Monday, September 29, 2014
New Hubs Arrive to Serve “ Just in case” inventory
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.
Just in time- http://www.investopedia.com/terms/j/jit.asp
Just in Case- http://www.investopedia.com/terms/j/jic.asp