Stock policy: balancing 'just in case' and 'just in time'

The same argument is heard in an importer's warehouse and in the raw-materials store of a manufacturer. Purchasing says, "keep stock low so cash does not sit idle". Sales insists, "when the customer comes, the goods must be on the shelf". The first approach is called just-in-time, the second just-in-case. Each can be right in its own conditions. The choice should rest on calculation, not on taste or habit.

What each approach pays for

A just-in-case policy protects against delays, sudden jumps in demand and errors in orders. Its price is tied-up money, rented or owned storage space, obsolescence and the risk of goods passing their expiry date. A just-in-time policy cuts stock to the minimum, releases cash and lightens the warehouse, but makes the whole system brittle: one truck delayed on the road or one container held at customs can stop sales or production. Large stock hides a problem, while small stock shows it at once. In Uzbekistan this is compounded by long transit routes, customs clearance and seasonal demand (the school year, Navruz, the building season), so many business owners are used to covering risk with stock.

Three factors that decide the choice

1. Lead time and its variability. "An average of 10 days" does not say everything: one supplier delivers in 9 to 11 days every time, another anywhere from 6 to 25. It is this spread, not the average, that sets the amount of stock you need.
2. The cost of a shortage. What do you lose when the item is missing: a single sale, a regular customer or a whole working day on a production line?
3. How predictable demand is, and shelf life. With steady demand, low stock is safe. For seasonal or fast-ageing goods, a large stock does not pay for itself.

The calculation: is a buffer worth its money?

An example, with illustrative figures. An importer buys one type of household appliance: it sells 40 units a day on average, costs 150,000 so'm a unit and earns a net margin of 30,000 so'm a unit. Delivery normally takes 10 days, but about twice a year it slips by another 10 days. The buffer that covers such a delay is 10 × 40 = 400 units, or 60 million so'm. If money costs 25 percent a year, the buffer costs 15 million so'm a year. Without it, each delay takes away sales of 400 units, that is 12 million so'm of margin; twice a year that is 24 million so'm, before counting customers lost. Here the buffer is cheaper.

Now take equipment that costs 3 million so'm a unit and sells once or twice a month. The buffer is expensive, while a delay can be covered by telling the customer the date honestly and selling to order. So the answer comes out differently for each product group.

One policy does not fit every item

Sort goods by their characteristics:

• closer to just-in-time: steady demand, a reliable supplier, a short lead time, fast turnover;
• closer to just-in-case: items whose absence causes serious damage, which arrive from far away at uncertain times and have no substitute;
• a middle group: inexpensive goods managed by a minimum and maximum level rule (min-max).

In many warehouses an ABC and XYZ analysis shows this split in one working day. Class A items with steady demand can be received often in small lots, while class A items with unstable supply need a buffer.

Before moving towards just-in-time

Cutting stock all at once is dangerous. First do four things:

1. Compare actual supplier delivery dates for the last 12 months with the planned ones.
2. Make sure your records are accurate: when stock is low, an error of "in the system, not on the shelf" stops a sale immediately.
3. Cut the buffer by no more than 10 to 15 percent in one step and watch for at least two delivery cycles.
4. Prepare a fallback: a second supplier, an urgent purchase on the local market or a substitute product.

Conclusion

Just-in-case and just-in-time are not opposing principles but two ends of one scale, and each product group occupies its own place on it. The OmborExpert specialists assess delivery reliability and the cost of a shortage and help find the point that suits your company, by calculation.