Warehouse Management System (WMS)

Just-in-time Inventory (JIT): How It Works And Its Advantages

Ngoc Lee
Just-in-time Inventory (JIT): How It Works And Its Advantages
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In general, the just-in-time solution is a great way to save money while enhancing efficiency. This strategy can not only save inventory storage costs but also help you spend less time on inventory, freeing up important money to spend on other company needs. Having fewer items on hand also decreases the risk of having invested in something that will not sell. In this post, we will go through just-in-time inventory in great depth. So, just stay tuned till the end! 

 What is the Just-in-time inventory management system

What Does Just-in-Time (JIT) Mean?

Just-in-time, known as JIT, is an inventory management method in which the products are obtained from suppliers just as they are required. Its goal is to reduce inventory holding costs while increasing inventory turnover. This method assists businesses in lowering inventory carrying costs, increasing efficiency, and reducing waste. JIT requires producers to forecast product demand with exceptional precision. 

 The importance of just-in-time inventory management

What Is the Process Of Just-in-Time Inventory Management?

JIT inventory management ensures that inventory arrives exactly when it is needed for producing or to meet consumer demand, not just before. The objective is to reduce waste and improve operational efficiency. Because the main objective often is quality instead of the lowest cost, just-in-time necessitates long-term cooperation with trustworthy suppliers. 

- Read More: Order Management System: Definition, Process And Value

- Read More: Order management system for Ecommerce: Definition, Key Effect, Benefit

The just-in-time process

 Just-in-time is a type of lean management process. All components of any manufacturing or service system, especially humans, are integrated with JIT. They exchange knowledge and rely on each other for successful outcomes. Companies' ways of adopting JIT in diverse situations may change, but the core steps remain the same. 

First of all, a consumer contacts the company and puts an order. When the manufacturer gets the order, they will place an order with one of their suppliers. The suppliers then confirm the order and send the necessary materials by the manufacturer to satisfy the needs and wants of customers. 

Next, the manufacturer gets the raw materials, gathers them, and sells them to the customers. Finally, when the products are completed, the manufacturer will deliver them to customers.

The Benefits of JIT Inventory Management

We can deny that using the JIT technique in managing inventory can bring to us many great benefits. Among other benefits, here are a few that are notable. 

JIT helps to save money
  • The JIT inventory strategy assists companies in having sufficient inventory on hand to fulfill client requests while maintaining stock levels as low as possible, which leads to organizations’ return on investment (ROI) metric should be high generally.

>> Learn more: What is Production Leveling Strategy? Formula and Example

  • It helps you to save money on inventory storage. The release capacity improves a positive influence on insurance premiums and rent that would be required.
  • Having less inventory on hand allows you greater flexibility with your cash flow. Instead of spending your whole month’s sales on a huge replenishment purchase, you may set aside a tiny amount of your revenues for inventory. It frees your funds up for use on other business expenses.
  • JIT systems can also assist you in reducing inventory risk. Large product orders are risky since there is no assurance that you will sell every item on your shelf. You do not need to worry about expired or out-of-date items. However, if you purchase fewer things at a time, you have more flexibility to discontinue products that are no more selling well.
  • Because this management technique acquires only the necessary products for production, less working capital is required.
  • All commodities produced would be sold since this JIT strategy operates on a demand-pull basis, which allows for unforeseen fluctuations in demand. This makes JIT desirable in today’s market when demand is erratic and variable.
  • It helps businesses increase customer satisfaction as a result of ongoing engagement with the consumer.

- Read More: Real-Time Inventory Management: How It Works And Benefits

Drawbacks of Just-in-Time Inventory Technique

Despite bringing several benefits, the JIT inventory approach has certain limitations that you should be aware of. 

Which-drawbacks-does-the-JIT-inventory-technique have
 Which drawbacks does the JIT inventory technique have
  • JIT inventory management highly depends on precise predictions and strong relationships with major suppliers. It is an issue when any of those fails since there are no backup choices.
  • A supplier who is unable to deliver for whatever reason might interrupt the whole supply chain and disrupt your operations. Additionally, organizations that use stringent JIT inventory management seldom have excess inventory to meet unexpected demand.
  • If a company’s forecasting fails to account for an increase in demand, it will not have enough stock to fulfill those orders. It might lead to reduced costs and customers.
  • JIT inventory management needs the dedication and involvement of everyone in a supply chain and ecosystem. If any portion of the arrangement fails, the whole system is threatened.
  • Some potential risks that you should consider include lack of preparation, supply chain disruptions, missed opportunities, unexpected price changes, order issues, overreliance on the forecast, local sourcing costs, time pressure, undisciplined staff, supplier dependence, and natural impacts.

