019 - Mastering Inventory Management: Just-in-Time vs. Just-in-Case

019 - Mastering Inventory Management: Just-in-Time vs. Just-in-Case

(00:00):

Welcome, eCommerce empresses, to this episode of Women Powering eCommerce. Join me every Tuesday and Thursday as I take you behind the scenes of my journey as a female eCommerce entrepreneur. Together we'll explore the highs, the lows, inspiring you to take action and achieve your own business goals. So, let's get started.

(00:32):

All right. So today I want to talk about inventory. It's definitely something that has been on my mind for as long as I can remember, as long as I have opened my eCommerce. And the reason for that is just, it's an art to manage your inventory. So I want to deep dive into that a little bit, and talk especially about the inventory management styles. There are different ways of managing your inventory, and I've tried a few, and I just want to give you my insights and my opinions on what I have tried.

(01:10):

And I have tried probably the most two common ones, which are just-in-case and just-in-time. So, just in case you don't know, those two strategies are... So just-in-time is basically... I mean, they say it. Just-in-time means no sooner, only when needed. And just-in-case is inventory, you purchase based on projected sales, and to meet any level of demand that you think will come. So, during COVID that was definitely something that we saw much more.

(01:47):

So I've asked myself this question for so long, not knowing what is the best practice, which strategy should I adopt? Because they are definitely two opposite strategies of inventory management. So which one should I choose? And when you start to be honest, you read articles online, you watch videos, and there are really various opinions, but I would say that we have the pre-pandemic ways of managing inventory, and then we had a different way of managing inventory during the pandemic, and now, what are those things?

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So my experience, I will say pre-pandemic, I would order just-in-time. My lead times at the time were very short, maybe two, three weeks max. So that was a really nice way to work. It worked really fine for me. So if I was about to be out of stock, order, and two weeks later, I'd have my stock. So it was really simple. I kind of miss those times. But it's fine. Today we're making adjustments because yes, things have changed.

(03:04):

So, what happened during the pandemic? You know this, I'm not telling you or surprising you with anything new, but it was really hard to get your hands on so much raw materials, and just anything in general. So what I saw in the eCommerce industry, the message changed. A lot of people would adopt before the just-in-time method, and then all of a sudden they were really... Since the lead times were so unreliable, a lot of people just switched to, I'll just order, just in case. So people were stocking up, and so did we, but we were pretty lucky during those times because our suppliers were doing okay. We had a few weeks maybe extra, but they were pretty consistent. But in general, the just-in-case management was definitely the one they used, most eCommerce brands I've talked to or followed up on.

(04:11):

So post-pandemic, then I would say that most people, I think, went back to the just-in-time. In our case, that's what we did. And the reason for that is, not necessarily because of the pandemic, but because with COVID came more FDA regulations, which means we had to make a few changes in the way we got our product done basically from start to finish, which means that we needed to get more stuff and more steps done at our labs where we manufacture products. So now the lead times [inaudible 00:04:52] and that was probably the most challenging for us, went from maybe two weeks to two months. So that really got us rethinking our whole inventory strategy. And going through that has allowed me to, I think, better understand the differences between the two, and the pros, the cons for each. And I think that's what I want to share with you today, and just maybe help you if those are some questions you have for yourself, at least share my experience, and you can decide what's best for you.

(05:25):

So I think that the good parts about the just-in-time inventory management is, first of all it's cost-efficient. It reduces your inventory holding costs. You only order and store what's needed, so it minimizes also the storage space and expenses, which I think is a really good pro. There is also a lot of reduced waste. What I mean by that is, the more you hold a lot of inventory, the more chances you'll have expired stock, especially... I mean, if you have clothes or things like that, that may not apply, but in our case, we're in the health industry, so that means expiration dates. So we can only keep our stock for a certain amount of time. So, I find that we reduce the waste and any costs associated to that when we just order enough.

(06:21):

Another thing that I really appreciate to keep our inventory stocks low is the increased cashflow it gives you, so you don't have so much money tied up in inventory and just sitting there on your shelves, so you can use that for other business needs.

(06:37):

So one last point is, I would say we have an improved quality control. So the lower the inventory levels, the better control and detection of defects or quality issues you'll have. So for example, the other day we had a batch of products, they were leaking. So, have we had ordered so much, that whole batch would be not... We wouldn't have been able to use it. So all of our bottles, the caps were leaking when we shipped them, especially since we ship by plane, with the air pressure, it's something we have to think about. So, things like that. So it's easier to, if you have a bad batch or something, then you can quickly take care of it and start over.

(07:27):

One of the downsides of doing that is you just rely so much on your suppliers. You really rely heavily on them, and it just makes you vulnerable. So if for some reason they cannot provide what you need in a matter of time that's needed for you, well, what do you do? You have to turn around quickly. And do you have other options? So I think it adds a little bit of stress sometimes to that. But I feel like we really have good relationships and partnerships with our suppliers, so I feel pretty confident about that. And of course we don't just have one, we have more than one, which brings more... It solidifies our inventory if we want, because if it doesn't work with one supplier, we can always turn back to the other one, for example. But that's one of the things that could be one of the downsides.

(08:23):

Another thing is, you have not a lot of buffer. You have little room for error. If you have unexpected demand spikes or things like that, you'll be back order really quickly. And I have to say that from all the changes we've made in the last couple of months and years, that's still something we're trying to manage. Back orders. We used to have so much in stock all the time, so we're just trying to adjust to that, but we're getting better and better. Again, it's an art, so I think with a lot of good calculations and a good software, it's very manageable with time.

