Inventory management is a critical function for businesses in many sectors. If businesses are unable to manage their inventories properly, it can cause numerous problems. From financial losses to unsatisfied customers, improper handling can have far-reaching consequences. Therefore, to make your supply chain effective, businesses need to find ways to manage their inventories efficiently.
That is where just-in-time (JIT) inventory management comes into the picture. Developed in Japan as a response to the country’s limited natural resources, JIT inventory management ensures minimal wastage.
Just-in-time inventory management is a business model that allows businesses to follow a lean methodology to streamline inventory handling. JIT inventory management is not only used by many companies, but also influences other lean inventory management technologies, such as Continuous Flow Manufacturing (CFM).
What is just-in-time inventory management?
The JIT inventory management model was introduced by Toyota – which is why it is also called the Toyota Production System (TPS). JIT works on the principle in which raw material orders are aligned directly to the manufacturer’s production needs and schedules, thereby significantly reducing the costs associated with holding inventory. What it means is this – you receive the raw materials only when you need them during the manufacturing process. There is no need to stockpile goods.
For example, an automobile manufacturer that uses a JIT system can efficiently produce cars even on a low inventory because it relies on its suppliers that provide goods on an as-needed basis. Just-in-time inventory management is diametrically opposite to the age-old just-in-case strategy. In the just-in-case model, manufacturers keep enough inventory of goods at all times to meet the anticipated market demands.
Advantages and disadvantages of a just-in-time system
When you get your JIT right, it can have many positive effects on your operations. But like any other model, it also has some drawbacks. When you don’t execute a JIT in the right manner, it can cause serious supply chain disruptions. SPS Commerce provides the following advantages and disadvantages of a just-in-time system.
- Lowered inventory costs – Keeping less inventory on hand equals lower labor and storage expenses that were once necessary to store and manage inventory.
- Larger Open-to-Buy Budget – Ability to spend on other items you might not have the budget for without a JIT approach.
- Fewer markdowns: Reduction in need to offload unsold products using markdowns. Resources can be re-allocated to pursuing growth-oriented opportunities.
- Late Deliveries resulting from poor communication – For JIT to work, deliveries need to arrive ‘just in time.’ This level of synchronization and communication requires tightly integrated systems and active vendor/partner management.
- Imprecise forecasting risk – JIT inventory needs accurate forecasting of expected customer demand, but if these calculations are wrong, as in the case of a stock-out, you could risk losing sales.
Examples of companies that have put JIT into action
Businesses across all verticals use JIT inventory management to streamline their operations. The following companies represent the best-known examples.
Apple – The consumer electronics leader keeps very little inventory on hand. Because Apple maintains minimum inventory volumes, it is at a lower risk of overstocking. According to Apple CEO Tim Cook, “Inventory is fundamentally evil. You kind of want to manage it like you’re in the dairy business. If it gets past its freshness date, you have a problem.”
Kellogg’s – The world’s leading cereal manufacturer uses a just-in-time inventory management system to efficiently manage its stocks. It manufactures strictly to meet orders and maintain limited stocks because its products are perishable.
Zara – Zara is a “fast-fashion” chain that owns its supply chain and is capable of quickly bringing in new items to the market. The brand believes in maintaining low inventory supplies, manufacturing only 15% to 20% of a season’s line six months in advance. By the start of the season, they lock in only 50% to 60% of their line. In the case of an unexpected spike in demand in one or a few of its styles, they quickly design new styles and get them into stores to meet the demand effectively and cash in on the changing customer preferences.
DocuServe – your experienced, trusted partner in supporting JIT solutions
At DocuServe, we have been dedicated to the just-in-time manufacturing philosophy for over 20 years. In fact, we developed a content delivery platform called eServe just to address the need for the additional e-learning solutions that making the transition to JIT demands.
Since 1994, we have developed strong and supportive partnerships with our clients worldwide-helping them streamline their operations, their training and (in turn) their profits. Contact us if you want to know how we can do the same for you.