Just-in-time (JIT) is an inventory strategy companies use to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thus reducing inventory costs. This technique requires producers to predict demand precisely.
This inventory supply system represents a shift away from the older just-in-case strategy, in which producers carried large inventories in case higher demand had to be met.
An excellent example would be a car manufacturer that operates with very low inventory levels, relying on its supply chain to transport the parts it needs to build cars. The parts needed to manufacture the cars do not arrive before or after they are needed; instead, they arrive just as they are needed.
Compared to the traditional models, just-in-time inventory control has several benefits. Production runs remain short, which means manufacturers can move from one type of product to another very easily. This method reduces costs by eliminating warehouse storage needs. Companies also spend less money on raw materials because they buy just enough to make the products and no more.
The disadvantages of just-in-time inventories involve disruptions in the supply chain. If a supplier of raw materials has collapsed and cannot deliver the goods on time, one supplier can shut down the entire production process. An unexpected order for goods that surpasses expectations may delay delivery of finished products to clients.
The JIT inventory system has been popularized by Toyota and since adopted by other auto manufacturers, is implemented by scheduling ordering and deliveries so parts are only delivered as needed in the production process. For instance, if a car’s doors are put in place on Monday and windshields on Thursday, then those respective parts are not delivered by the company’s supplier until just before those respective days.
Clearly, an inventory management system that involves vigilant planning, efficient ordering and reliable suppliers is required for being able to apply this sort of inventory technique with a large manufacturing company requires.
The application of JIT is also expanded into retail industries, fast food and even publishing industry.
Some retail companies implement the JIT inventory method by using arrangements with drop shipping companies. An example of this is a company that markets office furniture but does not manufacture the furniture itself or keep the inventory of it on hand. Rather, as it receives orders for furniture from customers, it purchases the needed furniture from a manufacturer and has the manufacturer deliver it straight to the customer.
Almost all fast food chains have moved to using a JIT inventory system. An example of this is Burger King, where all the essential ingredients for preparing hamburgers, such as meat, buns and condiments, are kept on hand, however, the actual hamburgers are only prepared when a customer places an order. This contrasts with an inventory system that has premade sandwiches already prepared.
On-demand publishing is an exemplary of the JIT inventory method that has become popular with independent and self-publishing operations. Master manuscripts of books are kept on hand, but texts are only printed and assembled as needed when an actual retail sale is made when a customer orders a book.