And How to Avoid Them
Highlighting and mitigating the potential pitfalls of poorly implemented JIT supply
Moving to a Just In Time Packaging Supply (JIT) can have a huge number of benefits for your business.
This can include a reduction in the warehouse space you require for storing packaging, which can save you a considerable amount of money. It can help to reduce stock obsolescence and packaging being discarded because it has become dusty, dirty, damp or damaged. It can minimise the chances of your business running out of stock.
It can even help with forecasting, maintain a sensible inventory size and stock taking.
But what are less commonly publicised are the potential drawbacks of using a Just in Time or Vendor Managed Inventory service.
This guide not only highlights the potential pitfalls associated with using such a system, but how, if you are currently encountering any of them, to alleviate the issues.
Implemented correctly, a just in time packaging supply agreement can make a serious difference to your business success. But this is only if you avoid these potentially negative outcomes.
Quick Reference / Contents
01: What is Just in Time?
What is JIT supply?
Before moving on to the common problems experienced with JIT packaging supply, it is important to briefly clarify what a just in time agreement entails.
In essence, it is a process / service that is designed to reduce a business’ investment in inventory – both in terms of monetary costs and space at your warehouse or factory.
A company will carry less packaging (or raw materials used in manufacturing) and instead rely on automated systems that can predict future usage requirements. The packaging supplier or vendor (who will likely have developed the forecasting system themselves) will hold an agreed amount of packaging in stock, and supply smaller volumes of this and an when required (hence the Just in Time moniker).
It is also the packaging suppliers responsibility to manage manufacturing cycles of the packaging, to ensure there is adequate stock when called off by the user of the packaging.
And as mentioned above, a fully managed packaging inventory results in less capital tied up in stock, a reduced requirement for warehouse space, and a generally more streamlined approach to stock handling and ordering.
8 problems of Just in Time Packaging Supply (JIT)
But what are the factors or outcomes that can affect the success of purchasing your business’ packaging on a just in time basis.
Well, in no particular order, the commonly experienced pitfalls are as follows:
- Problems with forecasting
- Coping with sudden demand
- Additional training / planning requirement
- Less control of supply chain
- Exceptional events / disasters
- Increased investment in IT infrastructure
- Reliance on a single supplier
- Customer satisfaction
The rest of this guide provides further information on not only what each of these points actually means, but what your business can do to avoid or mitigate them as afar as possible.
Problems with forecasting
The first potential issue is one inherent in the idea behind that of Just in Time supply – that of forecasting.
Most businesses, when ordering packaging on Just in time supply agreement, will only order the minimum amount require to get them through to the following replenishment date (in perhaps say 1 weeks’ time – so ordering based on 7 days of average packaging use).
The problem with this is that many people base this on the previous year’s figures – and assume that business will remain fairly static.
What this means is that, if business picks or grows year on year, this forecast will be incorrect. Ultimately this could mean the business running out of their required corrugated packaging before the next delivery date
Conversely, if business is shrinking (due to economic factors for example), then each delivery will be providing too much packaging, meaning stocks will begin increasing (and negating the benefits of a JIT service). This isn’t too serious with packaging, but can seriously affect businesses using a system like this for perishable goods.
This also sets up the problem for next year, as it is assumed use will be lower again, and the company could start experiencing issues from too little stock.
The answer is to not simply forecast based on the previous year’s figures, but to consistently monitor usage for any emerging trends and patterns. A good packaging company, with an established support team – should be able to spot any issues quickly and advise as appropriate.
Coping with sudden demand
Perhaps the biggest issue with Just In Time supply – if not managed correctly – is a lack of flexibility when it comes to good fortune.
For example, if one of your competitors goes out of business (OK, this isn’t good fortune for them), you may suddenly get a large influx of unexpected orders. Similarly, if your product gets featured on a prominent TV channel, or goes viral on social media, you could see interest and orders increase rapidly.
What this can mean is a strain on your packaging supply – and the potential to run out.
This is because although your packaging company will likely hold some stock, they will likely use flexible manufacturing cycles to ensure they are not holding excessive amounts of stock themselves. Any rush could see this stock holding used up.
As such, it is important to work with a packaging supplier that has adequate manufacturing (and storage) capacity. This can help to reduce lead times even if the product has to be manufactured, whilst greater storage obviously minimise the potential issue to start with.
Sharing of information is also important – if for example you have heard rumours a competitor is in trouble, or you marketing plan indicates a new campaign launch – letting your packaging supplier know can help then plan and produce extra stock if required.
And finally, it can also be beneficial to maintain relationships with other suppliers who may be able to step in if required.
05: Planning / Training
Additional training / planning requirement
Many small (and even medium sized) businesses undertake a lot of manual stock taking and recording of packaging inventory. And those businesses that use inventory software may do so with simple applications (or even spreadsheets).
