Just-in-time (JIT) inventory and just-in-time manufacturing have been buzzwords in the world of supply chain for some time now, and quite a few businesses have adopted this approach. With growing competition and increasing pressure to boost profitability, many businesses have adopted this strategy to boost their bottom line — which can be problematic when supply chains come to a screeching halt. Show
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What Is Just-in-Time (JIT) in Inventory Management?JIT is a form of inventory management that requires working closely with suppliers so that raw materials arrive as production is scheduled to begin, but no sooner. The goal is to have the minimum amount of inventory on hand to meet demand. Key takeaways from this article:
Video: What Is JIT Inventory Management?
Just-in-Time (JIT) Inventory Management ExplainedJIT inventory ensures there is enough stock to produce only what you need, when you need it. The goal is to achieve high volume production with minimal inventory on hand and eliminate waste. How Does Just-in-Time Inventory Management Work?JIT inventory management ensures that stock arrives as it is needed for production or to meet consumer demand, but no sooner. The goal is to eliminate waste and increase the efficiency of your operations. Since the main objective is often quality and not the lowest price, JIT requires long-term contracts with reliable suppliers. JIT is what’s known as a lean management process. In JIT, all parts of any production or service system, particularly people, are interconnected. They inform each other and are mutually dependent on generating successful outcomes. This practice’s origin comes from Kaizen, a Japanese term meaning “change for the better.” Originating in Japan, the business philosophy looks to continuously improve operations and involve all employees, from assembly line workers to the CEO. Like JIT, the goal is to reduce waste and improve quality. The JIT Process Diagram and StepsThe graphic shows the Just-in-time (JIT) Inventory cycleOrganizations may vary in how they implement JIT in their environment, but the general steps are the same. This diagram shows how the cycle of continuous improvement works in JIT inventory management. Steps in Cycle of Continuous Improvement for JIT Inventory
Advantages of JIT Inventory ManagementJIT inventory management boosts a company’s ROI by lowering inventory carrying costs, increasing efficiency and decreasing waste.
To support these goals, you can invest in new technology or update existing solutions that will link your system with your suppliers to coordinate the delivery of parts and materials. JIT Inventory MethodologyThe JIT inventory methodology uses a variety of techniques to smooth operations. The lean method focuses on optimizing organization, paying attention to detail, having small lot sizes, increasing transparency, fostering cell manufacturing and using a pull (rather than push) approach. Techniques Involved in JIT Inventory Methodology
Why Is Kanban a Critical Element for the JIT Inventory System?Kanban is the “nervous system” of lean JIT production, controlling work-in-progress production and inventory movement. Kanban is crucial when it comes to eliminating manufacturing waste due to overproduction. More traditional mass production methods use push inventory strategies based on the estimated number of expected sales. Kanban’s pull system creates more flexibility on the production floor because a company only produces goods based on actual orders. Kanban uses cards (paper or digital) to track the progress of production on a factory floor. As inventory moves through the manufacturing process, Kanban cards reflect that progress and can signal when it’s time to order more stock. Typical Kanban Board in JIT Inventory ManagementThe graphic shows a Kanban Board that is used in Just-in-time Inventory ManagementWhy Use JIT Inventory Management?Companies often adopt JIT inventory management as a cost-cutting strategy. When implemented correctly, JIT can create more value than traditional methods that require more extensive inventories. Learn more about inventory management controls. How Does Just-in-Time Inventory Management Improve Businesses?Just-in-time inventory management reduces waste, improves cash flow, increases flexibility, optimizes human resources and encourages team empowerment. Companies that are successful at JIT inventory management maximize profits by keeping investment in stock as low as possible. They use data to manage inventory. They use an ERP system to gather information on shipping, customer satisfaction, loss prevention, warehousing, purchases, reorders, goods in storage, receiving, stock turnover and more.
Benefits of JIT Inventory Management
Disadvantages of Just-in-Time Inventory TechniquesJIT inventory management relies heavily on precise forecasting and strong relationships with key suppliers. When something goes wrong with either of those, that’s a problem because there are no backup options in place. For example, a single supplier that can’t deliver for any period of time can disrupt the entire supply chain and halt your operations. In addition, companies practicing strict JIT inventory management probably won’t have extra stock to satisfy unexpected orders. If an organization’s forecasting can’t account for a surge in demand, for instance, it won’t have the stock to fill those orders. That could mean lost revenue and, potentially, lost customers. Potential Risks of Just-in-Time InventoryThe primary risk of JIT comes from its philosophy. JIT inventory management requires everyone in an ecosystem and supply chain to commit and work cohesively. If any part of that arrangement breaks down, it risks the entire infrastructure.
