Just in Time (JIT) is an inventory management strategy that is commonly seen in the manufacturing industry, however it is not exclusive to this and has been successfully implemented in other sectors. The strategy is sometimes referred to as a Lean system. Just in Time is a complete contrast to the Just in Case approach often seen, where a large quantity of inventory is held to cater for any peaks in demand.
Just in Time works on the principle of aligning inventory levels to the orders that need to be fulfilled. JIT is a pull system where the receipt of an order will determine the when a product is produced. This method is effective in minimising waste and reducing the costs of holding inventory, whether it is finished stock or raw materials for production, as it is only when there is a demand will production take place.
Benefits of the JIT Inventory Strategy
Just in Time is particularly useful in a production line process, where parts or materials can be delivered at the time that they are needed and within a narrow window. This ensures that there are no breaks in production. Once the initial hurdles are overcome in the implementation process it is highly likely that an increase in productivity will be seen.
Businesses have benefitted from the many advantages of a JIT system, including the increase in productivity levels as a result of no breaks in production thus a reduction, even elimination of idle time. Increased profits as expenses associated with holding high inventory levels are reduced, including the storage costs, the costs of obsolescence and the costs associated with inventory management and resource intensive planning and forecasting that often takes place. Cash flows improve as there is less cash tied up in inventory.
Potential Drawbacks of Just in Time
The Just in Time strategy is not without its disadvantages and it receives its fair share of criticisms too. It relies heavily on having a flawless supply chain, so robust supplier relationships are completely essential. Disruptions to the supply chain can be costly, if a supplier fails to deliver this can jeopardise the whole process. Due to the reliance on suppliers It would be advisable to have a backup supplier in case of inability to deliver. Suppliers need to be geographically close to allow efficient reactive swift delivery. There is little room for error. A sudden unexpected demand may lead to pressure points where the process is unable to accommodate such.
Just in Time is not the only strategy for inventory management, and ultimately it will be for the management to decide which approach fits best with their business model. Earlier we mentioned the Just in Case strategy which is an almost the polar opposite to JIT. Somewhere in between we find the Economic Order Quantity which believes that demand and lead time will be constant, and the focus should be on reducing ordering and holding costs. To do this there will be an optimum order frequency and quantity. Or perhaps the material requirement planning approach. The common factor in all is ensuring that enough inventory is held or available to meet customer demand and ensure the business remains profitable.