The Just in Time, or JIT, is a management strategy for inventory that seeks to receive items from supplier only when they are needed. The goal of JIT is to reduce inventory holding and expenses while increasing inventory turnover.
In practical terms, that means an alignment of material orders and productions schedules and an accurate demand forecast. Combining those will result in a increase in efficiency and reduction of inventory waste.
The benefits of Just in Time
A good implementation of Just in Time needs thoroughly planning and tools that can track the whole operation, from order to delivery. That will ensure good results and reduction of errors.
The use of JIT has a lot of advantages, such as:
- Reduction of Inventory Waste: just in time eliminates excess of production. When an item supply is greater than the demand, it leads to a accumulation. With just in time, you order just when the item is needed, so there is no possibility of overproduction.
- Decrease Inventory Cost: when you don’t need to keep a lot of items on stock, it’s easier to manage storage. Just in time not only decreases the quantity of items but also make evasion faster.
- More Control Over Production: as you need to oversee the whole operation when adapting to Just in Time, it will lead to more control of your production.
- Local Sourcing: just in time needs to start manufacturing when the order is placed, that makes important to seek material locally. That also reduces the costs of transportation and lead time.
Of course, as every other method, it has its risks and problems. For instance, it’s hard to re-do orders in JIT, as it keeps inventory in a minimum, there is not a range of options to substitute orders.
Another deficiency of the method is that it relies too much on suppliers’ performance and time coherence. That said, if the system fails for any reason, its hard to control impact on operations, since there is not a lot of stock to control.
Finally, just in time needs a software that can control every step of the process. That system may be expensive and hard to implement, also it needs to be regularly updated and verified.
But how does it work?
As we established, the method seeks to minimize inventory costs and maximize efficiency. To see how it works, let’s use an example of how just in time would conduct a situation.
Imagine a situation where a company order a certain amount of goods to a supplier. If that supplier has only that order, they can deliver the quantity specified and not worry if they are producing irregular amounts. So, they don’t waste production with unnecessary inventory.
On that same context, if more than one company order from that supplier, they will have to wait for material to be delivered to the supplier, since the first company have already assured their order.
Who can benefit from Just in time?
Usually, small business and large corporations can benefit from just in time system. Since it enhances cash flow and reduce investment needed to run the operations and keep inventory.
Mass retailers can profit from minimizing their inventory costs while providing clients with the right amount of products on the right time. On the other hand, small retailers can take advantage from the method to streamline the delivery process.
History of the Method
The just in time methodology was invented by the Japanese company Toyota in the 1970’s. It was initially known as the Toyota Production System. The system was a way to catch up with the American production of cars, on the post war period.
The American industry produced a lot of cars because the demand was high. But in Japan, at that time, the demand for automobiles was low and demanded the production of small quantities. So, the Toyota engineers thought that a system that would reduce waste was the better option.
Just in time will have great effect on inventory and demand for both small and big companies. Between the advantages are:
- Eliminate overproduction.
- Decrease lead time.
- Make transportation faster.
- Improve processing time.
- Reduce waste on inventory.
- Make defect detection easier.