(09:03):

Another point I would add here is production. It kind of ties up with the other point I was talking about, your suppliers, you become very vulnerable because you depend on them. Yes, for the time they can deliver, but also... And part of that I would say is, if they have any production interruptions. For example, if some of their equipment breaks down, that will create more delays. So if you don't have a lot of stock in hand, then that can bring you to being back order pretty quickly. But I would say that's something that happens rarely. Should happen rarely. In our case, we don't deal with that a lot.

(09:49):

And another last point I would say is coordination. It just requires such a high coordination to have enough inventory not to... You don't want to stock up too much, but you want to make sure you're not back order all the time. So I find that it's really something you got to learn to manage. So you need efficient communication with your team members internally, but also with your suppliers. So great coordination is definitely essential. And once you have that and you have a good communication, it goes so much smoother.

(10:27):

All right, so that was for the just-in-time. Now, how about the just-in-case? That's what I used to navigate on a lot, even before the pandemic. Yes, we had short lead times, but I would say we were stocking up. We were stocking up. And as of today, I still have stuff from those years that I'm actually trying to get rid of. It's lost inventory. So let me tell you all about that. There are still some pros. Let's start with those.

(10:58):

So, number one I would say is just you lower your risks. Having a buffer, so if you have a high demand, or you want to do a sell, and you sell much more than you thought, then of course you can really... The supply and the demand will be there. So that's really a good point. You also have a steady production, so just a constant supply that comes in, comes out. You can also have more predictable lead times. You can manage lead times. So everything is... You can decide when you order, and you're not stressed out by missing some stock if everything does not go accordingly to what you had planned. So, that's one of the thing that goes really well.

(11:45):

And I find another thing is that, when you order a lot in advance and you have enough in stock, it just creates good supplier relationships, because there's rarely a case where you'll ask for something urgently, you'll be... It just goes smoothly and really well. That's what I've found.

(12:08):

So there are a lot of downsides, I find, and one of those things is the increased holding costs. So it just ties up a lot of capital, and that will not serve because it's sitting on your shelf. So there's no point, I find, for just having so much inventory on your shelves. And like I said before, I still have some inventory from miscalculations that we ordered way too much, and it's been years, and I still have some stuff. So, I would not make that mistake again. We learned, but that's just money wasted down the drain.

(12:45):

And that's it. That's another risk. You just have higher risk of losing some inventory also, one, because you're not going to sell all of that, and that's before the expiration date. So your stock may become outdated before you can actually sell it. So that's one thing you have to think of. And of course it reduces your cashflow. So higher inventory levels mean less cashflow available. That goes with the increased holding cost, but it's still a little bit of a different point.

(13:21):

So another point is, it lowers your flexibility. It lowers your company's ability to respond quickly to changes. If you made a mistake on, let's say, a label, and we usually proof check everything, but it happened already to us, and it's probably going to happen again, we're all human, we try to be very meticulous and detail-oriented when we check, let's say, our labels. If we were getting a label made, and then you receive it and you realize there's something wrong on it, what happens is that you have to be quick to make changes. So if you have such a big amount of stock sitting on your shelves with this mistake, it lowers down your flexibility to move quickly and make some changes.

(14:12):

And another point, and last point I would say, is quality control. The more you have, the harder it will be to... It'll be challenging to monitor and control your product. So that's just another thing I like to keep in mind.

(14:29):

So, what do I prefer? I think maybe you should know by now. I just go with just-in-time. So the main reason why is cashflow. I prefer to leave as much operating cash in the business. I find it is to be crucial and so important. I've learned, again, from my mistakes. I used to take so much big chunks of money just to pay for inventory, then I realized it's not worth it. It's better if we use that cashflow to put back in the business in marketing, or staff, or name it, it'll be cashflow that will be used much better than on inventory.

(15:08):

So I'm still learning to manage this through precise inventory management, and there are still lots of improvements to come, because I have not perfected this art. I'm not going to lie. I'm still really struggling with it. But I'm doing better at it with my team. We are always, every single week, I would say we're finding little improvements that we can make. And our goal is to definitely bring our number of inventory days as low as possible. I think we've done really good though.

(15:46):

Let's also celebrate our wins. We have in the last couple of years, I think, brought down the number of inventory days by half, which is a lot. But at the same time, I would say we had way too much, way too much before sitting on our shelf. But I'm still pretty happy about that. And one thing that convinces me as well that this is the right way to go is, when you look at big companies like Apple, for example, Apple's days inventory outstanding for 2023 has average 12 days. And I've looked at the past years, and they've already went down to four. That means that they've had just enough stock in their hands for four days of sales and inventory. I feel that's just... It's crazy. We're not there, but it just shows you that it's possible. You just always have... You need a team of people to be very creative of all the things you can do, and that's definitely something I always want and strive to work on.

(16:54):

So, my goal for this episode was to share my insights about inventory strategies and my reasons for choosing the just-in-time strategy over the just-in-case, and also share some benefits and downsides I've seen from doing both methods. So I hope I maybe shed some light on your inventory management questions.

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Thank you for being part of this journey with me. I hope you gained valuable insights and inspiration today to keep growing and taking action towards your goals. Please follow me on social media. Also follow us on your favorite podcast platform to get notifications every time a new episode is uploaded. See you next time.