Article

Does JIT Make Sense?

Because recovered paper isn’t a manufactured product, the normal rules of economics don’t apply to how mills should manage their inventories, says industry consultant Bill Moore, president, Moore & Associates, Atlanta. In a new report he has proven why typical just-in-time (JIT) inventory practices can actually increase procurement costs and reduce mill profits.

“The trend over the last 15 years at recycled paper and board mills in U.S. markets has been to reduce the amount of recovered paper supply inventory,” he says. “This practice, approaching JIT inventory, has been adopted from their general manufacturing business efficiency improvements. The obvious impetus for this trend is to control working capital tied up in inventory costs.”

He points out that while it may be an effective capital conservation methodology when purchasing supplies, parts, and manufactured raw materials, JIT contributes to excessive recovered paper price volatility.

One of the easiest and most practical approaches for hedging the price of recovered paper is to maintain higher inventory levels that can be bled off when the market goes above certain levels. It takes great discipline and vision to actually practice this and, of course, it has the down side of extra carrying costs, he says. In tight markets, it also is difficult to keep inventory levels at a point where material can be bled back into the marketplace when necessary. High inventory is the primary buying strategy of the Chinese mills.

A confidential summary of data from approximately 100 mills is used as the basis for this analysis. A statistical model develops the correlation between recovered paper prices and days of inventory held.

The last part of the report compares the increased cost incurred by short inventories, expressed in a $/ton increased per day of inventory.

The report costs $1,750. For more information, call 1-770-518-1890 or visit www.MARecycle.com.