As a method of efficiency and cost-effectiveness for inventory management, just-in-time delivery is a supply chain management strategy that has been widely implemented by the automotive, aerospace and consumer electronics industries. But JIT delivery can help retail stores make a profit, as well as reducing costs for retail and e-commerce fulfillment.
Retail transactions are increasingly happening on more and more channels, with a wider range of options for fulfilling orders, whether that be shipping the order directly to the consumer, having the order fulfilled by Amazon, or allowing the customer to buy online and pick the item up in-store (sometimes same-day, as with Walmart). This flexibility is greatly appreciated by consumers, but it makes the fulfillment process all the more complicated because it impacts the available visibility and information about inventory.
With just in time delivery in e-commerce, inventory is readily available, but only arrives when it’s in demand to minimize storage costs for warehousing pallets of excess product indefinitely. Essentially, the merchant can maintain a minimal stock without the risk of stocking-out in a peak selling period or unexpected surge in orders. When it comes down to the math, just in time delivery can significantly improve a retailer’s profitability.
Advantages of JIT Delivery for Retail Profits
Reduced Inventory Costs
Probably the most obvious and well-known benefit of just in time logistics in retail (as well as other industries) is the reduction of inventory costs. When products or components are only delivered as-needed, just in time inventory companies need only stock the items they need for current, existing orders. This reduces their inventory costs, both for the warehousing space and the labor costs to manage and maintain the excess product. Additionally, JIT delivery helps retailers improve profitability by allowing them to use this now-available space for other initiatives that benefit the customer experience.
While the customer may love a markdown sale on excess inventory, the cost for the retailer is often significant enough to incentivize inventory management methods that can reduce or eliminate excesses from happening. Without the JIT model, retailers must respond to new product shipments or surges in demand by suddenly offloading their old excess inventory. This is usually at a pretty steep markdown, made steeper by timeliness and the amount of space needed to store the new, incoming inventory. Instead, just-in-time delivery of inventory frees up the warehouse and optimizes the inventory on-hand, enabling the retailer to take on more profit-generating opportunities. JIT also helps reduce or even eliminate inventory obsolescence (‘dead inventory’), where before the retailer would be stuck having to somehow sell or pay to dispose of inventory that has passed its product life cycle.
Managed Up-Front Costs
Although major big box retailers such as Walmart and Target may not struggle to come up with the funds to buy large quantities of inventory to fill their shelves, young and boutique retailers can struggle to keep up with demand without spending a significant amount of their cash on inventory. The just in time method of supply chain management provides greater flexibility, since the whole model is designed to minimize the inventory on-hand and in storage. Since these retailers no longer need to tie up their funds in inventory, they can use these resources to improve their competitiveness or invest in other opportunities for profit.
Improved Quality Control
With less inventory, supply chain managers have fewer moving parts and are more equipped to spot errors in production, including product defects. If they can catch these errors before the order goes out to the customer, they can significantly decrease returns. This, in turn, reduces the retail fulfillment center’s overhead because there are fewer costs for returns processing and refunds.
JIT Challenges to Consider
Although the cost-reduction potential and opportunity for greater profits are certainly good reasons for retailers and e-commerce companies to consider a just in time delivery model, its characteristics open up some possible risks. The very nature of just-in-time is that inventory managers are accurate when forecasting demand and order frequency. If they are off by too much, the consequences for minimizing stored inventory could mean loss of business – as much as 10% of sales. If the problem persists, damages can be more far-reaching and affect the company’s reputation with its customers.
The other challenge with the JIT model is the actual timeliness of inventory and/or component deliveries. After all, if it’s not “just in time”, it’s late. Delayed or incomplete inventory shipments can have the reverse consequence as inaccurate demand forecasting. When orders are shipped late due to delayed receipt of the product, the retailer’s reputation takes a hit, and they may or may not see more severe consequences in the form of customer service complaints (increased labor costs and/or refunds).
Success with JIT comes down to strategy. If you’re going to implement JIT delivery in your inventory management, be sure to develop detailed methods of demand analysis in order to more accurately forecast and maintain good relationships with your suppliers to ensure optimal timeliness with inventory deliveries. Hollingsworth is a just in time logistics partner with customers in retail, e-commerce, consumer electronics, automotive and other industries, backing our service with proven success. Contact us today to discuss your needs for JIT delivery for your retail business.