Common Cents: Just in Time or Just in Case?

Hello, and welcome to Common Cents, where we discuss topics relevant to those living below the poverty line and other topics that are of importance to those living paycheck to paycheck!

Whether you're trying to understand why and how businesses do the things they do, or just want to figure out how to feed your family and still afford the gasoline to get to the store, a knowledge of economic concepts is handy. Today, we're looking at an economic concept that can be summed up in two phrases: are you shopping Just in Time or Just in Case?



The concept is actually remarkably simple. In an economy with adequate supply and resources, people tend to shop 'Just in Time'. If you need a package of toilet paper, you go to a store and buy toilet paper, 'Just in Time' for you to use it. If the supply declines, or if their resources to acquire supplies are low, people tend to shop 'Just in Case'. Instead of focusing on purchasing things as they need them, they stockpile inexpensive goods 'Just in Case' they need them in the future.

This basic economic concept applies to everything from households to massive corporate conglomerates. Even if you have a particularly high amount of resources available (lots of cash), you still may find yourself stockpiling on necessities if the supply for them is endangered. The same thing goes for large businesses; businesses that are locked in on a 'Just in Time' model may find their business strategy works very efficiently for reducing overhead expenses, but can become a nightmare if natural or man-made disasters cause shortages in the supply chain. With increased security and trade restrictions, many businesses that used to rely on getting their products 'Just in Time' to sell them are now stockpiling 'Just in Case' they need to ride out a shortage.

For a more relevant example, look at the trend of shortages involving console gaming systems, especially around release time and during the holiday season. These are a prime example of a 'Just in Time' business strategy failing -- because the demand for these products is unpredictable, stores may find themselves sold out of their initial product base, only to end up severely overstocked after the initial rush of demand has ended. Their attempt to resupply 'Just in Time' may not be capable of meeting spikes in demand, particularly if other members of the supply chain suffer from the same problems. Savvy and unscrupulous consumers, meanwhile, work their hardest to acquire multiple consoles 'Just in Case' they can find a buyer (and receive much more than they paid) before the demand-induced shortage comes to an end, secure in the knowledge that if things don't work out, they can usually return the unsold and unopened product for a full refund to the store they acquired it from. (For an example of this, check out Amazon.com, where the only copies of Wii Fit sold online (retail value, $90) are available from individual dealers for roughly $160.)

As more retailers (and more consumers) are shifting from 'Just in Time' to 'Just in Case', whether because of rising prices, personal necessity, or disaster preparedness, problems naturally will continue to develop. One basic problem with a 'Just in Case' supply strategy is storage and its resultant overhead costs -- you may be able to purchase 100 rolls of toilet paper during a sale for far less than if you bought it by the roll, but can you reasonably expect to have room to store it? Do you have enough cabinet space to purchase a year's supply of ramen if it goes on sale? Any consumer who has purchased a family-size package of any food, only to discover that it has gone bad, spoiled, or otherwise become inedible after only being half-used, will tell you that buying a large supply of a product is not always a smart business decision. Most personal consumers have to balance long-term needs and bargain-hunting with limited storage and usage capacity.

From a business perspective, maintaining large numbers of warehouses for 'Just in Case' supply storage results in higher overhead costs (to maintain the buildings, pay for employees to handle the materials, offset losses due to spoilage or damage, etc.); this can make or break a business strategy, as shortages will mean lost sales (and lost profits, particularly if a business has contractual obligations to fulfill that are directly affected by shortages in the supply chain.)

So what does this mean for you, the consumer? If you're at or below the poverty line, you probably purchase whatever is least expensive, in as much bulk as you can afford before prices rise. If you happen to know that the businesses you shop at most frequently are prone to shortages, you can safely assume that they are subscribing to a 'Just in Time' philosophy for these objects. Anything you need from these stores on a regular basis should be stockpiled whenever you have a reasonable opportunity (and preferably a large number of coupons and/or discounts), because if a supply shortage hits or demand rises sharply enough, these stores will be likely to run out quickly. (To put it another way, don't go shopping for rock salt the day before the big snowstorm, and expect to have to wait several months for the newest and shiniest toys unless you have the time and money to acquire them when they're released.)

Similarly, you can probably get a sense for what products a store carries that are acquired based on the 'Just in Case' philosophy. Many of these stores have a clearance section devoted to getting rid of excess merchandise -- and while it's not easy to predict when a store is planning on putting big-ticket items on clearance to make way for newer products, there are some universal constants:

• Seasonal merchandise goes on clearance after the season is over. While this might not necessarily be helpful (you can only eat so many Easter jellybeans or Christmas candy canes), for the long-term stockpiler and the thrifty consumer, this is important knowledge. Many stores sell particular products (such as cups, bowls, and jars) that are usable all year, yet go on sale immediately after the holiday they're related to. If your store has a seasonal section and a clearance section, chances are you might be able to find some useful deals right after the season ends. Stock up on wrapping paper (particularly the types that aren't Christmas-centric) after the holidays and use it all year; stock up on 'picnic' plastic utensils and dishes at the end of summer; pick up a new coat for next winter during spring clearance sales; pick up cooking supplies the Saturday after Thanksgiving; and so on.
• Store employees know about their inventory. If you're friendly, you can often find out plenty of information from store employees, and many of them are willing to help you as long as you're polite about it. Want to know when the freshest cuts of meat are available? Need to know when the store gets new electronics merchandise? Want to know why a particular product is no longer on the shelves? Wondering when the baked goods get put on clearance? Want to know if you can have some of those cardboard boxes they're throwing out? Try asking a store employee or the manager of the relevant department. You may be able to find out the best times to shop for things you plan on stocking up on 'Just in Case', or when you should come in to get that shiny new console your loved ones want for Christmas, 'Just in Time'.
• Know the limits of stockpiling. Depending on your available storage space, your limits may vary widely. A college dorm room offers less opportunity to stockpile than the average apartment or home, for example. As a general rule, you should stockpile only as much as you need and will use. If your meat tends to get freezer-burned after a month, you shouldn't purchase more meat than you plan on using in a month. If you can't eat ten pounds of potatoes before they start to go bad, stick with the five-pound bag. It sounds like common sense, but it's remarkably easy to forget this basic fact when confronted with a multitude of seemingly fantastic bargains.
• Know your bargains. Buying in bulk is usually less expensive than buying smaller individual packages. Buying generic is usually less expensive than buying brand-name products. However, appearances can be misleading. Store specials, coupons, and special deals can make brand-name products cheaper than the store brand (particularly if your store offers double or triple coupons). Store and manufacturer coupons can often be used together to lower the final price of a brand-name product to practically nothing in certain circumstances. Bulk products occasionally are sold for a higher price than their equivalent in smaller packages due to sales, mismatched price changes, or deceptive pricing practices. The shelf labels of most products carry information on the price per quart, ounce, gallon, pound, or 100 count in addition to the total cost of the product; look very closely at both the cost-per-unit and what that unit is before determining which is the better value. (If your store is particularly unreliable when it comes to labeling units properly, bring a calculator with you and do the math.)

You don't have to be an economist to understand 'Just in Case' and 'Just in Time.' With prices rising and bringing down the quality of everyone's lives, everyone from the largest corporation to the most impoverished consumer is thinking ahead and buying goods 'Just in Case' they need them, instead of rushing to the store 'Just in Time' to restock on basic needs. With this advice, hopefully you'll be able to make the most of stores that follow either policy, and understand more about what exactly each of these means the next time a television special on the economy brings up the subject.

Food for Thought:
What's an example of something you regularly purchase in bulk, 'Just in Case'?
What's an example of something you usually purchase 'Just in Time' when you need it?