You should find answers to what is just-in-time if your inventory management processes take up a lot of your time. Many industries value inventory as an asset. If your business too, relies on inventory to boost revenue and grow sales, then the JIT inventory method will help you by increasing inventory efficiency and profitability.
Let's dive in deeper and understand what is just-in-time inventory, and how JIT inventory management works. This article also provides valuable information on the advantages and disadvantages of the just-in-time (JIT) inventory method along with an example.
What Is Just-in-Time (JIT)?
Just-in-time is an inventory management technique, wherein the business closely coordinates with suppliers, so raw materials arrive in time for
production
to begin, but no sooner or later. The ideal scenario would be for inventories to be kept at a minimum so that the business is able to meet its demands adequately.
When a reliable supply chain and accurate demand planning system are in place, JIT proves to be very beneficial. Before you implement a just-in-time inventory management system, it is critical to verify that your existing inventory management operations are compatible with this method. This is because JIT demands accurate and updated sales forecasts and other data to avoid any potential risks.
Importance of Just-in-Time (JIT)
Having understood what is just-in-time inventory, let's see why it's important. Since each process in a JIT inventory system is monitored in real-time, errors can be reduced, and efficiency can be increased. These systems have the following significant effects:
Reduction of inventory waste
Inventory waste can be a huge burden for businesses, both in terms of the cost of the inventory itself and the opportunity cost of not having that money available to invest elsewhere.
Just-in-time inventory management can help reduce inventory waste by ensuring that inventory is only ordered and produced as needed rather than being stockpiled in advance. This can help businesses save money and free up cash flow to invest in other areas.
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Reduces the costs of storing goods in warehouses
Inventory carrying costs can significantly affect a company's operating expenses and may account for a considerable portion of the company's total inventory value. Therefore, it is necessary that companies find ways to reduce such carrying costs effectively.
One way to do this is by adopting a just-in-time inventory management system. In JIT systems, inventory is ordered only as it is needed, rather than being stocked in advance. This reduces the amount of time that inventory is sitting idle, which in turn reduces holding costs.
Ensures greater control for the manufacturer
Just-in-time production gives manufacturers more control over their inventory. By producing only what is needed, when it is needed, manufacturers can avoid the cost and hassle of storing excess inventory. In addition, just-in-time production can help manufacturers respond quickly to changes in customer demand.
Sourcing locally
Using just-in-time inventory manufacturing, you can begin manufacturing immediately after an order is placed by sourcing raw materials locally, which are easier to obtain. Local sourcing is more efficient and saves time and money. Consequently, many complementary businesses in the ecosystem can operate parallelly to improve employment rates in the sector.
Smaller investments, higher savings
Smaller investments in inventory can lead to significant savings. Just-in-time inventory management is a system where businesses only order the amount of inventory they need when they need it. This allows businesses to avoid the costs associated with carrying excess inventory, such as stockroom fees and the opportunity cost of tying up capital in inventory that could be used elsewhere.
Shorter lead times
Shorter lead times are essential for businesses because they result in lower inventory levels, associated costs, and improved customer satisfaction. The just-in-time production process allows businesses to produce goods only as needed, which reduces waste and improves efficiency. In addition, shorter lead times can help businesses respond more quickly to changes in customer demand. For just-in-time delivery, the entire supply chain must be carefully planned, and superior software must be used to automate the entire process.
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How Does Just-in-Time (JIT) Work?
Using a just-in-time inventory system can reduce inventory and maximize efficiency. The JIT production system allows manufacturers to avoid storage fees since parts and materials are delivered only when the need arises. In addition, canceled or incomplete orders do not leave manufacturers with unwanted inventory.
For example, a car manufacturer, which has low inventories and relies heavily on its supply chain, uses just-in-time inventory to build cars on a need-by-need basis. Only after receiving an order from the manufacturer, the manufacturer orders the necessary parts for assembly.
However, businesses must note that just-in-time inventory manufacturing is successful when suppliers are reliable, machinery is trouble-free, and the production is steady.
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Advantages and Disadvantages of JIT
In this section, we will explore the key advantages and disadvantages of just-in-time inventory.
Advantages of Just-in-Time
Waste reduction
With the just-in-time inventory method, excess inventory, and overstock can be removed quickly, saving you money and space. Low production volume will also make identifying and resolving defective products easier, reducing losses.