Pros and Cons of JIT Inventory ManagementJIT inventory management has its pros and cons: less inventory saves money but relies on strong coordination between workers and suppliers. Also, strict protocols and forecasting requirements produce value, but various factors can disrupt it. Overall, the pros historically outweigh the cons unless there is a global supply chain disruption: Pros and Cons of JIT Inventory Management
Questions to Ask If You Are Considering JIT Inventory ManagementBefore converting to JIT inventory management, assess if the entire organization is ready. Consider these six factors: turnarounds, forecasting, flexibility, vendors, workforce and technology. 6 Questions to Ask Before Converting to JIT Inventory Management
Shifting to JIT or any new system requires preparation, research and buy-in. Find out how to increase profits and streamline productivity by reading the guide to inventory planning. Who Uses Just-in-Time Inventory Management?Commonly associated with manufacturing, various businesses — from automakers to health care — use JIT inventory management. Verticals that Use JIT Inventory Management
What Companies Use JIT Inventory Management?A number of the most successful companies in the world, including Amazon and Apple, use JIT inventory management and build strong supplier relationships to maintain their competitive position. Just-in-Time Inventory ExamplesJIT is uniquely suited to drive value in manufacturing environments and service businesses that must match output with customer demand. For many companies, this emphasis on timing helps them keep and increase their market presence. Major corporations in every industry take advantage of JIT inventory management, including:
History of Just-in-Time Inventory ManagementThe just-in-time philosophy was initially known as the “Toyota Production System” (TPS) or just-in-time manufacturing. The approach was developed in post-World War II Japan, when car manufacturing faced shortages and had to minimize resource consumption to survive and remain competitive. Eiji Toyoda and Taiichi Ohno, Japanese industrial engineers, created the system when Toyota Motor Company (TMC) recognized that U.S. carmakers of that era were outpacing their Japanese counterparts. After some testing, they established the Toyota production system and closed the gap between 1945 and 1970. JIT has continued to grow as a practice worldwide. This system’s basic underlying idea is to minimize the consumption of resources that add no value to a product. Figure 1. Toyota Production Floor in the 1960sImprove or Grow Your Business With a JIT Inventory Management SystemInsight into your stock at any given moment is critical to success, which is why a value-focused inventory management strategy can make or break a business. Inventory management systems that can support JIT give decision-makers the right tools to manage their inventory in an optimal way that generates higher profits. Learn how to improve efficiency and boost profits with a leading inventory management system. JIT inventory has the potential to generate tremendous benefits for many companies. This approach has caught on since Toyota invented it because it can lower costs and increase profitability in a big way. To evaluate whether it’s a fit for your business, you should consider the pros and cons with your industry and business model in mind and whether the organization could support the processes required to make this work. JIT Inventory Management FAQsWhile JIT aims to create simplicity, understanding how to implement it, associated terms and related methodologies takes some effort. This FAQ answers common questions about JIT inventory management. What is a just-in-time inventory system?The JIT inventory system aligns production schedules with the delivery of supplies. These systems increase efficiency and decrease waste by receiving goods on an as-needed basis. What is the just-in-time method of inventory control?The JIT method of inventory control involves creating, storing and tracking enough orders to supply demand. JIT differs from other inventory strategies in that businesses don’t make and hold excess inventory in anticipation of future orders. What’s the difference between JIT inventory and JIT manufacturing?JIT inventory and manufacturing have a similar principle: produce or receive a product only when needed. They operate at different points in the supply chain but can work together or independently. What is the difference between just-in-time vs. just-in-case (JIC) manufacturing?JIT aims to reduce waste by only taking in inventory as needed for production. JIC prioritizes stocking surplus goods and outpacing the current demand to fulfill orders on time. What is the difference between just-in-time inventory vs. Economic Order Quantity (EOQ)?JIT ensures there is the right quality and quantity of inventory using minimum resources, time and material waste. EOQ is a formula used to identify stock replenishment levels to avoid shortages and extra costs. The EOQ regulates the most favorable inventory to produce or buy to minimize order and storage costs. The EOQ formula is useful for companies that have consistent demand, order and holding costs over time. What is an example of just-in-time delivery?Supermarkets take advantage of just-in-time delivery by only restocking a product once customers have bought nearly all available items. The demand for any item directly affects supply, meaning the market replenishes some goods on a regular basis and others infrequently. How does the Theory of Constraints (TOC) apply to JIT inventory management?TOC is a continuous improvement principle and process that identifies systemic weakness or variables. In JIT, the TOC pinpoints the weakest part or person that may constrain system throughputs. What term is used to describe the procurement and physical movement of material through a supply chain from suppliers to customers?Supply chain management (SCM) is the optimization of a product's creation and flow from raw material sourcing to production, logistics and delivery to the final customer.
What is a supply chain planning system?Supply chain planning is the process of planning a product from raw material to the consumer. It includes supply planning, production planning, demand planning, and sales and operations planning. Supply planning determines how best to fulfill the requirements created from the demand plan.
What is logistics the purchasing of goods and services to meet the needs of the supply chain?What is Logistics? Logistics is an essential component of supply chain management. It involves the planning, carrying out and management of goods, services, and information from the point of origin to the point of consumption.
What are the three technologies that are reinventing the supply chain?The three technologies that are reinventing the supply chain include logistics, procurement, and materials management.
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