houston till late 1990’s. The low transportation costs,
declared this type of distribution the best solution. However with the increase
in the fuel prices and new governmental rules on insurance coverage for truck
drivers, the expenses for transportation increased tremendously. Thus the
company added distribution centers to its network, cutting down the
transportation time for 3 weeks to 24 hours.
The online retail stores too have started to expand their
distribution centers as a result of competition and provide rapid shipping in
order to cut down on transportation costs and taxes associated. Amazon, for
example opened new fulfillment centers in nearly a dozen states across the US.
Thus reduced transportation costs, reduced risks of sales
loss and increased customer satisfaction are the pros for the Just in case
planning technique. However striking a balance between maintaining minimum inventory
yet not running out of stock is the greatest challenge to avoid capital loss.
References-
Just in time- http://www.investopedia.com/terms/j/jit.asp
Just in Case- http://www.investopedia.com/terms/j/jic.asp
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