Alternatives to Just-in-Time Inventory
November 8, 2023
Just-in-time (JIT) inventory has long been a standard inventory management strategy. This lean inventory model requires businesses to order new products from their suppliers only after customers have placed an order. JIT requires careful orchestration between all supply chain partners to produce and ship goods on a precise schedule and avoid excess inventory.
While JIT works when supply chains are optimized and demand forecasting is reliable, the reality is that supply chains frequently experience disruptions. Events like pandemics, recessions, global political turmoil, and weather disasters have put JIT supply chains on the decline. Following the JIT model poses several risks for businesses dealing with supply chain unreliability, including production delays, inability to respond to unexpected demand changes, and the loss of customers and revenue.
For companies that want to avoid these potential pitfalls, what alternatives to JIT are there? Fortunately, businesses can use several alternatives to just-in-time inventory management to enable agile procurement and replenishment.
Vendor Managed Inventory (VMI)
One of the best alternatives to JIT is vendor managed inventory (VMI). VMI is an inventory model that uses shared business objectives to streamline inventory management and order fulfillment. Instead of distributors placing orders in response to customer demand, VMI empowers suppliers to recommend orders for distributors based on shared data and mutual objectives.
A VMI solution gives manufacturers and distributors a high level of insight into product movements, customer demand, and other vital data points. In today’s market that relies on increased inventory visibility and agile restocking, VMI provides the enhanced supply chain performance that businesses need to manage their inventory replenishment needs.
Here’s how VMI software works:
- The VMI solution captures data from both suppliers and sellers on sales, product transfers, and inventory positions.
- The software then reviews the data against mutual objectives, such as inventory turnover, minimum and maximum shelf presence, and replenishment frequencies, to make reorder recommendations.
- Suppliers can review and approve these recommendations.
- The supplier, through the VMI solution, then creates a purchase order.
- The supplier then ships the order.
How VMI Enables Greater Supply Chain Agility
As an alternative to JIT inventory, VMI provides businesses with several benefits, including:
- Improved collaboration with suppliers: VMI is a naturally more collaborative alternative to the just-in-time inventory management system, as it empowers suppliers to recommend orders to distributors. Businesses can improve collaboration even more by implementing collaborative replenishment solutions to optimize their inventory management. Collaborative replenishment includes robust features such as available to promise (ATP), truck building, and allocation.
- Better adaptation to demand changes: One of the main problems with JIT inventory is the difficulty of forecasting demand accurately. JIT is based on existing orders, making it difficult to adapt to surges and declines in customer demand. Companies may struggle with production delays, dissatisfied customers, and loss of orders if they experience demand fluctuations. However, a VMI platform continually monitors actual product data and makes that information available to all parties involved, enabling businesses to react quickly to sales trends.
Electronic Data Interchange (EDI)
Another alternative to JIT inventory is Electronic Data Interchange (EDI). EDI is a method for standardizing business documents and streamlining communication with business partners. With EDI, automation replaces paper documents and manual processes and makes communication electronic. Companies can use EDI with suppliers, third-party logistics companies, and other supply chain partners, even if they use different internal business systems.
An EDI solution automatically exchanges data such as purchase orders, invoices, and advance ship notices in a format that a partner’s internal system can process. Businesses can also use an integrated EDI solution to further streamline the communication process by integrating an EDI solution with the company’s enterprise resource planning (ERP) system. The benefits of integrated EDI include increased accuracy and automation.
Here’s this alternative to JIT inventory management works:
- The EDI solution automatically gathers information from your business system, spreadsheets, and transactions and creates an electronic document.
- The solution transforms the business document into a format that your supply partner’s system can read, then sends the document.
- EDI documents are transferred via a secure network.
- The trading partner receives the document, and their system processes and stores it.
How EDI Improves Synchronization Between Supply Chain Partners
EDI strengthens supplier communication by reducing errors and streamlining transaction processing. Consider a few of the ways EDI stands out as an alternative to just-in-time inventory:
- Simplified business communication: Its ability to standardize common business documents makes EDI one of the best alternatives to JIT for a global supply chain. Using fully managed EDI empowers companies to streamline communication further and spend more of their resources on core business tasks.
- Fewer missed opportunities: JIT makes it hard for businesses to fulfill large orders quickly and can lead to high costs and missed sales. With EDI, companies can quickly communicate with suppliers and update orders as needed to ensure accuracy. EDI enables near-real-time responses to order and inventory changes because it automates business communication.
A final alternative to JIT inventory management is integration with your ERP. Companies need to transmit customer, order, and tracking information between their business systems with the utmost efficiency. Integrations connect systems and provide businesses with improved data monitoring and inventory visibility. Companies can find integrations for nearly any system they use, from EDI to digital storefronts.
Integrations enable businesses to seamlessly exchange critical information at every stage of the supply chain. By automating data transfer across multiple systems, companies ensure information is correct and complete.
Here’s how integrations work with your business systems to provide these benefits:
- An integration gateway connects specific integrations to your business system or accounting package.
- The integration captures data like orders and customer information and checks for exceptions or alerts before sending it to your business system.
- You can use the information to automatically update pricing and inventory data, send EDI transactions, and more, depending on your integration.
How Integration Improves Inventory Management
Integrating business processes allows companies to automatically compile and track data across their systems to make more informed decisions. Here are a few ways that integration is an excellent alternative to JIT inventory management:
- Synced inventory availability: Integrations sync product content and availability across all your channels to make communication faster and empower better oversight of your inventory. For example, online storefront integrations allow you to automatically update inventory levels and prices so you can provide customers with back-in-stock alerts and real-time inventory statuses.
- Better supplier performance: Integrations support shorter lead times and enable better inventory visibility for customers. Ultimately, integrations connect your business to its customers and partners for the most efficient performance.
Improve Your Inventory Management With Solutions From TrueCommerce
The JIT inventory model may not provide the agility and insight your company needs to keep its competitive edge in the market. However, there are plenty of alternatives to just-in-time to take its place. Using technologies like VMI, EDI, and integrations allows your business to improve collaboration with trading partners, gain critical visibility into its inventory, and do business in more directions.
At TrueCommerce, we provide a unified commerce platform that allows businesses to manage inventory, integrations, and data sharing. With tools like our VMI platform and EDI software, companies can bring greater insight and connectivity to their inventory management process. To see our solutions in action, request a free demo today.
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