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Just-In-Time Inventory Management: Guide 2023

JIT inventory system helps you prevent wastage and losses so you can maximize profit. Every business and company can incorporate this technique to optimize its processes. Learn all about just-in-time inventory in this article.

What is JIT?

Just-in-time or JIT is a method of inventory management in which you get the materials you need for production as you need them. This means you do not store goods and make provisions for them to be delivered as soon as you need them. The method targets a reduction in inventory holding costs and increments in inventory turnover.

Just in time is a management philosophy rather than a technique. It was initially about producing products according to the consumer’s demand, in the exact quantity and quality they want. Now it is modified to just-in-time manufacturing, focusing on production with minimal wastage.

Wastage here does not mean materials and resources alone; it also includes waste of time and labor. This concept ensures promptness and accountability with all production processes, which leads to just-in-time delivery. Just-in-time inventory systems can help you recognize processes and materials that are not important and do not add value so you can fine-tune your process and produce with precision.

This method enables you to identify the problems in your production system. When properly integrated into a company, the just-in-time philosophy can increase your company’s reliability and competitiveness in the market.

Just-in-time manufacturing is also known as the Toyota Production System (TPS) because the Toyota manufacturing company created and adopted just-in-time inventory management in the early 1970s. Just-in-time (JIT) manufacturing systems are called lean manufacturing or lean production. It is because, unlike traditional manufacturing methods, Jit focuses on making the amount of goods customers need precisely when they need them, rather than supplying customers with stock.

In this article, we’ll look into the following topics;

1. What is JIT with an example?

2. Brief History of JIT

3. Benefits & Demerits of Just In Time

4. Principles of Just In Time

5. How does just-in-time work?

6. Industries Where JIT is Applicable

Employee performs just-in-time management system in a warehouse

What Is JIT With An Example?

The JIT or just-in-time inventory system is a management plan whose philosophy, or essence, is based on the idea that a company should receive goods when it needs them. This method cuts out inventory costs and requires producers to precisely estimate demand. This way, manufacturers never have unnecessary inventory when an order is canceled or not bought, as items are made on demand.

A great example is a car manufacturer who has the assurance of their supply chain that they will deliver the parts as needed. The car manufacturer then orders the car parts as needed when an order is placed for the car, gets the parts supplied, builds the car then delivers it. This way, the car manufacturers do not have to stock any car parts, pay for storage, or lose money having used to stock the car parts if, eventually, they do not get an order for it.

For a company to effectively use the just-in-time manufacturing method, the company must have a consistent and reliable production system, skilled workmanship, and dependable suppliers. The consistent and reliable production line ensures that the goods can be made glitch-free in the amount of time scheduled before just-in-time delivery. Skilled workmanship is also needed to ensure that the goods are made as skilled and neatly as possible.

When everything is in place for production, your dependable suppliers guarantee you have all you need to make the goods. Another example of just-in-time manufacturing is the Toyota Motor Corporation, which orders parts only when they get new car orders.

Brief History About JIT

JIT is a Japanese management philosophy that has been practiced since the early 1970s. The just-in-time inventory system was brought to life by Taiichi Ohno in the Toyota manufacturing plants. This was because they wanted to satisfy and meet customers’ demands with little to no delay. Taiichi Ohno is popularly referred to as the father of JIT.

Toyota made a name for itself with this philosophy focused on its customers and processes. Toyota cracked the code and realized that this philosophy would only work if everyone within the plant were committed to the JIT philosophy.

Additionally, arranging their plant and systems for maximum production and efficiency is key to making this philosophy work. This means their system would never break down when used, and their quality would always be up to standard.

Benefits of Just In Time

There are more benefits of the just-in-time inventory management philosophy than demerits. It also has the edge over other conventional models. The just-in-time inventory system makes you have the most efficient and reliable production process, asides that, this method is also;

  • Cost-effective as it avoids overproduction and waste
  • This philosophy strives for continuous improvement, making your products the best of the best.
  • Fosters great supplier relationships as they are the backbone of your process.
  • It decreases wait time and manufacturing time
  • It reduces the costs of storage
  • Makes judicious use of resources by optimizing the production system
  • It helps you avoid having capital tied up in stock
  • Reduced defects on goods as all the parts are accounted for from trusted and verified just in time supply chain

As good as the JIT philosophy is, it’s not without some demerits.

