Just-in-time inventory is an effective inventory management system used globally. It utilizes the advancement of software technologies to simplify and optimize the supply chain system (order processing, production, stocking, and delivery) by scheduling the required stock only at the right time to meet the demand without incurring inventory handling and holding costs. This ultimate guide will let you dive deeper into the insights and numerous benefits of JIT (Just-in-time inventory).
Table of contents
- How Does Just-in-Time Inventory Management Work?
- Steps in Cycle of Continuous Improvement for JIT Inventory
- Less wastage
- Improved efficiency and flexibility
- Optimized equipment usage and space
- Reduced errors and reworks
- Bring down unnecessary labor and wastage
- Superior relationship with customers and suppliers
- Lack of preparedness
- Supply chain interruptions
- Missing immediate & potential opportunities
- Lack of material availability locally
- Supplier over-dependency
- Pull method
- High-quality
- Small lot sizes
- Short setup times
- Close supplier ties
- Flexible workforce
- Standardization
- Uniform work loads
- Product focus
- Preventive maintenance
- Automation
- What is JIT inventory
- Who uses just-in-time inventory management
- What is the purpose of JIT?
- Give an example of JIT
- What companies use JIT inventory management?
How Does Just-in-Time Inventory Management Work?
What is JIT (Just-in-time inventory)? JIT inventory is a meticulously planned supply chain management system for efficiency to reduce errors and stock handling expenses. It lets you order and receive materials only when it is needed.
The ultimate workflow of JIT inventory is the same in every organization and industry. A customer approaches the manufacturer and places an order. Upon order confirmation, the manufacturer requests raw materials from their regular suppliers. The suppliers acknowledge the order and supply the materials back to the manufacturer. The manufacturer receives the order, processes the materials, assembles or creates the final product, and then sells it to the customer. The customer receives and reviews the product.
JIT inventory is a lean management process that allows companies and organizations to succeed through interdependence and collaboration. They engage in successful long-term partnerships and contracts to boost operations and efficiency. The original ideology of JIT was found by the Japanese in order to cut down costs and enhance superiority.
Steps in Cycle of Continuous Improvement for JIT Inventory
JIT inventory undergoes continuous improvement to eliminate waste (Including all resources, time, energy, materials, and others) and increase efficiency. Companies tweak JIT inventory to improve the quality and reliability of their products. Business giants like Apple, Tesla, and Xiaomi are Just-in-time examples. Other JIT inventory examples include Toyota, Kellogg’s, Zara, Harley Davidson, Amazon, Dell, Nike, Etc.
JIT inventory system focuses on designing, redefining, managing, building, refining, and reviewing the processes constantly for continuous improvement for quality and reliability. The cycle of continuous improvement for JIT inventory is based on;
1. Design
The genesis of the JIT process starts with a brief of the necessary manufacturing building elements like product design, process design, and manufacturing planning. These plans are then put into action to negate disruption, reduce waste and build a seamless system.
2. Manage
Total Quality Management review ensures consistent growth through the course of the action. A management review decides the roles and functions of the worker, plans out schedules and checks out load points and capacity level.
3. Pull
Bring awareness about production and withdrawal to the team.
4. Establish
Establish quality relationships with vendors. This is essential for JIT. Review a list of suppliers and go with the one that suits best for your business module. Talk about contracts, lead time, and your expectations with them. Learn how to run your supply chain to its best abilities.
5. Fine-tune
Find out what is essential to be in inventory, revise policies, controls, and limit movement of stock.
6. Build
Educate your team about the skills and functions that need to practice and inculcated. Work as a team and empower them from the standpoint of a leader.
7. Refine
Simplify your process, limit the number of levels in the production process and review the entire process to make it confined.
8. Review
Have standard metrics to measure issues. Analyze issues and find root causes. Aggressively move to improve every element of JIT.
JIT inventory focuses on eliminating wastage of any sort to improve quality and operational efficiency. Companies achieve the optimal efficiency and effectiveness of JIT inventory by designing ways to stop wastage and minimize deficiencies. It then manages and maintains the ideal level of quality, production schedules, load capacities, and user roles and responsibilities.
They implement Kanban methodology to train employees on production and withdrawal practices. JIT allows the companies to review the vendor relationships, optimize delivery time, and empower the production team for efficiency. JIT inventory helps companies to refine their operations and systems. It improves the whole process and standardizes the supply chain activities.
Why Use Just-in-Time Inventory Management?
