Just-in-time (JIT) inventory system is a strategy for managing that aligns orders for raw materials from suppliers directly to production schedules. Businesses employ this strategy to boost efficiency and reduce consumption by receiving products only when they are required to produce and reduces the cost of inventory. This strategy requires that producers anticipate demand with precision.
How does Just-in Time Inventory work?
Just-in-time (JIT) inventories system reduces inventory and improves efficiency. JIT production systems reduce inventory costs since manufacturers get the materials and components to be used in production and do not need to cover storage costs. Manufacturers are not also left with excess inventory when an order is cancelled or not delivered.
A typical illustration of an JIT inventory system is a manufacturer of cars that has low inventories, but relies heavily upon its supply chain for the necessary components for building vehicles in a timely manner. Therefore, the company orders the necessary components to construct the vehicles after receiving an order.
To allow JIT manufacturing to be successful businesses must be able to sustain production, top-quality work with no glitches in the plant machinery as well as reliable vendors.
Advantages and disadvantages of JIT
JIT inventory systems offer a number of advantages over traditional inventory systems. Production runs are shorter and this means that companies are able to quickly shift between different products. This method also lowers costs by reducing storage requirements. Businesses also save money on raw material because they buy enough materials to produce the items ordered and not more.
The downsides associated with JIT inventory systems could result in disruptions to the chain of supply. If a supplier of raw materials has problems and is not able to supply the items on time the process could be delayed or even stop the production line. An unexpectedly large order for goods could delay the supply of the finished product to the end-users.
An example of JIT
Popular in its JIT inventories system, Toyota Motor Corporation will only order parts when it gets new car orders. Although the company implemented this technique during the 70s, it required them 20 years to master the system. 4
Unfortunately Toyota’s JIT inventory system was close to causing the company to cease operations in February 1997 after an explosion at Japanese-owned automotive parts distributor Aisin reduced its capacity to manufacture P-valves for Toyota’s vehicles. Since Aisin was the primary source of this component the shutdown lasted for weeks, causing Toyota to cease production for a number of weeks. 5
This caused ripple effects that led to other Toyota parts dealers also were forced to close temporarily since the automaker did not have a demand for their parts at the time. This caused the fire to caused Toyota 160 billion yen in revenue.
Special Takes into Account
Kanban Kanban is an Japanese scheduling system which is often utilized to complement Lean Manufacturing and JIT. Taiichi Ohno is an industrial engineer from Toyota invented kanban as an effort to increase the efficiency of manufacturing. 9
The Kanban system helps identify areas of concern by analyzing cycle and lead times throughout the production process. This helps to identify the upper limits of inventory for work-in-process to ensure that there isn’t an overflow of capacity.
What exactly do you mean by “Just-in-Time?
An inventory system that is based on a just-in time (JIT) inventory system is a strategy for managing that allows companies to get goods in the closest possible time to when they will be needed. Therefore, if a vehicle assembly plant requires airbags, they don’t keep an inventory of airbags in its inventory however, it receives them as vehicles are put on the production line.
Are Just-in-Time Manufacturing risks?
The primary benefit of JIT is that a JIT system is the fact that it reduces the need for businesses to keep large amounts of inventory. This increases efficiency as well as bringing significant savings in costs. But, in the event of an unexpected demand or supply shock and it causes a disruption, the system could come to a standstill.
For example, at the start of the economic crisis in 2020 and the entire supply chain from surgical masks to ventilators suffered disruptions as supplies from abroad were unable to reach their destinations on enough time to meet the surge of demand. 10
What types of businesses use JIT?
It is a JIT inventory system is well-liked by small-scale businesses and corporations as well as it boosts cash flow and decreases the amount of capital required to manage the company. Restaurants, retail stores and on-demand publishing, as well as technology manufacturing, and auto manufacturing are just a few industries that have benefitted from the concept of just-in-time inventory.
Who was the first to invent JIT Inventory Management?
JIT is believed to be the work of it being the Japanese automobile manufacturer Toyota Motor Corporation. Senior executives of Toyota during the 70s believed that the company could adjust faster and more efficiently to changing fashion or demand for changes to models if it did not have more inventory than was immediately required.