  • Jit may put your business at risk of being unable to fulfill some orders if your supply chain defaults. Having no stocks to rely on may be catastrophic for your company as you won’t have anything to make do with.
  • One little hiccup with one of your supply chains could mess up the whole process.
  • If you wrongly forecast demand, you may have less stock than you need, impeding production.
  • If there is sudden demand, it may be hard to keep up as the company may be unequipped for unexpected demand.
  • You may trust your just-in-time supply chain but have zero control.
  • It increases the possibility of losing a sale due to the inability to meet up.

Principles of Just In Time

The main principle and objective of just-in-time inventory management are to eliminate wastage. Toyota’s Fujio Cho sees waste as anything other than the needed, minimal amount of equipment, materials, parts, and workers required for manufacturing. The 7 types of waste they hope to put an end to are:

  • Processing waste
  • Waste due to idling time of machinery
  • Waste due to product defects
  • Waste of motion or faulty working techniques
  • Waste related to transportation
  • Waste from overproduction
  • Inventory waste

There are five principles under the JIT concept, which are:

  • Total quality control and continuous improvement: attaining the highest quality is one of the significant principles of the JIT philosophy. This principle involves finding the faults and correcting them in the manufacturing process. The production line is committed to rectifying errors as it makes quality control a part of the manufacturing process, not an activity to be done after manufacturing. If an error is spotted, production is discontinued, and the mistake is rectified, after which production is continued.
  • Elimination of waste: Just in time philosophy employs tools like total quality management, consistent quality improvement, focused factory, decreasing setup times, flexible resources, group technology layout, and pull production system to reduce wastage.
  • Kanban/pull system: The kanban system is a principle of the JIT inventory management at the Toyota Production System (TPS). This system aims to schedule work so little to no time is wasted from beginning to end. It does so by reducing the amount of work to be done to what can be managed now, so the workers are not underworked or overworked. This improves the overall efficiency of the manufacturing process.
  • Uninterrupted workflow: one of the principles of the Just-in-time is simplifying processes to ensure alacrity and efficiency. This principle ensures that the resources used in the manufacturing process are simplified to guarantee that there is no excess of any kind that may cause problems or interrupt workflow.
  • Top management commitment and employee involvement: one of the JIT principles is the involvement and respect of employees, customers, suppliers, or management. The success of this philosophy relies on knowing precisely what the customer wants and delivering just that in the best way. It also depends on having great relationships with suppliers to provide the needed components when needed. Employees are essential in this whole process as they’re the backbone the company needs to guarantee its smooth running.

Inventory clerk organizes via tablet in warehouse

How does just-in-time work?

The just-in-time inventory management method is over in which you do not keep stock at hand and only keep what you need. If more is required, you reorder them. This means you don’t keep extra raw materials for when you may require them; you only stick to the amount you need and order more when you run out. If you want a regular supply of goods yet do not want your money tied up in inventory, this method may be just what you need.

The trick is to forecast demand and then predict the number of products you’d need so you don’t have more or less. Then you reorder as you run out, not sooner or later. If the products come before you run out, you may not have the storage for them; if it comes later, you may already be out of stock.

When properly implemented, the JIT method can help business owners cut out the cost of storing resources and also help keep products fresh. Although this method could fall apart without a proper and prompt product production process and a reliable just-in-time supply chain. This method will definitely increase the profitability of your company.

Industries Where JIT is Applicable

Although the JIT method has been in use since the 1970s and is still influential today, businesses have proven how efficient the method could be in streamlining your business. This method is particularly popular with small businesses and big corporations as it improves cash flow and more strategic use of cash. This method is helpful for companies that do not have too much capital to spare. This method can help put the business in motion even when money is limited. A reputable retailer like Walmart does the JIT method with their seasonal merchandise, so it arrives just as customers start making demands for it.

As the season goes to an end, the shelves are cleared to make space for the new season’s goods. An industry like the food industry is characterized by using this method: Companies like McDonald’s, Domino’s Pizza, and Burger King… use the jit method. BK keeps a considerable amount of hamburger ingredients at hand, but when an order is made, that’s when the burger is made. This means that they can brag about their food’s freshness and prevent waste. They refill as they start running out of ingredients.

Other industries that use the JIT method are the on-demand publishing industry, car manufacturers, Dell, and service-based industries like express mail. Most companies often adopt just-in-time inventory management methods as a cost-cutting strategy. But when properly implemented, this method could benefit and improve you.

Inventory organizer analyzes his goods in the warehouse

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