the purpose of Just in Time (JIT) and Just in Case (JIC) inventory management

4.2 Inventory Management – Purpose of JIT and JIC

Learning Objective

Explain why firms hold inventory (raw materials, work‑in‑process, finished goods), identify the costs and benefits of holding stock, describe the key control concepts (buffer stock, safety stock, reorder level, lead time) and show how to calculate a reorder point, interpret a simple inventory‑balance chart, and compare the purpose, advantages and disadvantages of Just‑in‑Time (JIT) and Just‑in‑Case (JIC) inventory strategies. Extend the discussion to supply‑chain integration, cash‑flow implications and the role of modern technology (ERP, IoT, AI).

1. Why Firms Hold Inventory

• Raw‑material inventory – protects against supplier lead‑time variability and enables production to start as soon as demand appears.
• Work‑in‑process (WIP) inventory – smooths production when different operations have unequal cycle times.
• Finished‑goods inventory – guarantees product availability for customers, especially when demand is uncertain or seasonal.

2. Costs & Benefits of Holding Stock

Exam‑style tip: When asked “How does a high holding cost affect cash flow?”, answer that it reduces cash available for other operations, increasing the need for working‑capital financing.

3. Key Inventory‑Control Concepts

• Lead time (L) – total time from placing an order with a supplier to receipt of the goods.
• Average demand (D) – expected quantity required per unit of time (e.g., units per week).
• Safety stock (S) – extra units kept to protect against demand or lead‑time variability.
• Re‑order point (R) – the stock level that triggers a new order.
  Formula: R = (D × L) + S
• Buffer inventory – the combination of safety stock and any additional “cushion” stock.

Numeric example (common exam task)

When the stock on hand falls to 500 units, a replenishment order is placed.

Simple inventory‑balance chart (interpretation)

Stock on hand
^
|          /\          /\          /\
|         /  \        /  \        /  \
|        /    \______/    \______/    \______
|-------------------------------------------------> Time
          ^            ^            ^
          |            |            |
      Order 1      Order 2      Order 3
   (re‑order point) (re‑order point) (re‑order point)

• The downward slope shows consumption.
• The vertical jump marks a replenishment.
• In a JIT system the jumps are small and frequent; in a JIC system they are larger and less frequent, producing a higher baseline stock level.

4. Just‑in‑Time (JIT) Inventory Management

Definition

JIT is a production‑philosophy that seeks to receive or produce goods only when they are required for the next operation, keeping on‑hand inventory to the absolute minimum.

Purpose (Why firms adopt JIT)

• Minimise stock‑holding costs and free up cash.
• Eliminate waste (over‑production, excess movement, defects).
• Require close, reliable relationships with suppliers – often through supplier‑managed inventory (SMI) or long‑term contracts.
• Increase flexibility to respond quickly to genuine changes in demand.
• Improve cash flow – capital is not tied up in inventory.
• Environmental benefit – lower storage space, reduced energy use and less waste.
• Supports effective supply‑chain management (SCM) by synchronising production with inbound logistics.

Strategic & Technological Enablers (A‑Level extension)

• Enterprise Resource Planning (ERP) – integrates demand forecasts, production schedules and supplier orders in real time.
• Internet of Things (IoT) sensors on pallets or machines provide live inventory levels and can trigger automatic re‑orders.
• Artificial Intelligence / Machine Learning – improves forecast accuracy, reducing the safety‑stock required for JIT.
• Collaborative Planning, Forecasting and Replenishment (CPFR) with key suppliers.

5. Just‑in‑Case (JIC) Inventory Management

Definition

JIC maintains a deliberate buffer of stock to protect the firm against uncertainties such as demand spikes, supplier delays or production breakdowns.

Purpose (Why firms adopt JIC)

• Guarantee product availability even when disruptions occur.
• Provide a safety net against inaccurate forecasts.
• Support continuous production where supply chains are less reliable or lead times are long.
• Reduce the risk of lost sales and damage to reputation.
• Often preferred for perishable goods, high‑value items, or industries with volatile demand.

Strategic & Technological Considerations

• Less reliance on sophisticated IT, but basic inventory‑control software is still needed to calculate reorder points.
• Can be enhanced with periodic demand‑review systems and safety‑stock optimisation models.
• Integrates with the wider supply chain, though the emphasis is on an internal buffer rather than tight external synchronisation.

6. Comparison of JIT and JIC

7. Advantages & Disadvantages

Just‑in‑Time (JIT)

• Advantages
  1. Lower carrying costs (storage, insurance, obsolescence).
  2. Better cash flow – capital is free for other uses.
  3. Higher quality focus – defects are detected quickly because batches are small.
  4. Lean production encourages continuous improvement (Kaizen).
  5. Environmental benefits through reduced waste.
• Disadvantages
  1. Heavy reliance on supplier reliability and transport efficiency.
  2. Risk of production stoppage if a delivery is delayed.
  3. Requires very accurate demand forecasting; errors can be costly.
  4. Limited ability to meet sudden large orders without additional lead time.
  5. Higher set‑up costs for technology and staff training.

Just‑in‑Case (JIC)

• Advantages
  1. Safety net against supply‑chain disruptions and forecast errors.
  2. High service levels – products are almost always in stock.
  3. Less pressure on suppliers to meet exact delivery dates.
  4. Suitable for industries with long lead times, unpredictable demand or perishable items.
  5. Simpler inventory‑control systems – lower IT investment.
• Disadvantages
  1. Higher holding costs (space, insurance, capital).
  2. Risk of over‑stocking, obsolescence and waste.
  3. Lower inventory turnover ratios, potentially reducing profitability.
  4. May conceal inefficiencies in the supply chain.
  5. Greater environmental impact due to larger warehouses and possible waste.

8. Strategic Considerations for Choosing Between JIT and JIC

• Reliability and geographic proximity of key suppliers.
• Variability of lead times (stable vs. unpredictable).
• Predictability of customer demand (steady vs. highly volatile).
• Relative cost of holding inventory versus the cost of a stock‑out (including lost sales and reputational damage).
• Nature of the product – perishable, high‑value, or custom‑made items.
• Company’s technological capability – availability of ERP, IoT sensors, AI forecasting.
• Strategic priorities – cost leadership (favour JIT) vs. reliability/brand reputation (favour JIC).
• Environmental and sustainability policies – leaner stock levels support greener operations.

9. Summary

Both JIT and JIC are valid inventory‑management approaches, each reflecting a different risk‑return philosophy. JIT strives for maximum efficiency by keeping stock to the bare minimum, relying on reliable suppliers, sophisticated information systems and strong cash‑flow management. JIC favours security, maintaining a buffer to protect against demand and supply uncertainties, at the expense of higher holding costs and a larger environmental footprint. The optimal choice depends on the firm’s supply‑chain reliability, demand predictability, strategic objectives and the technological tools available.