This type of system can be taught to a new or existing employee in a relatively short space of time
However, with a Just in Time supply agreement the whole process is more complex. It requires much more frequent stock checking – often daily – with increased accuracy crucial (due to these figures being used to order future packaging stocks).
It may also entail the use of more sophisticated equipment (such as barcode scanners) and computer software.
The simple answer to this is to provide adequate training for staff. And whilst this is more in depth and costly than it may have been before, the ongoing cost savings of using a vendor managed inventory will easily outweigh this.
Less control of supply chain
One of the key advantages of being an SME is that you are able to be more flexible and agile. But Just in Time supply can inhibit this if you are not careful.
For example, your business will know about expected peaks and troughs in demand (such as Black Friday and Christmas), and will order accordingly.
But if you hear of a new business opportunity, or an existing customer has an emergency that you can help with, then you may not find it quite as easy to exploit this situation. In effect, Just in Time supply can limit your potential for maximising opportunities to grow your business.
As with coping with sudden demand however, the key is to work with a packaging supplier that can offer the same type of flexibility that you yourself would like to offer.
This can often mean looking past the large, national packaging suppliers and working with an independent box plant, who themselves are much more agile. Providing they have sufficient manufacturing capacity and storage facilities, this can allow your business to maintain the flexibility that will ultimately allow for growing your turnover.
Exceptional events / disasters
The opposite to sudden good fortune or unexpected opportunities is what happens when something negatively impacts the actual supply of packaging.
This could be anything ranging from national emergencies, extreme weather events or even a disaster at your suppliers premises (such as fire or even financial difficulties).
Whilst there is nothing that can be done regarding events of this nature, there are still ways to mitigate for this.
For example, GWP Packaging – who offer a JIT service – are partnered with a number of other sheet plants throughout the UK. What this means is that if some disaster were to occur, the partner businesses would be able to step in and help with supply where applicable.
Ultimately – and this is the answer to most of the issues highlighted in this article – the key is to be very diligent and considered when choosing your packaging supplier to provide a JIT service (which includes not just picking the largest or most well-known company).
08: IT Investment
Increased investment in IT infrastructure
You may find that by implementing a JIT setup across multiple areas of your business requires you to invest in additional IT infrastructure – both hardware and software – at your business.
This obviously involves additional costs, not to mention maintenance and training costs., It can also leave you vulnerable if you have problems with these systems, which is why it is important to have a robust strategy in place for backups, support and disaster recovery.
However, if you are only looking at operating your packaging supply on a Just In Time setup, then you may find this point irrelevant anyway.
As long as you have a grasp on the amount of packaging used during the specific periods, your packaging supplier may provide all of the required infrastructure.
GWP Packaging for example have an online ordering system, which will allow you to call off products from any device with internet access. This is hooked directly into planning and manufacturing systems at our business.
And if you are a large business, you can even potentially benefit from a fully vendor managed inventory. This could include packaging delivered directly to the specific part of your production lines, and even on site stock takes conducted by the packaging company (such as GWP) rather than your own staff.
Reliance on a single supplier
Setting up a Just in time packaging supply agreement involves setting up a near exclusive relationship with your chosen packaging supplier.
Whilst this has many, many benefits, it can also have some drawbacks too.
For example, it makes it difficult to shop around for prices on a regular basis, as most likely you are tied into an agreement with your supplier. Your chosen supplier may also chose to raise prices – meaning you are stuck paying these until you can find an alternative supplier offering better pricing and a suitable supply service.
The key to resolving difficulties of this type is to have an robust and detailed service level agreement (SLA) in place with your chosen suppler.
This not only sets out the commitments (from both sides) in terms of holding and taking costs, but can also define pricing, the potential for any increases (or not), review periods and everything else required to make the agreement work for both parties.
If the packaging supplier you chose to work with on JIT supply cannot or will not offer you the option of an SLA – then walk away.
Levels of customer satisfaction
Rather than your own satisfaction (which is obviously important – but should be managed through application of a suitable SLA), this applies to the satisfaction of your customers.
For example, if your just in supply agreement means you cannot fully cope with a peak in demand, you may well end up with disgruntled customers. At best they may not order from you again (although losing repeat business is a serious block to growth), but at worst they could leave negative reviews online and discourage others from using your business.
As with mitigating peaks in demand as discussed earlier, this potential issue can only really be addressed by choosing a flexible, agile packaging supplier that can help you in situations such as these.
Avoiding the problems of just in time packaging supply
The bottom line is that a just in time packaging supply agreement can prove hugely successful for your business… but only if you choose the right supplier to work with.
Look for a business that offers exceptional customer support, is not too small (or large), and will be able to provide you with flexible manufacturing capacity to meet any challenges you face.
In essence, you need a packaging partner, not a packaging supplier.
If you would like any further information on how to successfully implement JIT supply into your business – and how GWP can help you to do this – then please do not hesitate to get in touch.