For decades, just-in-time (JIT) inventory management was the default operating model for mid-market firms in manufacturing, distribution and retail. The logic was straightforward: minimise inventory on hand, reduce carrying costs and free up cash for growth. The pandemic, followed by geopolitical disruptions in shipping and component supply, broke that logic. Firms that held minimal stock found themselves unable to fulfil orders, losing revenue and customer trust.
A growing number of mid-market companies are now rebalancing toward a just-in-case (JIC) model. They are holding higher safety stock, diversifying suppliers and accepting higher inventory levels as a cost of resilience. This shift has direct consequences for working capital. More inventory on the balance sheet means more cash tied up in stock, which in turn increases demand for inventory financing, asset-based lending and supply chain finance.
This article examines what has changed, why it matters for lenders and borrowers, who is affected and what may happen next.
The Shift from JIT to JIC: What Changed
The JIT model, pioneered by Toyota in the 1950s and widely adopted in Western manufacturing by the 1990s, assumes reliable, predictable supply chains. It works when lead times are short, transport is cheap and suppliers are stable. Those conditions no longer hold for many sectors.
Key drivers of the shift include:
- Supply chain volatility. Container shipping rates swung from $1,500 to over $20,000 per container between 2020 and 2022, then fell sharply. Such volatility makes it difficult to rely on frequent, small deliveries.
- Geopolitical risk. Trade restrictions, sanctions and regional conflicts have disrupted specific supply routes, particularly for electronics, automotive components and specialty chemicals.
- Labour shortages. Port and warehouse labour shortages in the US and Europe have caused unpredictable delays, forcing firms to hold buffer stock to maintain production schedules.
- Customer expectations. End customers, particularly in e-commerce and industrial procurement, now expect faster fulfilment. Holding inventory closer to demand points has become a competitive requirement.
A 2023 survey by the Institute for Supply Management found that 65% of manufacturing firms had increased inventory levels compared with pre-pandemic baselines. While exact figures vary by sector, the directional trend is clear: inventory-to-sales ratios have risen across mid-market segments.
Why It Matters
For mid-market firms, the shift from JIT to JIC is not a minor operational tweak. It is a structural change in how working capital is deployed. Inventory that once turned over every 30 days may now turn over every 45 or 60 days. That extra 15 to 30 days of carrying cost must be funded.
For borrowers: The need for inventory financing is rising. Firms that previously relied on internal cash flow or trade credit are now seeking dedicated inventory lines, asset-based lending facilities and supply chain finance programmes. This increases leverage and interest expense, compressing margins unless revenue growth offsets the cost.
For lenders and investors: The opportunity is in providing flexible, inventory-linked financing products. Traditional asset-based lenders, fintech platforms and even some non-bank lenders are developing products that use inventory as collateral with real-time valuation. The risk is that over-leveraged borrowers may struggle if demand softens and inventory becomes slow-moving or obsolete.
For the broader market: A permanent increase in inventory levels across the mid-market would raise aggregate working capital demand by tens of billions of dollars. This could shift capital allocation away from capex and R&D toward inventory carrying costs, potentially slowing innovation in capital-constrained sectors.
Who Is Affected
Manufacturing firms are the most directly affected. Companies producing industrial equipment, automotive parts, electronics and specialty chemicals are holding more raw materials and work-in-progress inventory to guard against supply interruptions.
Distributors and wholesalers face a similar dynamic. They are increasing safety stock of high-turnover items, particularly those sourced from regions with elevated geopolitical risk.
Retailers, especially those with physical stores, are rebalancing inventory between central warehouses and store locations. The shift is less pronounced in pure e-commerce, where drop-shipping and fast logistics remain viable alternatives.
Lenders and fintech platforms are adapting their underwriting models. Inventory financing used to be a niche product. It is becoming a core offering for mid-market commercial lenders.
Commercial Impact
The commercial implications are measurable across several dimensions:
- Increased demand for inventory financing. Mid-market firms that previously self-funded inventory are now seeking external financing. This expands the addressable market for asset-based lenders and fintechs offering inventory lines.
- Higher interest expense. With interest rates elevated relative to the 2010s, the cost of carrying additional inventory is material. A firm holding an extra $5 million in inventory at 8% interest incurs $400,000 in annual carrying costs before storage and insurance.
- Shift in lender risk appetite. Lenders are becoming more sophisticated in valuing inventory. Perishable, seasonal or fashion inventory is riskier than staple goods. Lenders are adjusting advance rates and monitoring requirements accordingly.
- Opportunity for technology-enabled lenders. Platforms that can track inventory in real time, integrate with ERP systems and adjust lending limits dynamically have a competitive advantage over traditional lenders relying on periodic audits.
Risks and Unknowns
The shift to JIC is not without risks, and the durability of the trend is uncertain.
- Demand normalisation. If supply chains stabilise and lead times shorten, some firms may revert toward leaner inventory models. The cost of carrying excess stock could become a competitive disadvantage.
- Obsolescence risk. Holding more inventory increases exposure to product obsolescence, particularly in technology and fashion sectors where product lifecycles are short.
- Over-leverage. Firms that borrow heavily to fund inventory may struggle if revenue declines. Inventory is only liquid if it can be sold quickly at a reasonable price. In a downturn, inventory values can fall sharply.
- Interest rate sensitivity. If central banks cut rates, the cost of carrying inventory falls, potentially encouraging even higher stock levels. If rates remain high, the burden on borrowers increases.
- Data limitations. Many mid-market firms lack the real-time inventory visibility that lenders require for dynamic financing. This creates a gap between borrower needs and lender capabilities.
FY Outlook
The shift from JIT to JIC appears structural for the medium term, but it is not universal. Sectors with stable, domestic supply chains are less affected. Sectors reliant on complex global supply chains are most exposed.
We expect the following developments over the next 12 to 24 months:
- Growth in inventory-linked lending. Asset-based lending volumes for mid-market firms will increase, with fintech platforms capturing a growing share through faster underwriting and real-time monitoring.
- Product innovation. Lenders will offer more flexible inventory financing products, including revolving lines tied to inventory turnover ratios and seasonal adjustments.
- Margin compression for borrowers. Firms that cannot pass higher carrying costs to customers will see margin pressure. Those that can negotiate better payment terms with suppliers or improve inventory forecasting will fare better.
- Consolidation among lenders. Smaller lenders without technology capabilities may struggle to compete, leading to consolidation in the inventory financing space.
Conclusion
The rebalancing from just-in-time to just-in-case inventory management is one of the most consequential working capital trends for mid-market firms in a decade. It increases demand for financing, changes the risk profile of borrowers and creates opportunities for lenders that can adapt their products and underwriting models.
Firms that treat inventory as a strategic asset rather than a cost to be minimised will be better positioned to navigate supply chain uncertainty. Lenders that invest in real-time inventory visibility and flexible financing structures will capture a growing share of the mid-market lending market.
The trend is not without risks, but for now, the direction of travel is clear: more inventory, more financing and more complexity in working capital management.