Maximizing productivity
Using just-in-time inventory management techniques reduces manufacturing time and resource consumption, thus enhancing productivity. Profitability is a direct result of productivity. The more products your business is able to sell, the more profitable it becomes.
Quality improvement
When you manage your inventory using the JIT production process, you keep fewer items on hand. By doing so, you can sell the highest quality products, free of defects, and exceed your customers' expectations.
Prioritizing flexibility
Your just-in-time inventory system will be more flexible if you order fewer products more frequently. Addressing customer behavior and demand trends on time with JIT inventory management can set you apart from your competition.
Disadvantages of Just-in-Time
An increase in inventory costs
If not planned properly, small, frequent orders may turn out to be more expensive than a bulk order now and then. This may lead the just-in-time inventory system to potentially reduce your profit per sale.
Disruptions in supply chains
A back-ordered product or natural disaster may disrupt your supply chain. In such cases, the just-in-time inventory management system can be hampered, and money can be lost due to these disruptions.
Inventory runout risk
To make just-in-time inventory work, it is necessary to track sales accurately and predict customer demand. If you fail to do so, you may have trouble replenishing products as quickly as you sell them.
Staffing issues
Due to the just-in-time inventory system being a relatively novel concept, your employees may not be accustomed to what is just-in-time inventory, which could affect their productivity. If this is not aligned in advance, it can hinder the growth of your business.
Example of JIT
A toy manufacturer that experienced a disappointing fiscal year has implemented just-in-time inventory systems to order plastic components in bulk. Toy manufacturing companies determine how much supply is required per month for a single toy line based on consumer expectations and procedures.
Previously, it was a generally accepted practice to place an order for six months' worth of stock, plus additional stock stored in a warehouse until needed. But with the just-in-time (JIT) inventory method, storage warehouses are no longer needed. Rent and property taxes are no longer due for those facilities.
The toy company no longer needs several large trucks, so they sell half of their shipping fleet. There was a significant reduction in gas costs, payments, and other fleet fees. The toy company became more profitable within six months of implementing these cost-cutting measures.
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Making Production Seamless With TranZact
Keeping inventory levels under control is a challenge for business owners. Since they have to keep track of so many data points, maintaining spreadsheets and performing hours of calculations is time-consuming.
With TranZact, you get more than an ordinary ERP system. With this tool, you can manage your inventory and monitor the entire sales and procurement cycle from beginning to end. The tool will assist businesses in automating their activities and reducing their costs. TranZact can be integrated with Google Sheets, Tally, BUSY, and other platforms to enhance your business growth.
FAQs on Just-in-Time
1. How does just-in-time inventory management improve businesses?
Just-in-time inventory management improves businesses by minimizing inventory holding costs, reducing waste, and improving cash flow through a more efficient supply chain.
2. How does JIT contribute to quality improvement?
JIT encourages a culture of continuous improvement, where employees are empowered to identify and address quality issues. By fostering a mindset of ongoing improvement, JIT enables organizations to continuously enhance their processes, products, and quality standards.
3. What does just-in-time inventory mean?
Just-in-time (JIT) inventory refers to a management strategy where inventory is received or produced only when it is needed, minimizing excess stock and maximizing efficiency.
4. What are the 4 steps in the JIT process?
The four steps in the JIT (Just-in-Time) process include sourcing, production, delivery, and continuous improvement. These steps involve efficient procurement, synchronized production, timely delivery, and ongoing optimization to eliminate waste and enhance productivity.
5. What are the 4 key characteristics of JIT?
JIT (Just-in-Time) aims to reduce inventory levels, match production with customer demand, foster a culture of continuous improvement, and establish strong relationships with suppliers for timely and quality deliveries.
6. Can JIT be applied in service industries?
Yes, JIT principles can be applied to service industries such as healthcare, hospitality, and transportation to improve efficiency, reduce waste, minimize costs, and enhance customer satisfaction.
7. Is just-in-time manufacturing risky?
The just-in-time inventory system or lean manufacturing process also exposes businesses to certain risks, especially those related to the supply chain. One supplier's disruption of supplies could force your business to stop production at very short notice if you have no stocks to fall back on.
8. What types of companies use JIT?
Just-in-time inventory has benefited several industries, including manufacturing, retail, dining establishments, technology manufacturers, publishing on demand, and the automobile industry.
