Managing inventory for the next external disruption

If I look at my household as a business, and strive like any enterprise to make sure my expenses don’t exceed my revenue, what mindset do I adopt post-pandemic for filling my kitchen pantry: just-in-time or just-in-case?

As an inventory-management tool, just-in-time, or JIT, has been the darling of companies for years, originated by Japanese automaker Toyota to increase efficiency and reduce costs by having on hand only what is needed along each step in the manufacturing process.

Over time, though, JIT, also known as lean manufacturing, morphed into finding and securing the lowest-cost supplier, which often meant going off-shore.

“Globalization ruled the day, and U.S. companies defaulted to sourcing heavily from the manufacturing center of the planet – China,” Glenn Richey, chair of the department of supply chain management at the Harbert College of Business at Auburn University in Alabama, said in an interview the school published last fall on post-pandemic supply chain strategies.

“Just-in-time and lean manufacturing meant companies no longer had to keep safety stock from key supplies or even finished goods on hand,” he added, as management pursued a “lowest-cost mindset.”

But that all fell apart when COVID hit and factories worldwide were forced to close, leaving companies that relied on sole-sourcing flat-footed with no contingency plans.

For me and my JIT shopping habits, which restocked the pantry only as I ran out, pandemic-induced shortages often meant periods with no rice or pasta or soup.

I certainly wasn’t alone, as new data quantifies the continuing “inventory distortion” – the combined cost to retail of having too little or too much product for consumer demand. According to IHL Group, a Tennessee-based retail and hospitality research advisory firm, out-of-stocks and overstocks will total $1.9 trillion worldwide this year, up almost 13% since 2020.

Out-of-stocks is the bigger problem at $1.23 trillion, according to IHL, which released the numbers in a report and webinar last week. It blamed the growth since the pandemic’s start in 2020 on “massive disruptions due to gaps in the supply chain, shortages in personnel and raw materials, and government shutdowns.”

Greg Buzek, founder and president of IHL, previewing the report on LinkedIn last week, suggested inventory management via just-in-time or just-in-case will become a topic of debate in company boardrooms “to be better prepared for the next external disruption.”

Finding the right balance won’t be easy, though, both from a practical standpoint – warehouse space for extra inventory is at a premium – and an existential one: Will investors accept the higher carrying costs?

“But being better prepared for disruption means more infrastructure, more inventory and lower profits in the short term for more redundancy in the future,” Buzek wrote.

Sounds like my pantry-buying could use a tweak to grabbing two of everything on my list – just in case something’s not there the next time.

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]

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