Tuesday, February 11, 2014

Just-in-time VS Just-in-case

As the materials calling for Just-In-Case, an article calling for rethinking Just-In-Case has grabbed my attention. This article is written by an expert in Just-In-Time and lean production, and his main point was that Just-In-Case would bankrupt companies, as well as Just-In-Time also considers uncertainty. I think his point is appealing, let me explain in following.

He stated that a critical part of Just-In-Time is Standard Inventory, which means the number of inventory should be kept so to satisfy customers. Standard inventory includes Buffer Stock, Safety Stock and Shipping Stock. Buffer stock means inventory finished by a step stored to prevent sudden souring of demand in the afterwards steps thus fulfill needs in the following steps. Safety stock means inventory kept to prevent sudden break in previous steps and shortage of raw materials in the current step. Shipping stock is finished goods for shipment to the next step or the customer. Therefore, Just-In-Time does consider uncertainty within the range of production and operation themselves. In this sense, Just-In-Time includes Just-In-Case, yet does not consider uncertainty in the outside world such as political and natural disasters.

The philosophy of small becomes unlimited could also be used here to analyze Just-In-Case. Professor Zak has mentioned a philosophy concept during class for lean production in that if one small opportunity of leaning is acceptable to neglect, then any amount of waste is acceptable, which is obviously ridiculous. Therefore we should reduce any waste as we can, of course in a cost-benefit considered sense. I think the same philosophy is useful here to evaluate the Just-In-Case methodology. If we should be careful for outside disastrous risks that make our inventory not sufficient, we should be careful for any disastrous risks. This is also ridiculous because the impact of potential risks could be for an enormous long time, which lead to inventory to be enormous and would bankrupt a company. If we consider the probability of a risk and do the calculation, we would find that the calculated increase in inventory is really small and could not possibly cover demand in a potential broken supply chain, which therefore does not make sense to keep.

Since Just-In-Time has considered uncertainty, it is not much appealing to see the Just-In-Case concept. Therefore to persuade companies to adopt Just-In-Case, critical for supporters of Just-In-Case to provide evidence in a cost-benefit sense: not in a sense that if the risk does happen how much would a company save, but what the cost to always keep that enormous inventory versus the economic benefit after the risk.

Which methods do you think is more persuasive? Is there certain method for each industry or country?



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