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No matter where your business falls on the supply chain, it’s important to make sure you’re getting the most out of your inventory management. How can you maintain your inventory to keep up with customers’ demands while also minimizing costs? Two inventory management processes that have come to the forefront are just-in-time and pay-by-scan. In this article, we’ll introduce these processes and explain the benefits and challenges that come with each.
Just-in-Time
Just-in-time (JIT) is an inventory process in which companies receive only as many goods as they need in the production process. The goods are supplied as close as possible to when they are actually needed. This process is more efficient and less wasteful than the old “just-in-case” strategy in which companies maintain large inventories to be prepared for large demands. Keeping less inventory on hand allows companies to free up for funds for other uses.
While JIT increases efficiency and reduces waste, it comes with its share of requirements. The company must constantly and accurately monitor demand. This is done through the kanban system. Kanban entails sending notifications between different points in the supply chain. Companies are informed when parts or products will be needed.
JIT’s biggest challenge is that disruptions in the supply chain can put production in jeopardy. For instance, the production process might come to a halt if a supplier is unable to deliver the required materials.
Pay-by-Scan
Pay-by-scan is an inventory process in which suppliers continue to own the inventory stored at retail sites until checkout. It is similar to consignment sale, in which the retailer doesn’t pay the supplier until the goods are sold. However, the accuracy of today’s point of sale technology makes pay-by-scan an improvement. Once the checkout goes through, the retailer’s EDI system creates a sales report and invoice to be sent to the supplier.
Pay-by-scan has benefits for both retailers and suppliers. Retailers save money because they don’t have the costs associated with owning the inventory themselves. There is also a reduced risk of items going out of stock. Meanwhile, suppliers gain more control of the inventory. They know what their inventory is at all times and are able to adjust supply and demand gaps as needed.
For the supplier, a cost that comes with pay-by-scan is that they don’t get paid until the inventory is sold. Since they don’t get paid in bulk for each shipment, cash flow can be hindered. Also, the supplier must maintain staff at the retail locations to monitor the stock. They’re responsible for insuring the merchandise in case of a fire or natural disaster.
Pay-by-scan technology has been driven by big-name retailers like Walmart and Home Depot. They are requiring their suppliers to make the switch to pay-by-scan to boost their competitive position. Most other merchants will soon require this as well.
How DCS Can Help
No matter what process you use for your inventory management, you’ll likely need some EDI help along the way. This is where Data Communication Solutions (DCS) comes in. Our team of EDI specialists has the expertise to help you get up to date with your just-in-time or pay-by-scan systems. To get started, contact us today for your no-cost assessment.