Disruption Example

A fire at a brake components facility controlled by the business Aisin in 1997 damaged its capacity to make a P-valve part for Toyota automobiles. Toyota’s sole source of this item was Aisin, and the business was forced to halt manufacturing for many weeks. Toyota’s JIT inventory levels caused them to run out of P-valve parts in only one day. This issue has the potential to damage Toyota’s supply chain. 

Luckily, one of Aisin’s suppliers was enabled to retool and begin producing the required P-valves within only two days. However, Toyota lost about 16 billion yen in income and 70,000 vehicles as a result of the fire. Toyota's other suppliers were also affected. Many suppliers were forced to close since the automaker did not require their parts to finish any cars on the production line.

The Techniques Of Using Just-in-time Method

To make processes run more smoothly, the JIT inventory approach employs several strategies. The lean technique emphasizes organization, attention to detail, small batch sizes, increased transparency, cell production, and adopting a pull approach. Let's look at the approaches employed in JIT inventory management.

  • Order: It maintains physical and organizational discipline at all times.
  • Better quality: Avoiding defects through adhering to processes and creating continuous improvements. By prioritizing quality, JIT attempts to ensure that all suppliers, processes, and staff are of the best quality which leads to reducing the possibility of quality control difficulties.
  • Reduced setup time: Developing flexible changeover strategies for when setups must be adjusted to match client demand.
  • Small lot size: One is the optimal lot size in JIT. The tiny size minimizes in-process inventory, handling expenses, and storage space while also making inspection and rework easier.
  • Load uniformity: Leveling is a control system that maintains a constant level daily routine.
  • Flow balance: Flow planning arranges throughput to ensure that energy and labor are distributed evenly.
  • Diversified skills: Cross-trained employees may be dispatched to various locations to keep production flowing.
  • Visibility for control: Your staff is kept up to date on stock levels with communication technologies.
  • Ongoing maintenance: Maintaining a low defect and low-issue environment requires ongoing maintenance and attention to detail, including the machines and tools that the firm utilizes every day. By maintaining regularly, you can avoid problems that can become serious in the future.

- Read More: Days Inventory Outstanding (DIO): Meaning and Formula

- Read More: Work In Process Inventory: Definition, Calculation and Example

  • Use fitness: Just-in-time workspaces tailored to each process increase output. Depending on a master timetable or client demand, one workstation draws production from the one before it as needed.
  • Logical plant layout: Product-oriented design simplifies and increases the efficiency of assembly. JIT prioritizes space use. By grouping comparable items together, you may assure that more manufacturing is completed in a smaller area. It also aims to minimize the distance required for product or material delivery, hence reducing the requirement for storage.
  • Strong supplier network: JIT inventory is the most successful when vendors have strong ties with you. JIT emphasizes decreasing the number of vendors and focusing on solid supplier relationships. Quality items are prioritized, and things are delivered on time.
  • Worker immersion: To attain JIT goals, every team member should be committed to the process and their colleagues.
  • Cell manufacturing: Create an atmosphere in which groups may operate as swiftly as possible to produce many goods as they can while minimizing waste.
  • Pull system: The practice of replacing items after they have been used in manufacturing.

Why Should You Use JIT Inventory Management?

Businesses typically utilize JIT inventory management as a cost-cutting measure. When done effectively, It may generate greater value than traditional approaches that need larger inventory. JIT inventory management lowers waste, boosts cash flow, enhances flexibility, optimizes human resources, and fosters team empowerment. Companies that excel at JIT inventory management optimize earnings by limiting stock investment to a minimum. They manage inventories using data. 

JIT inventory management usage

In conclusion, although just-in-time is a great method, you should consider carefully whether it is suitable for your company before applying it to your warehouse. We would highly recommend the just-in-time techniqeue for established companies with robust supply chain connections and a strong awareness of production cycles and client demand.

Ngoc LeeNgoc Lee is an Content Creator Manager at EFEX. She wields her long-term expertise in Logistics and Supply Chain, harnessing her top-notch writing and research skills to bring incredibly valuable content. Whether you're a small startup or a well-established enterprise, Ngoc Lee is here to equip you with the essential knowledge of e-commerce, fulfillment, and all things business-related.