For decades, general manufacturing wisdom relied on a just-in-time strategy to ensure components are available when needed rather than tying up capital on inventory. However, with recent supply chain disruptions, there is an argument for holding just-in-case inventory. This is especially important for ‘golden screws’, the one or two critical components needed to finish production and start generating revenue.
Classic Components’ vice president and global general manager, Mike Thomas, said: “When there is supply chain harmony, when everybody is delivering on time and there is plenty of inventory in distribution, just-in-time works really well, but that is not the current reality and as Covid taught us, you can never anticipate the next event. This makes the just-in-case inventory philosophy a crucial piece of the profitability puzzle moving forward.”
JIC is an inventory management strategy where companies keep inventory on hand to anticipate and prepare for unpredictable demand. The strategy is typically employed in less industrialized countries where supply chain disruptions are more common.
Thomas believes in balancing JIT with JIC. Combining these two inventory strategies gives organizations the best of both worlds—the low inventory and available capital of JIT with the security of JIC. Classic Components can offer its partners this balance.
Thomas continued: “There are a lot of golden screws now that companies just couldn’t get their hands on and there were many products that couldn’t even be shipped. So, now they are meeting and shifting their strategies to ensure they always have the golden screws in the future.
“With companies like ours, we invest our own money to purchase items for customers ahead of time. We keep a certain amount in buffer stock and we ship it out when needed and then we get paid by the customer. In doing so, the customers achieve their goal of having only what they need, when they need it, which is basically just-in-time philosophy.
To accomplish this, the company invests its own capital to secure golden screw items for customers and hold them in inventory until they are needed, however long that might take. This is a unique offering within the independent channel and only the largest, most financially stable distributors are willing or able to do so.
However, customers need to be willing to shift their strategy to accommodate a JIC philosophy. Organizations must have the foresight and awareness to anticipate future orders not yet placed and be proactive about securing the inventory required to ensure there are no delays when the product is needed.
The distributor can help secure these items for the OEM without asking for money up front and assist with the logistics of transporting the items when needed. It does this by being flexible in its approach and shipping material, whether upstream or downstream, including to contract manufacturers, sister companies and subsidiaries.
Not many companies are offering this type of service during shortages, including traditional distributors.
Although authorized distributors provide added value such as engineering support, contractual obligations dictate all materials must come directly from the factory. This makes sense when the supply chain is operating as expected and there are no global pandemics or other supply chain constraints. The current disruptions, however, are creating lead times in the regular distribution space of up to 50-weeks for parts that used to be available in eight to 18-weeks, a massive disruption that independent distributors can work around more easily.
Thomas concluded: “It is a philosophical adjustment. Companies have to look in the mirror and say: we built our organization on just-in-time and that is how our shareholders measure us, but we need to secure the golden screws to protect against any possible future disruptions.”