No. Just-in-Time’s days aren’t numbered. Since it came out in the 1970s, it’s been a consistently misused term. No one will disagree that Just-in-Time, Lean, and Six Sigma methodologies have all contributed to the improvements in productivity and profits for manufacturing companies across the globe.
Although most people (and the media) equate Just-in-Time with minimizing inventory in the supply chain there’s much more to it. The real question is: Are the days of running businesses with tight inventory levels numbered? And what are the potential implications related to price management?
Back in the good ol’ days (which I’ll define as the 20th century) investment in inventory was looked at more favorably than it has been recently. Building up inventories as a hedge against inflation was something most companies did on a regular basis. Especially during times of moderate to high inflation.
“A philosophy of manufacturing based on planned elimination of all wastes and on continuous improvement of productivity.”
– Definition of Just-in-Time per the Association for Supply Chain Management
It’s Not the Good Ol’ Days Anymore
Back in those good ol’ days when I was working in supply chain for a large distributor, “warehouse space is cheap – buy more!” was a message I used to hear all of the time. One distributor I worked for had a particularly memorable approach called the Price Avoidance Program designed specifically to build inventory to take advantage of upcoming price increases.
We used to reap a windfall by loading up on an additional month’s worth of inventory for each 2% of price increase while immediately implementing the new, higher costs into our prices. Lots of inventory to provide a protective cushion against fluctuations in demand. But that was back in the good ol’ days.
Over the past 25 years, the core rate of inflation in the US has never exceeded 4%. Anyone remember 2009? Inflation was actually negative that year. Stable prices combined with sophisticated supply chain software solutions helped facilitate the ‘leaning’ of inventory levels as inflation stayed low and businesses across the globe boomed.
Everything was going smoothly until that darn Covid virus showed up. PPE. Ventilators. Toilet paper. Lumber. Computer chips. New groups of products are popping up on the shortage list every day. Just about every industry is experiencing some inventory-related issues. With no short-term solution in sight, what’s a pricing manager supposed to do?
It’s Time to Take Action
Many businesses have moved far enough along the pricing maturity scale that they’re using some sort of value-based approach to set prices – taking their customers’ perception of the value their goods and services are providing when setting prices. In today’s shortage-driven tight inventory world inventory has value. If you’ve got inventory and your competitors don’t, you’ve got Pricing Power. Do you have the price-setting tools in place to make a quick pivot to an inventory level-driven approach for pricing (some of) your products? Excel isn’t going to cut it. Inventory levels are too dynamic.
Vendavo has an answer. Our purpose-built Commercial Analytics can help you identify where you have the greatest opportunities for price improvement. Our Pricepoint price management solution can enable you to set up and maintain targeted pricing rules that take rapidly changing inventory levels into account.
Just-in-Time’s days aren’t numbered, but it looks like there’s no end in sight for inventory-related issues. It’s time to take action.