Just when retailers declared the era of Just in Time (JIT) inventory over, there’s a rumor of a resurgence. But will it look the same as it used to prior to the pandemic? Or have the rules changed, considering lessons learned? Forecasting has become one of the trickier aspects of supply chain management over the past four years.
The consideration of a return to JIT follows on the heels of an inventory pile-up post-pandemic. In 2022, many retailers’ stores and warehouse shelves were overflowing with inventory. After the shock of not having enough inventory on hand to meet consumer demands when the pandemic began four years ago, retailers swung the pendulum hard to stock up. That worked for a short time, and then it didn’t. Big box retailers like Target, Walmart, and Best Buy were so overrun with inventory that they sometimes allowed customers to simply hold onto it and still receive a refund rather than attempting to find space for it as a return. Going into the holiday season of 2023, those same retailers scaled back in hopes of finding more middle ground with inventory counts.
Now the focus is returning to a more JIT approach. To accomplish that, retailers must adopt robust visibility tools that provide a look into production overseas. By opting for about a six-month look into the future, these organizations are hoping to have the ability to scale up or down, depending on demand trends. This, ideally, will eliminate the need for safety stock and avoid those overflowing shelves. The approach is sound but also particularly tricky in modern-day supply chain management, which is susceptible to so many disruptions. From wars to climate change, predicting the length of transit times and materials availability is more complex than ever.
Still, retailers are reporting a higher confidence level today when it comes to predicting buying patterns. After several years of unpredictable behaviors, consumers appear to be settling into a more moderate approach to purchasing, whether clothing, home improvement, or food. This makes inventory levels easier to manage, and retailers can lean out their supplies once again. This frees up capital and warehousing space and lessens the need for labor, which continues to be in short supply.
Inventories to sales ratios at many major retailers are once again aligning close to where they existed back in 2019. According to Census Bureau data, from a pandemic-era high of 1.5 in 2022, they are around 1.36 today. In 2019, that ratio was 1.33.
Retailers are encouraged to invest in technology that will deliver top-level forecasting tools. This enhanced visibility allows for an improved ability to determine accurate inventory levels. With those insights in hand, a return to JIT may indeed become a reality once again.
