Making JIT supply work
Highlighting and mitigating the potential pitfalls of poorly implemented JIT supply
Moving to a Just In Time Packaging Supply (JIT) can significantly benefit your business.
These benefits can include reducing the warehouse space you require for storing packaging and saving you considerable money. It can help to reduce your stock obsolescence and the amount of packaging you discard 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 forecast and maintain a sensible inventory and stock-taking.
But what is less commonly publicised are the potential drawbacks of using a just-in-time or vendor-managed inventory service.
This guide highlights the potential pitfalls of using such a system and how to alleviate the issues if you encounter them. A just-in-time packaging supply agreement can significantly impact your business’s success if implemented correctly. But this is only if you avoid these potentially adverse outcomes.
What is Just in Time?
What is JIT supply?
Just in Time (JIT) packaging supply is where a packaging manufacturer maintains stockholding of products at their premises and delivers to customers as needed. Also referred to as “lean,” KanBan, or VMI (vendor-managed inventory), such a system provides several benefits. Advantages include less storage requirement for the packaging user and stock management/forecasting improvements.
Essentially, it is a process or service that reduces a business’s inventory investment – monetary costs and space at your warehouse or factory.
A company keeps less packaging stocks (or raw materials used in manufacturing) and instead rely on automated systems that can predict future usage requirements. The packaging supplier or vendor (who has likely have developed the forecasting system themselves) holds an agreed amount of packaging in stock and supply smaller volumes of this as and when required (hence the just-in-time term).
It is also the packaging suppliers’ responsibility to manage the manufacturing cycles of the packaging to ensure there is adequate stock when the packaging user requests the product.
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.
Eight problems of just-in-time packaging supply (JIT)
But what factors or outcomes 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 a sudden increased demand.
- Additional training and planning requirements.
- Less control of the supply chain.
- Exceptional events and disasters.
- Increased investment in IT infrastructure.
- Reliance on a single supplier.
- Customer satisfaction.
The rest of this guide provides further information on each of these points and what your business can do to avoid or mitigate them as far as possible.
Forecasting packaging use
Problems with forecasting
The first potential issue is one inherent in the idea behind that of just-in-time supply – that of forecasting.
When ordering packaging on a just-in-time supply agreement, most businesses only order the minimum amount required to get them through to the following replenishment date. For example, this may be in perhaps one week – ordering based on seven days of average packaging use).
The problem is that many people base this on the previous year’s figures – and assume that business is going to remain relatively static.
This approach means that this forecasts are incorrect if sales pick up or grow year on year. Ultimately this could mean the company runs out of their required corrugated packaging before the next delivery date.
Conversely, suppose business is shrinking (due to economic factors, for example). In that case, each delivery provides too much packaging, meaning stocks begin increasing (and negating the benefits of a JIT service). Over-stocking isn’t too serious with packaging, but it can seriously affect businesses using a system like this for perishable goods.
This factor also sets up the problem for next year, as businesses assume packaging use is likely be lower again, and the company could start experiencing issues from too little stock.
The answer is not simply to forecast based on the previous year’s figures but to consistently monitor usage for 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 a sudden increase in demand
Perhaps the biggest issue with just-in-time supply – if not managed correctly – is a lack of flexibility regarding 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.
This increase in demand can mean a strain on your packaging supply and the potential to run out.
Although your packaging company is likely to keep some stock, they probably use flexible manufacturing cycles to ensure they are not holding excessive amounts of packaging themselves. Any rush could see this stock holding used up.
Working with a packaging supplier with adequate manufacturing (and storage) capacity is essential. Doing so can help reduce lead times even if the product has to be manufactured, whilst greater storage obviously minimises the potential issue.
Sharing information is also crucial. If, for example, you have heard rumours that a competitor is in trouble or your marketing plan indicates a new campaign launch, letting your packaging supplier know can help 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.
Planning and training
Additional training and planning requirements
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).
It is possible to teach such a system to a new or existing employee in a relatively short time.
However, the process is more complex with a just-in-time supply agreement. It requires much more frequent (even daily) stock checking with increased accuracy due to ordering future packaging stocks using these figures.
It may also entail using more sophisticated equipment (such as barcode scanners) and computer software.
The simple answer to this is to provide adequate staff training. And whilst this is more in-depth and costly than it may have been previously, the ongoing cost savings of using a vendor-managed inventory easily outweigh this.
Less control of the supply chain
One of the key advantages of being an SME is that you can be more flexible and agile. But just-in-time supply can inhibit this if you are not careful.
But if you hear of a new business opportunity or an existing customer has an emergency you can help with, you may not find it 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 sudden demand, however, the key is to work with a packaging supplier that can offer the same type of flexibility that your business would like to provide.
To achieve this, it 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, your business can maintain the flexibility that ultimately allows for growing your turnover.
Exceptional events and disasters
The opposite of sudden good fortune or unexpected opportunities is when something negatively impacts your packaging supply.
Such scenarios could include national emergencies, extreme weather events or even a disaster at your suppliers’ premises (such as fire or even financial difficulties).
Whilst often you can do nothing regarding events of this nature, there are still ways to mitigate this.
For example, GWP Packaging – which offers a JIT service – is partnered with several other sheet plants throughout the UK. This approach means 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 both 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).
Increased investment in IT infrastructure
You may find that implementing a wide-ranging JIT setup requires you to invest in additional IT hardware and software infrastructure at your business.
Doing so obviously involves additional costs, not to mention maintenance and training costs. It can also leave you vulnerable if you have problems with these systems, so it is vital to have a robust strategy for backups, support and disaster recovery.
However, if you are only looking at operating your packaging supply on a just-in-time setup, you may find this point irrelevant.
As long as you understand the amount of packaging used during the specific periods, your packaging supplier may provide all the required infrastructure.
GWP Packaging, for example, has an online ordering system, allowing you to call off products from any device with internet access. This system is hooked directly into GWP’s planning and manufacturing systems.
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 establishing a near-exclusive relationship with your chosen packaging supplier.
Whilst this has many benefits, it can also have some drawbacks.
For example, it isn’t easy to shop around for prices regularly, as you typically have a contract or agreement with your supplier. Your chosen supplier may also raise prices (if any agreement allows) – meaning you are stuck paying these until you can find an alternative supplier offering better pricing and suitable supply service.
The key to resolving difficulties of this type is to have a full and detailed service level agreement (SLA) with your chosen supplier.
An SLA not only sets out the commitments (from both sides) in terms of stock holding but can also define pricing, the potential for any increases (or not), review periods and everything else required to ensure the agreement works for both parties.
If the packaging supplier you chose to work with for your JIT supply cannot or will not offer you the option of an SLA, then walk away.
Levels of customer satisfaction
Rather than your satisfaction (which is obviously important – but which the application of suitable SLA should manage), 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 end up with disgruntled customers.
At best, they may not order from you again (although losing repeat business is a severe barrier to growth). At worst, they could leave negative reviews online and discourage others from using your company.
As with mitigating peaks in demand, you can only address this potential issue by choosing a flexible, agile packaging supplier that can help you in such situations.
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 alongside.
Look for a business that offers exceptional customer support, is not too small (or large), and is 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 further information on how to implement JIT supply into your business successfully – and how GWP can help you do this – please do not hesitate to get in touch.