Operational efficiency is the name of the game for many merchants. They are looking for ways to drive down expenses without negatively affecting their revenue or profit margins. One strategy that has become popular as a result of this is just-in-time inventory management.

Just-in-time inventory management describes a process in which merchants carry only the stock they need. Ideally, products should be flowing in just as quickly as customer demand takes them out, with merchants acting essentially as a middleman between the manufacturer and the end buyer.

At a more conventional retail organization, the merchant would buy product from the manufacturer or various distributors and then store it until customers purchase these goods in-store or online. Obviously, this creates some problems – most notably when retailers misread forecasts and end up with surplus inventory wasting warehouse space . Conversely, they may also buy too little inventory, which costs them sales. Either way, the results can be devastating to a retailer.

The pros and cons of just-in-time inventory management

The pros of the just-in-time inventory model are vast. First and foremost, it can be a major cost saver – merchants don’t have to worry about purchasing too much stock and being forced to offload it at a discount to reclaim their capital. This is especially critical for niche retailers that want to offer a broad inventory but may not do huge quantities of sales.

Additionally, a fully functioning just-in-time inventory model would ensure merchants never run out of stock in pivotal moments. During peak seasons, that may account for more than 40 percent of retailers’ annual sales, the threat of losing sales after running out of stock will be greatly diminished.

Of course, there are drawbacks in just-in-time inventory models, most notably in execution. Many retailers will face big challenges trying to streamline receiving, scanning, lag time, and fulfillment and shipping. One misstep in execution may mean a delay in delivery to customers, which could affect their perception of the merchant and the overall shopping experience. Integration and ensuring the commitment to seeing a just-in-time system through can also be challenging.

What a just-in-time inventory management system looks like in action

Once integrated into eCommerce solutions, a successful just-in-time inventory management system should allow retailers to automatically order supply as soon as a customer order is placed to cut down on fulfillment times. When an order is made, the software should process the purchase automatically within seconds, notifying the supplier that a sale has been generated. However, some retailers may want to wait to aggregate purchase orders to prevent creating too many purchase orders in one day.

Once the manufacturer or distributor sends the product to the merchant, the retailer should be able to use scanner guns to receive inventory and then pack the item, enabling them to quickly and seamlessly ship the order to customers. Within moments of receiving the goods, merchants should be ready to have it out the door through their preferred shipping service provider.

The key to this whole process is quick turnaround time. A just-in-time inventory model needs to be lag-free and shouldn’t require hours of manual work from retail staff to receive inventory and process orders, otherwise businesses won’t be able to reap all the rewards of such a system.

A just-in-time inventory management system will take an initial investment and some commitment on the behalf of the retailer, specifically if they are switching to a completely new eCommerce platform.

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Learn more about what role just in time inventory management plays for retailers or find out how online retailer, GearHead.com, uses a just-in-time inventory management system.