Just In Time inventory is the latest craze sweeping the retail world online and off. Boutique and niche marketplaces are using perfectly timed inventory deliveries to keep their overhead low in terms of storage while delivering quality goods to their customers. But is this approach really worthwhile or is a decline in inventory more likely to cost more in the long run?
The Logic Behind Inventory Decline
Companies that carry a decline in inventory aren’t scaling back or reducing what they offer. Instead, they work by closely monitoring inventory levels and using sales forecasting to time shipments just as they are needed. That’s where the term Just In Time (JIT) Inventory comes from.
This model is appealing to companies for mostly financial reasons. First, it means they can control the amount of cash coming in and going out. Second, they don’t have to pay as much for space in which to store excess inventory. Sounds pretty appealing, right? But there are quite a few cons associated with this business model.
Increased Shipping Costs — Running with a lean inventory means risking a sudden and unexpected surge on an item. Even if you can get a rush order through with your supplier, you may end up paying over the odds for rush processing and overnight shipping.
Dependency — Speaking of suppliers, you’ll be increasingly dependent on them in order to keep customers happy. With little to no wiggle room in terms of backup inventory, you may find yourself issuing rain checks and backorders if your supplier isn’t able to deliver on time.
Price Fluctuations — If you are willing to stock inventory you can make the most out of special bulk deals or seasonal pricing cuts. Working with JIT Inventory, you’ll have to pay whatever the cost is right when you need it — even if that’s during a time when the supplier isn’t offering a discount.
Decreased inventory offers plenty of temptation for a company looking to stay small. But while keeping warehouse and inventory costs low may be appealing, there are several factors to this model that can increase the true cost of inventory. Instead, companies are better off managing their inventory with an inventory app for small business that assists with product storage priority, sales forecasting and overall management in a way that maximizes their space, time and budget as effectively as possible.
