The Pros and Cons of Just-In-Time Inventory Management for E-Commerce Businesses

One of the most important parts of any successful e-commerce business is a strong inventory management system. To keep your customers happy, you must be able to ship out products in a timely manner after customers place an order, while also keeping track of stock levels so that you don’t run out of the items your customers are trying to order.

While there are several inventory management processes you could use, one of the most commonly adopted in e-commerce is just-in-time (JIT) inventory management. This system has applications for both e-commerce businesses and manufacturers themselves, and its potential benefits and drawbacks are well worth considering.

What Is Just-In-Time Inventory Management?

Just-in-time is often attributed to the Toyota Production System, as the company’s mantra of making “what is needed, when it is needed, and in the amount needed” is generally considered to have popularized this manufacturing and inventory management system.

In e-commerce, JIT inventory management creates a system where you avoid stockpiling excess amounts of inventory, only keeping enough inventory on-hand to meet customer demand. Instead, your business relies on accurate demand forecasting and smaller orders so you’ll have sufficient inventory to meet demand.

In manufacturing, JIT aligns a facility’s orders of raw materials with their production schedules. Manufacturers that use JIT are generally able to quickly and efficiently process inventory thanks to more streamlined production methods.

When done properly, JIT inventory management helps e-commerce businesses cut costs and become more efficient — but this isn’t always easy.

Top Advantages of JIT Inventory Management

The main goal of JIT inventory management is driving efficiency. One of the most immediately apparent benefits for e-commerce brands is that they can drastically reduce their storage and warehousing expenses. With larger orders, unsold inventory takes up a large amount of storage space, which can drive up inventory carrying costs and require more warehouse space. By ordering goods in smaller quantities, businesses can significantly reduce how much storage space they need.

This also has the benefit of reducing waste. JIT inventory management is dependent on customer demand, with new products getting manufactured to replenish stock as needed. This helps e-commerce businesses avoid spending money on products that won’t get sold and would otherwise go to waste.

The ability to place smaller orders can also be helpful for e-commerce businesses that don’t have enough money for large-scale mass manufacturing. Your cash flow won’t get tied up in inventory that is waiting to be sold, leaving you free to make investments in other areas of your business or place orders for in-demand items.

Waste reduction also happens in JIT manufacturing, because lower production levels makes it easier to identify and fix defective products before they are sent out to customers. Manufacturers also enjoy faster product turnaround and shorter production runs. When done right, this can lower costs, improve overall product quality and eliminate production delays.

Of course, to achieve these benefits, e-commerce businesses must have strong supply chain partners and excellent communication practices. JIT inventory management requires partnering with manufacturers who have the logistical and communication skillset needed to manage these types of orders.

Potential Drawbacks of JIT

While JIT has several inherent advantages, it isn’t without its drawbacks — particularly for e-commerce brands that don’t have a strong supplier network in place.

The biggest risk of JIT inventory management is the increased risk for supply chain disruptions. A single equipment breakdown or logistics delay can quickly lead to stock issues. Such issues could cause you to run out of stock for in-demand items, since you wouldn’t have a stockpile of excess inventory available to draw from. An unreliable supplier could result in recurring issues where you aren’t able to fulfill customer orders due to poor item quality, production delays or other issues.

Poor inventory forecasting can also create problems for JIT inventory management, since e-commerce brands that practice JIT only base their stock off forecasted demand. An unexpected large order or failing to account for seasonal changes in demand could make it harder to coordinate with suppliers and cause you to run out of stock or subject your customers to lengthy order delays.

Such issues could quickly derail your customer satisfaction rates, driving business away from your e-commerce site.

Because of this, e-commerce businesses that want to implement JIT inventory management must have excellent planning systems in place. Real-time inventory tracking, accurate demand forecasting and continually obtaining input from customers are crucial tools for making orders with suppliers in a timely manner.

E-commerce businesses should also have plans in place for how they can address common supply chain issues (including things outside your control, like severe weather) that would otherwise disrupt inventory shipments. Broadening your supplier network and maintaining close partnerships will help you respond quickly to inventory challenges.

Choosing the Solution That Works for Your Business

While just-in-time inventory management is often an effective solution for e-commerce brands, it isn’t the right fit for everyone. At the end of the day, what matters most is that you proactively seek to streamline your manufacturing process to avoid supply chain disruptions, maintain quality and have good relationships with your manufacturing partners.

With these goals in mind, you can determine the best inventory management system for your needs and improve your supply chain. By thoroughly vetting potential manufacturing partners based on your preferred inventory management system and quality standards, you can have confidence in their ability to provide the items you need, when you need them.