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Just-in-Time (JIT) is an inventory management method that minimizes holding costs by receiving goods only as needed, enhancing efficiency and reducing waste. While it offers benefits like lower warehouse costs and greater control over production, it also presents challenges such as dependency on supplier performance and difficulties in reworking orders. Successful implementation of JIT requires careful planning and the use of advanced software to manage the process effectively.

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3 views

httpswww.zoho.cominventoryguides-inventorywhat-is-just-in-time.htmlamp

Just-in-Time (JIT) is an inventory management method that minimizes holding costs by receiving goods only as needed, enhancing efficiency and reducing waste. While it offers benefits like lower warehouse costs and greater control over production, it also presents challenges such as dependency on supplier performance and difficulties in reworking orders. Successful implementation of JIT requires careful planning and the use of advanced software to manage the process effectively.

Uploaded by

Aman Patni
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Essential Business Guides

What is Just-in-Time (JIT)? |


Just-in-Time Inventory
management
Smuruthi Kesavan 3 years ago

Reading Time: 3 minutes

What is Just-in-Time (JIT)?


Just-in-time, or JIT, is an inventory management
method in which goods are received from
suppliers only as they are needed. The main objective
of this method is to reduce inventory holding costs
and increase inventory turnover.

Importance of just-in-time
Just in time requires carefully planning the entire
supply chain and usage of superior software in order
to carry out the entire process till delivery, which
increases efficiency and eliminates the scope for error
as each process is monitored. Here are some of the
important effects of a just-in-time inventory
management system:

Reduces inventory waste

A just-in-time strategy eliminates overproduction,


which happens when the supply of an item in the
market exceeds the demand and leads to an
accumulation of unsalable inventories. These
unsalable products turn into inventory dead stock,
which increases waste and consumes inventory space.
In a just-in-time system you order only what you
need, so there’s no risk of accumulating unusable
inventory.

Decreases warehouse holding cost

Warehousing is expensive, and excess inventory can


double your holding costs. In a just-in-time system,
the warehouse holding costs are kept to a minimum.
Because you order only when your customer places an
order, your item is already sold before it reaches you,
so there is no need to store your items for long.
Companies that follow the just-in-time inventory
model will be able to reduce the number of items in
their warehouses or eliminate warehouses altogether.

Gives the manufacturer more control

In a JIT model, the manufacturer has complete


control over the manufacturing process, which works
on a demand-pull basis. They can respond to
customers’ needs by quickly increasing the
production for an in-demand product and reducing
the production for slow-moving items. This makes the
JIT model flexible and able to cater to ever-changing
market needs. For example, Toyota doesn’t purchase
raw materials until an order is received. This has
allowed the company to keep minimal inventory,
thereby reducing its costs and enabling it to quickly
adapt to changes in demand without having to
worry existing inventory.

Local sourcing

Since just-in-time requires you to start manufacturing


only when an order is placed, you need to source your
raw materials locally as it will be delivered to your
unit much earlier. Also, local sourcing reduces the
transportation time and cost which is involved. This
in turn provides the need for many complementary
businesses to run in parallel thereby improving the
employment rates in that particular demographic.

Smaller investments

In a JIT model, only essential stocks are obtained and


therefore less working capital is needed for finance
procurement. Therefore, because of the less amount
of stock held in the inventory, the organization’s
return on investment would be high. The Just-in-time
models uses the “right first time” concept whose
meaning is to carry out the activities right the first
time when it’s done, thereby reducing inspection and
rework costs. This requires less amount of investment
for the company, less money reinvested for rectifying
errors and more profit generated out of selling an
item.

How does just-in-time work?

The above image shows how a just-in-time model


works. First, a customer places an order with the
manufacturer. When the manufacturer receives the
order, they place an order with their suppliers. The
suppliers receive the order and then supply the
manufacturer with the materials needed to meet the
customer’s order. The raw materials are then received
by the manufacturer, assembled, and sold to the
customer.

Drawbacks of just-in-time
Even though the just-in-time model saves a lot of
costs for businesses that use it, it also has a few
drawbacks:

1. Just-in-time makes it very difficult to rework


orders, as the inventory is kept to a bare minimum
and only based on the customers’ original orders.

2. The model is dependent on suppliers’ performance


and timeliness, which are hard to ensure.
Additionally, the manufacturer needs to be able to
cover any sudden increases in the price of raw
materials, since they cannot wait to order during
better pricing.

3. Since the JIT model requires a lot of shipping back


and forth between the supplier, manufacturer, and
customer, it can have detrimental effects on the
environment due to over consumption of fossil fuels
and packaging.

4. In case of disruptions, a JIT model can have a


major impact on the business. Since there is no excess
stock to fall back on, sales may come to a halt.

5. A just-in-time system needs to be carefully tracked


and organized, which will be hard if you are doing it
manually. Softwares should be adopted as it makes
the whole process more manageable. Even though a
good software help you it can be a bit tricky and/or
expensive to adopt a new software system and train
your personnel accordingly to use the same.

Therefore, just in time saves you a lot of costs which


would otherwise be tied up as inventory holding cost.
At the same time just in time should be executed
carefully so that your business does not face loss in
times of unpredictable events.

Categories: Guides, Inventory Management

Tags: inventory, inventory management, just-in-time,


warehousing

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