What is Just in Time Inventory and Benefits of JIT

In case of disruptions, a JIT model can have a major impact on the business. Kanban is a Japanese scheduling system that’s often used in conjunction with lean manufacturing and JIT. Taiichi Ohno, an industrial engineer at Toyota, developed kanban in an effort to improve manufacturing efficiency. Because Aisin is the sole supplier of this part, its weeks-long shutdown caused Toyota to halt production for several days. Originated by Toyota, the JIT inventory/production system has since become popular with other major manufacturing companies such as Harley-Davidson Motorcycles and Dell Computers. Additionally, the production line can shift to fix quality problems much faster.

  1. A just in time inventory system, or JIT system, is an inventory strategy where raw materials and supplies are ordered and received as they’re needed.
  2. Therefore, they don’t use up raw materials that may or may not actually be necessary to fulfill the orders they have.
  3. Just in time inventory management requires planning and forethought to avoid running into supply shortages.
  4. With JIT, you don’t have to worry about unwanted inventory in the event an order gets canceled or is not fulfilled for any other reason.
  5. Just-in-time inventory improves efficiency by reducing the time and money spent on managing inventory.
  6. This system also helps to keep costs down by avoiding the need to store excess inventory.

Although the company installed this method in the 1970s, it took 20 years to perfect it. And remember, you can start off slowly with a more simple solution and graduate to a more complex strategy as you comfort level increases. Despite the multiple benefits of JIT systems, recent history has shown that this method has its challenges. When considering the costs of housing inventory, it is important to distinguish between value added activities and non-value added activities.

Production Line Flexibility

Since just-in-time requires you to start manufacturing only when an order is placed, you need to source your raw materials locally as it will be delivered to your unit much earlier. Also, local sourcing reduces the transportation time and cost which is involved. This in turn provides the need for many complementary businesses to run in parallel thereby improving the employment rates in that particular demographic.

Disadvantages of JIT Inventory Management

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Disadvantages of Just-in-Time Inventory Techniques

Let’s say you’re running a manufacturing business, and you’ve currently got so much raw material on hand that it’s taking up space on your shop floor and slowing down the production process. To solve this problem, you might opt to use a JIT inventory management technique, like the Kanban system. At the start of the COVID-19 pandemic and its ripple effect on the economy and supply chain, things like paper surgical masks, toilet paper, and hand sanitizer experienced disruption. This was because inputs from overseas factories and warehouses could not be delivered in time to meet the surge in demand caused by the pandemic. Consequently, the manufacturer orders the parts required to assemble the vehicles only after an order is received. By demonstrating a commitment to safety products by adopting a formal inventory management program, manufacturers are sending a strong, positive message to staff about the importance of safety.

If a raw-materials supplier has a breakdown and cannot deliver the goods promptly, this could conceivably stall the entire production line. A sudden unexpected order for goods may delay the delivery a just in time inventory system usually reduces costs for of finished products to end clients. Meeta Kratz, Senior Director, Customer Business Issues, Grainger discusses inventory management and its effects on operational cost in this Q&A article.

In addition, 50 percent or more of an organization’s inventory is “inactive” and is not used in a year’s time, yet the organization must still stock and manage those items. The bottom line is that there is opportunity in nearly all facilities to better manage inventory and to help them achieve their inventory management goals. Our customers tend to use products that turn at a high rate like safety or material handling products in point of use vending solutions.

First, assessing supply chain stability is essential, ensuring suppliers can consistently deliver on time. Operational readiness is crucial; streamlining processes, investing in technology, and training employees prepare the ground for JIT implementation. Understanding demand variability and aligning JIT with stable demand patterns is essential for success. Strict quality control measures and contingency plans for disruptions are vital to maintaining production standards and resilience. While JIT promises long-term benefits, initial costs and the need for a cultural shift within the organization should be weighed.

Retailers such as grocery stores apply JIT principles to restock their perishable goods and consumer products based on real-time sales data, with specific reordering point triggers. These businesses maintain lead production by receiving parts and components of vehicles from suppliers precisely when they are required in the assembly line. Inventory management ensures that the right amount of supply is available to meet customer demand. With the right inventory management systems and processes, the business can accurately predict and meet customer demand. Effective inventory management requires gathering and analyzing data across the supply chain including purchases, reorders, shipping, warehousing, storage, customer satisfaction, asset turnover etc.

However, errors or inventory problems from poor forecasting are realized much sooner with JIT manufacturing. Again, this is due to the much smaller inventory levels for parts used in the production lines. So, if you are considering JIT for your inventory management strategy, you must also ensure that your forecasting is as accurate as possible. The most profound advantage of a just-in-time inventory model is the cost-benefit.

They’ve successfully ordered enough raw materials to produce the goods for Company A, and that is the only order they have for those goods. The model is dependent on suppliers’ performance and timeliness, which are hard to ensure. Additionally, the manufacturer needs to be able to cover any sudden increases in the price of raw materials, since they cannot wait to order during better pricing. When the manufacturer receives the order, they place an order with their suppliers. The suppliers receive the order and then supply the manufacturer with the materials needed to meet the customer’s order.

‘Just-In-Time’ Inventory Management And How It Affects Cost

That means you don’t stockpile products and raw materials just in case you need them—you simply reorder products to replace those you’ve already sold. However, JIC and JIS have potentially higher costs and inventory levels to ensure this level of safety. Inventory management is vital for businesses, impacting finances, operations, and customer satisfaction.

Analyzing and gradually reducing excess inventory while refining demand forecasting ensures smoother alignment with customer needs. Optimizing production processes, emphasizing quality control, and training employees on JIT principles are key components. Starting with a pilot program helps identify challenges and refine processes before full-scale implementation. Continuous improvement, technology integration, and risk mitigation strategies round out the transition, emphasizing adaptability and constant refinement for optimal JIT success. Producing customized computers only after receiving orders minimized inventory and reduced costs. Their close collaboration with suppliers allowed for swift component deliveries, enabling the company to maintain minimal inventory levels.

The Just in Time method involves creating, storing, and keeping track of only enough orders to supply the actual demand for the company‘s products. As an order is received, the production process is triggered, and the materials are ordered for the specific order. Thus, as the order is placed, the materials and goods required are “pulled” through the supply chain. Lean manufacturing is a philosophy that focuses on reducing waste in the manufacturing process. The goal is to make sure that only the necessary steps are taken to produce a product, and that any waste is eliminated. This helps to minimize the amount of time and resources needed to produce a product.

Just-in-time inventory systems are a great way to reduce costs and improve efficiency. A JIT strategy can not only lower your inventory storage expenses but also allow you to spend less at a time on your inventory—freeing up valuable capital to spend on other business https://business-accounting.net/ expenses. Plus, with fewer items on hand, you lower the risk of overinvesting in product you can’t sell. JIT inventory management can eliminate bottlenecks and delays across the entire production cycle, by reducing product defects and automating processes.

Josh Fechter
Josh Fechter is a business strategy consultant and founder. He's written several world-recognized books on software configuration, speaks Spanish, ballroom dances, and owns The Product Company and Squibler.