JIT (JUST IN TIME)

JIT is a Japanese management philosophy that has been applied in practice since
the early 1970s in many Japanese manufacturing organizations. It was first
developed and perfected within the Toyota manufacturing plants by Taiichi
Ohno as a means of meeting consumer demands with minimum delays. The JIT
method is one of the most popular inventory management techniques in the supply
chain sector. It’s based on the principle that inventory is inherently costly, taking
up time, money, and space and that it should only arrive just in time to meet
customer demands. A common goal of inventory management is to have items in
the right place at the right time in the right quantity — in other words, just in time,
no sooner or later.
Using the JIT approach, a business lowers the volume and quantity of inventory on
hand. It usually involves ordering small amounts of inventory they know they can
move quickly and then reordering from suppliers regularly. This can have immense
cost savings because they do not invest in unnecessary inventory or spend more
resources managing items in-store.
This method is also called a pull inventory system because manufacturers and
distributors wait for customer demand to “pull” inventory through the supply
chain. They make new purchases just days before they’re needed for resale or
distribution, meaning inventory spends very little time in storage. It comes with the
inherent risk of stockouts or delays because a supplier lead time delay can result in
inventory arriving late.
Just-in-Time(JIT) technique tries to ensure that there are no zero inventories, and
goods are produced or ordered only when they are needed.. The Just-in-Time
inventory system is all about having “the right material, at the right time, at the
right place, and in the exact amount.”
In the Just-in-Time inventory philosophy, there are views concerning how
inventory is looked upon. Inventory is seen as incurring costs instead of adding
value, contrary to traditional thinking. Under the philosophy, businesses are
encouraged to eliminate inventory that doesn’t add value to the product. This
system sees inventory as a sign of subpar management as it is simply there to hide
problems within the production system. These problems include backups at work
centers, lack of flexibility for employees and equipment, and inadequate capacity
among other things.
Features of Just-in-Time (JIT)
1. Reduce buffer inventory: Buffer inventory exists partly because a manufacturing
workstation may break down and partly due to uncertain supply from suppliers.
When these events happen, production in the following workstation is disrupted
unless there is an inventory on which they can draw. The amount of buffer
inventory can be reduced if steps are taken to minimize machine breakdown
 and improve product quality. The purpose of just-in-time is to ensure that every
workstation produces and delivers to the next workstation the right items in the
right quantity at the right time; if this purpose is achieved there would be no need
for buffer inventory.
2. Decrease set-up costs: With computer-controlled machine tools, setup involves
simply inserting a new computer program into a machine. Thus, after the computer
program has been created, the cost of setting up for all succeeding lots becomes
trivial.
3. Decrease procurement costs: Just-in-time also aims at decreasing procurement
costs. Traditionally, procurement involved issuing requests for bids form many
vendors, analyzing bids, placing an order with the best (usually the cheapest)
vendor, and receiving and inspecting the incoming goods. As per the just-in-time
philosophy companies now reduce the cost of each of these components by
establishing relationships with one or two vendors for each item.
4. Relation with customers: Just-in-time also aims at establishing permanent
relationships with customers for automatic ordering. Some manufacturers have
systems in which their salespersons automatically place orders from retailers or
other customers based on preset formulas that determine reorder time and
quantities; this reduces the customers’ ordering costs and also cements a
relationship between the customers and the manufacturer.

JIT in Cost Accounting

 Inventory Valuation: JIT systems can simplify inventory valuation
methods. With minimal inventory levels, companies can use specific cost
flow assumptions (like FIFO or LIFO) more straightforwardly.
 Cost Control: JIT helps in identifying and eliminating non-value-added
costs. Cost accounting can be aligned to focus on processes that directly
impact production efficiency and waste reduction.
 Budgeting: Budgets can be more accurately prepared based on actual
production needs rather than estimates, leading to better financial forecasting
and resource allocation.
 Variance Analysis: Cost accounting can monitor variances between actual
costs and budgeted costs, focusing on areas affected by JIT practices to
highlight efficiencies or inefficiencies.
 Performance Measurement: JIT provides a framework for measuring
operational performance through key performance indicators (KPIs) such as
cycle time, lead time, and inventory turnover, which are essential for cost
management.

BENEFITS OF JIT
 Reduced Setup
Times

Continuous Supply Improved Flow of Goods

Benefits
of JIT
Efficient Use of Supplier
Employees Relationships

Consistent
Scheduling

 Reduced Setup Times - JIT focuses on streamlining operations, which

includes significantly cutting down the time required to set up processes in
the warehouse. Faster setup times mean that production lines can transition
quickly between tasks, reducing downtime. This efficiency allows the
company to reallocate time and resources to other critical areas, ultimately
improving overall productivity and profitability.
 Improved Flow of Goods - By synchronizing production schedules with
actual demand, JIT enhances the smooth movement of goods from the
warehouse to the shelves. This improved flow minimizes delays and
bottlenecks, ensuring that products are available for customers when needed.
Employees can focus on specific tasks rather than multitasking, leading to
faster processing and reduced fatigue.
 Efficient Use of Employees - JIT systems often require a workforce that is
skilled in multiple areas of the inventory cycle. Cross-trained employees can
seamlessly shift between roles based on immediate needs, ensuring that
labor is utilized effectively. This flexibility is particularly beneficial during
peak demand periods or in situations where there is a temporary shortage of
staff, maintaining a steady operational rhythm.
 Consistent Scheduling - With production closely aligned to demand, JIT
helps establish consistent work schedules. When there is no demand for
certain products, employees can either take a break or be reassigned to other
tasks, thereby reducing unnecessary labor costs. This consistency not only
optimizes workforce utilization but also helps maintain a balanced workload,
which can lead to higher employee satisfaction and reduced burnout.
  Supplier Relationships - JIT relies heavily on the timely delivery of supplies,
which means developing and maintaining strong, trust-based relationships
with suppliers is essential. When suppliers are reliable and responsive, the
risk of production delays due to material shortages is minimized. This
collaborative approach not only improves the overall efficiency of the
supply chain but also strengthens the company’s reputation for reliability in
the market.
 Continuous Supply - JIT systems are designed to keep the flow of materials
constant, ensuring that production lines are rarely idle. This continuous
supply encourages a culture of productivity where every team member is
focused on meeting deadlines and achieving targets. The result is a high-
performance environment that can lead to better job satisfaction, potential
promotions, and incentives for employees—all of which contribute to the
company’s long-term success.

DISADVANTAGES OF JUST-IN-TIME (JIT):

 Supply Chain Vulnerability: JIT depends on suppliers delivering materials
on time. If there are delays or shortages, the whole system can be disrupted.
 Limited Buffer Stock: With only a small amount of extra inventory
available, any supply problem can stop production, leading to lost sales or
delays in fulfilling orders.
 High Coordination Requirements: JIT needs excellent communication and
teamwork both within the company and with suppliers. Keeping everyone
coordinated can be challenging.
 Initial Implementation Costs: Setting up a JIT system can be expensive
because it often requires changes to current processes, new technology, and
staff training.
 Potential for Increased Costs in Emergencies: When there is an unexpected
increase in demand or a supply issue, using quick shipping or other
emergency measures can be very costly.
 Dependence on Accurate Forecasting: JIT relies on good predictions of
customer demand. If the forecasts are wrong, it can lead to production
slowdowns or having too many extra orders.