JIT inventory is a cost-cutting strategy that has been widely accepted and popularized in recent times. It helps companies eliminate waste, reduce errors, improve efficiency and maximize profit. Companies often incur losses due to excess stocks of unused stocks that result in production uncertainties and chaos.
JIT is an inventory management system that helps companies reduce costs associated with inventory handling and bring control to the manufacturing process. JIT inventory enables the company to hold minimal stock on an as-required basis to reduce inventory management costs. It, therefore, ensures reduced material wastage, increased efficiency, and defect-free products, and eliminates any wastage associated with inventory handling. It also allows businesses to analyze the market and sales better, and forecast the demand accurately.
Companies use a Just-in-Time inventory management system to be very accurate with the production and reduce any unnecessary cost. JIT Inventory is a successful methodology designed in Japan to eliminate wastage and maximize profitability. It is a system that guarantees ROI (Return on Investment) and improves the cash flow.
Benefits of Just-in-Time Inventory Management
There are several Just-in-Time inventory benefits. Toyota is a perfect Just-in-Time example that believed in the process. They understood that if they prepare their manufacturing plant for maximum efficiency and every employee in Toyota put their undivided commitment in their respective job, they could be successful.
Benefits of JIT inventory include;
Less wastage
The JIT inventory management model eliminates excess inventory and overstock. You can have low inventory levels, significantly reducing the risk of inventory going unsold and sitting unused in the warehouse. You can also minimize the losses incurred due to defective products by easily identifying and addressing defective inventory items when production volumes are low.
Improved efficiency & flexibility
The JIT model reduces the costs of procuring, managing, and storing excess raw materials and inventory. This results in a higher inventory turnover which in turn prevents inventory from sitting in your warehouse for too long and becoming obsolete. You can also receive and store deliveries in the smallest possible quantities, virtually eliminating excess raw material inventories. Local sourcing ensures that your suppliers are located near your company’s production facilities, enabling timely deliveries and reducing the need for safety stock.
Optimized equipment usage and space
JIT inventory management can eliminate bottlenecks and delays across the entire production cycle, by reducing product defects and automating processes. Shorter production cycles enable on-time deliveries and increase customer satisfaction. JIT production scheduling ensures that jobs are scheduled exactly when they are needed, meaning that your production runs start and end just in time for shipping.
Reduced errors and reworks
Production mistakes can be spotted faster and corrected, which results in fewer defective products.
Bring down unnecessary labor and wastage
As it requires very low inventory levels, JIT inventory reduces the working capital required for inventory purchases as well as storage costs. Your business can purchase raw material only when needed, so any available cash can be better utilized by the company. Labor costs are also lower as fewer factory workers are required in JIT manufacturing as compared to full-time production.
Superior relationship with customers and suppliers
JIT inventory management involves having fewer items moving on the shop floor at any given time. This allows your management to focus on optimizing processes and building high-quality products. High-quality products with fewer defects improve customer satisfaction and reduce wastage. In the JIT manufacturing model, suppliers guarantee the quality, so the deliveries go directly to production and avoid any delays due to inspection.
Due to the dynamic and agile manufacturing process, companies can be more flexible by optimizing the utilization of equipment and labor, and by shortening the turnaround times. It helps them focus more on marketing, sales, and customer acquisition than spending time on dealing with product defects, excess stocks, and uncertain production processes. It will allow the production plan to free up machinery and equipment for new work orders and schedule work with accuracy.
Reduced rework and more time, space, and energy for future orders are some of the benefits of JIT inventory. Accurate forecasting and demand prediction lets companies build a better relationship with suppliers and customers and improve product quality and reliability.
Just-in-Time Inventory Methodology
JIT inventory is a methodology that enables businesses to keep the right quality of stock to meet the immediate supply demand by creating, stocking, and handling the supply chain systematically. It uses the lean manufacturing method to optimize the entire supply chain process and pay attention to the details.
JIT methodology evolves around the technologies that bring in discipline and control in the manufacturing process. It helps eliminate wastage, reduce defects, maximize profitability, amplify efficiency and meet the customer demand effortlessly.
Better order processing, improved quality, reduced downtime, small lot sizes, uniform production process, flexibility, production control, transparency, and sturdy supplier network are some of the techniques used in Just-in-Time inventory methodology.
Disadvantages of Just-in-Time Inventory
Despite the numerous advantages it offers, this money-saving mechanism has several cons that disrupt the efficiency of the operations.
