Just in Time vs Just in Case

The trade-off between keeping inventory lean to cut costs and holding extra stock to guard against disruptions.

How much stock should a business keep? Holding lots of inventory is expensive, but running out can be even more costly. Two approaches sit at opposite ends of this trade-off.

Just in time

Just-in-time production aims to keep inventory as low as possible, receiving parts and materials only as they are needed. It was developed by Toyota in Japan in the decades after the Second World War as part of the Toyota Production System.

Its benefits are significant. Less money is tied up in stock. Less warehouse space is needed. Defects are spotted quickly because parts are used soon after arriving. Just-in-time spread across manufacturing and retail around the world from the 1980s onward.

The weakness

Lean inventories leave little margin for error. If a supplier’s factory closes, a ship is delayed or demand suddenly surges, there is no buffer. In 2021, car manufacturers around the world had to cut production because of a shortage of computer chips. Companies that held only small chip stocks were hit especially hard.

Just in case

Just-in-case inventory means holding extra stock, called safety stock, to cover unexpected disruptions or demand spikes. It costs more in storage and tied-up money, but it improves resilience, the ability to keep operating through shocks.

Toyota's own lesson

After the 2011 earthquake and tsunami in Japan disrupted many of its suppliers, Toyota studied its supply chain closely and asked key suppliers to hold larger stocks of critical parts, including chips. When the global chip shortage hit in 2021, Toyota was able to keep producing for longer than many rivals. Even the inventor of just-in-time learned to keep some just-in-case stock.

Finding the balance

Most companies now aim for a mix: lean inventory for most items, with larger safety stocks for critical parts that are hard to replace or come from a single supplier. The right balance depends on how costly stock is to hold compared with how costly a shortage would be.

Thinking just-in-time was a mistake

Just-in-time saved companies enormous amounts of money for decades and remains widely used. The lesson from recent shocks is not to abandon it but to combine it with enough buffers for the items where a shortage would be most damaging.

Key takeaways

Just-in-time keeps inventory low, saving money and space; it was developed by Toyota.
Lean inventories leave little buffer against disruptions, as the 2021 chip shortage showed.
Just-in-case inventory holds safety stock to improve resilience at extra cost.
Most companies now mix both approaches, holding buffers for critical parts.