JIT is a type of inventory management in which products are obtained from suppliers just as they are required. The primary goal is to lower inventory holding costs while increasing inventory turnover.
When properly implemented in an organisation, the JIT strategy has the potential to greatly increase the organisation’s competitiveness in the market by decreasing waste and enhancing efficiency and quality of products.
JIT: Historical background
JIT is a method of manufacturing management. It was first created and used in Toyota production plants to meet consumer needs as quickly as possible. Japan’s Taiichi Ohno is regarded as the “Father of Just In Time.” JIT can be used to tackle the mounting survivability issues with a management strategy that was centred on people, systems, and plants.
Which kind of businesses use JIT?
Just-In-Time is used in the healthcare sector to keep expenditures and expenses down. JIT is used in publishing, particularly by authors who self-publish. This prevents them from having to deal with unsold books. JIT is used in the construction business because inventory costs can quickly mount up, resulting in a significant increase in cost. Using JIT allows the industry to reduce material travel while keeping costs down. JIT is used in the automobile industry, and it was one of the first industries to employ it. It promotes competition.
JIT is used in the apparel business since it must stay current with changing trends. This helps them to store only what is necessary and avoid spending money on clothes that are out of style. JIT is used in the fast-food sector, particularly by franchises, because it allows them to use fresh products rather than store them for long periods of time. Retailers employ JIT because it allows them to hold enough inventory while avoiding the cost of storing more than is necessary. JIT is also utilised in manufacturing when production costs are high and employing JIT reduces inventory to improve efficiency.
Condition required checking before opting for JIT
JIT, as previously stated, is good, and many well-known firms have found success with this inventory management strategy. However, JIT is not suitable for every business. There are a few factors to consider if you wish to convert to JIT. You should proceed only if all of these conditions are met.
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Reliable suppliers
You can try JIT if you have previously dealt with suppliers who have always delivered on time and securely. You should be able to fulfil orders even if the supply chain is delayed.
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Adaptable employees
JIT necessitates that your staff comprehend the process, which necessitates some effort on your part in order to effectively teach your employees. When everyone is on board, JIT works best.
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Dealing with disruption problems
Before converting to JIT, you must be prepared to cope with any unexpected challenges like natural disasters that may develop.
Importance of the JIT
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Reducing material wastage
Just-In-Time prevents overproduction, which occurs when the supply of a product in the market outnumbers demand. These unsaleable items become inventory dead stock, causing waste and taking up space in the warehouse. You order only what you need in a Just-In-Time system, eliminating any chance of stockpiling unusable goods.
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Reduces the cost of storing goods
Warehouse holding costs are one of the biggest hidden expenses in the supply chain, and excess inventory can double your holding costs. Just-In-Time inventory management solutions help reduce inventory to only what you need and sell it faster to customers who want it.
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Increases the manufacturer’s grip
In a JIT model, the manufacturer has complete control over the manufacturing process, which works on a demand-pull basis. Manufacturers make products only when a customer orders them. This eliminates waste by enabling manufacturers to respond quickly to changes in customer demand and meet customer needs.
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Requires a small investment
Only essential inventories are procured in a JIT approach, requiring less working capital for financing acquisition. As a result, the organisation’s return on investment would be strong due to the lower amount of merchandise maintained in inventory. The “right first time” notion is used in Just-in-Time models, which means that operations are completed correctly the first time, saving inspection and rework expenses.
Advantages and disadvantages of Just-In-Time systems
Advantages
- The just-in-time method reduces stock holding expenses. The freed capacity improves space usage and has a positive influence on insurance premiums and rent that would otherwise be required.
- The just-in-time method aids in the elimination of waste. There is no risk of expired or out-of-date products.
- Because this management strategy obtains just the essential goods required for manufacturing, less working capital is required.
- This strategy establishes a minimum re-ordering level, and only when that level is achieved, orders for fresh stocks are placed, making this a boon to inventory management as well.
- Because of the low level of equity held, the organisations’ ROI (Return On Investment) will be strong in general.
- Because this strategy operates on a chargeable basis, all commodities created would be sold, allowing for unanticipated fluctuations in demand. This makes JIT appealing in today’s market, where demand is erratic and volatile.
- JIT emphasises the “right-first-time” approach in order to reduce rework and inspection expenses.
Disadvantages
- Because inventory is maintained to a minimum, the IT method proclaims “absolutely no tolerance for errors,” making rework difficult in practice.
- A successful implementation of JIT necessitates a high reliance on suppliers, the performance of which is beyond the manufacturer’s control.
- Because JIT lacks buffers, production line idling and delays can occur, negatively impacting both the manufacturing process and the bottom line.
- As there will be no spare completed goods inventory, the chances of not fulfilling an unanticipated rise in orders are fairly significant.
- Depending on the frequency of transactions, transaction charges would be relatively significant.
- JIT may have some negative consequences on the environment because of the frequent deliveries, which would result in increased consumption and transport expenses, consuming additional fossil fuels.