Lack of preparedness
JIT inventory management requires organizations to closely watch the current sales trends. Companies don't have a sale going on all year long, and you have to be ready to meet sale demands at any time and plan with your suppliers to be able to fulfill customer needs.
Supply chain interruptions
Any disruption in the supply chain can affect the production process and cause troubles to your business's selling process.
Missing immediate & potential opportunities
Sometimes, you can meet great opportunities, and you might not be ready with the goods to fulfill your needs. This can be a disadvantage to your business and is something to keep in your mind.
Lack of material availability locally
JIT Depends more on local sourcing, which can cost more for specific reasons. This reliance on local sourcing can at times affect profitability.
Supplier over-dependency
Choosing a good supplier is a must and a supplier who does not deliver products on time is a hassle to deal with. This can disrupt the entire production process and brings things to a halt.
Implementing JIT inventory in a company is a complex task as you need to train and educate your staff to comply with the new policies and control measures. You may need to redesign and strategize the entire workflow from order processing to delivery and customer satisfaction. JIT allows you to keep only the essential stocks. It can be challenging when there is a sudden order for larger quantities.
What are the Characteristics/Aspects of Just-in-Time inventory?
JIT inventory management system is a tool to streamline the entire production process and supply chain management activities. It is a mechanism that ensures proper communication and effective operations at the right time to produce the right quantity of work, eliminating errors, defects, and production losses.
The major characteristics of the JIT inventory system are as follows
Pull Method
This method allows the production unit to trigger production and stocking only after the confirmation demand from the customer or a new order.
High-quality
The essence of JIT inventory is to maintain a constant level of quality to eliminate any defects or reworks.
Small lot sizes
JIT inventory makes it easier for production units to manufacture small lot sizes to meet the demand than producing excess stock that may incur additional costs.
Short setup times
JIT ensures continuous workflow and production without interruptions. Therefore, it is best suited for small scale enterprises
Close supplier ties
IT enables companies to enter in terms with local suppliers and vendors, improving the relationship to source quality materials on time without interruption.
Flexible workforce
Once accustomed to the change, labor will also be happy with their work. They will be more organized and committed to delivering quality from their end.
Standardization
The vital advantage of JIT inventory is the standardization of the processes. JIT helps you streamline and standardize sourcing, procurement, quality, components, delivery, and other operations for maximum productivity.
Uniform workloads
JIT facilitates uniformity in the production process. Therefore, the production plant will always be available and ready for the next orders. It helps optimize the production levels and maintain the balance.
Product focus
The ultimate focus of JIT inventory will be to maintain a desired level of quality and to deliver high-quality products without defects and production loss.
Preventive maintenance
JIT inventory creates fixed schedules for production, thereby providing frequent intervals for repairs and preventive maintenance. It will ensure continuous workflow and production without losses.
Automation
Automation is the biggest advantage of the JIT inventory management system. It helps automate all the production processes based on the designed workflow or triggers. It, therefore, eliminates all interruptions, downtime, and delays in the manufacturing process.
FAQs
Let’s see the most frequently asked questions about JIT and understand them.
What is JIT inventory?
JIT is an inventory management system that streamlines and standardizes the manufacturing and supply chain process by ensuring the right stock at the right time and eliminating unwanted costs for material stocking and handling. It is designed to improve efficiency and reduce expenses by eradicating errors and defects.
Who Uses Just-in-Time Inventory Management?
JIT inventory examples are giant businesses like Apple, Tesla, Toyota, Harley Davidson, Kellogg’s, Zara, and more. It is a Japanese methodology widely accepted by several multimillion-dollar businesses across the globe. Amazon, Dell, Motorola, Nike, etc, are some of the other well-known names in the industry.
What is the purpose of JIT?
The ultimate purpose of JIT inventory is to control the production process to eliminate any possible damages and expenditure associated with material handling, stocking, tracing, and production. It lets you keep only the essential stock to meet the demand. Therefore, it cuts down all the unnecessary costs in dealing with excess stock.
Give an example of JIT
Supermarkets are prime examples of JIT inventory. They stock only limited items to meet the demand and order them at frequent intervals by evaluating the customer demand. Car manufacturers like Rolls Royce and Bugatti are also examples of JIT. They make cars based on customer orders to avoid unnecessary expenses related to stocking and overproduction. It helps them maintain the quality and standard.
What Companies Use JIT Inventory Management?
Renowned companies like Amazon,Tesla, Dell, Harley Davidson, Kellogg’s, etc, use JIT inventory management for production. Toyota is also a famous brand that has implemented JIT inventory in its production plant.
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