In the manufacturing and logistics world, just in time (JIT) inventory management helps companies reduce storage costs and improve quality. Originated by the Toyota Motor Company in 1938, the just in time concept helps companies reduce waste and align all production processes.
Does just in time management work for every company? Do just in time practices involve complicated ideas like lean management or kaizen principles? Although it may seem complex to initially introduce, JIT means that companies of all sizes can improve and grow their bottom line.
What Is Just in Time (JIT)?
Two definitions of just in time exist and depend on where you are in the supply chain. While JIT defines one process for manufacturers, it provides a completely different insight for logistics managers.
JIT Manufacturing Management
Also known as the Toyota Production System, just in time manufacturing management focuses on aligning production with supply and demand – and reducing manufacturing time for goods. As raw materials arrive, the factory produces goods that are in demand and can immediately move down the line to distributors, retail outlets, and (ultimately) the end consumer.
JIT Logistics Management
In logistics, just in time inventory management focuses on reducing waste while choosing the most efficient methods for moving goods. As items roll off the assembly line, just in time principles focus on transporting them to their next destination instead of storing them. If a company can efficiently transport items as they become finished goods, it can reduce storage costs and risk of damage (or obsolescence).
How Does Just in Time Work?
At the factory, just in time manufacturing seeks to eliminate parts and materials inventory by aligning every aspect of the assembly process from start to finish. Raw materials arrive at the worksite in concert with manufacturing schedules, which are then turned into works-in-progress. These schedules focus on producing in-demand items and reducing their standing inventory. As the necessary manufacturing components are depleted, the next set of raw materials arrive in time for the next production cycle – and the process begins again.
From there, the just in time process moves over to logistics managers who decide how to transport inventory from the factory to maintain the book-to-bill ratio. Using a network of suppliers (including trucks, railroadsm and "last mile" providers), just in time delivery is focused on reducing the amount of time between manufacturing and delivery.
Just in Time Inventory Process Examples
Let’s assume a mattress manufacturer makes three different models of mattresses. At the factory, management must determine which models get made and when they are shipped to customers.
Example of Just in Time Inventory Process
Using customer data and tracking industry trends, leadership can determine which mattresses to make at which times of the year.
|ABC Mattress Co. - Quarterly Order Trends|
|Mattress A||Mattress B||Mattress C|
|Jan. - Mar.||12,000||3,300||12,000|
|Apr. - Jun.||8,000||15,000||4,500|
|Jul. - Sep.||$14,000||19,000||7,000|
|Oct. - Dec.||$6,000||3,500||9|
In this JIT example, the company gets orders for Mattress A in the spring and fall, orders for Mattress B throughout the summer, and orders for Mattress C sporadically throughout the fall, winter, and spring.
To fulfill orders using the just in time model, the company will order raw materials based on the order and production schedule. In December, the managers will order raw materials to build Mattress A, followed by materials for Mattress B in March.
From there, the leaders will align the production schedule with the arrival of raw materials. The goal is to produce all three mattresses using just in time for orders to come in from retailers. The orders can then be fulfilled in a shorter amount of time, reducing inventory, and potentially affecting the cost of goods sold.
Example of Just in Time Logistics Process
JIT manufacturing is only one half of the process: Just in time logistics require those goods to be shipped across the service area for quick fulfillment to customers. While some deliveries can be handled by local delivery services, others are hauled by trucks and trains to distribution centers. The goal? Holding enough inventory to serve customer orders.
Advantages of Just in Time
One of the key advantages of JIT is the ability to move inventory faster than other inventory management methods. Because just in time principles rely on aligning production with consumer demand, companies can save money by:
- reducing waste in the manufacturing process
- warehousing their parts, materials, and finished products.
Not only does this reduce the odds of lost or damaged goods, but it can also help companies save money on inventory storage.
Because just in time manufacturing requires exact precision, manufacturers must have exacting quality control throughout their entire process. This can, however, be used as an advantage: By having high quality control, companies can reduce flaws in workmanship while reducing waste throughout their manufacturing process. High quality control measures can give distributors, retail partners, and consumers increased confidence in products, resulting in greater trust from stakeholders and better sales over time.
When a company uses just in time principles during its manufacturing process, it strives to move products as fast as is feasible from the factory to the consumer. Because of this, consumers receive their goods faster, creating a greater sense of satisfaction (which can increase brand loyalty).
Disadvantages of Just in Time
In order to work optimally, JIT requires accurate sales forecasting based on past performance. If the sales forecasting is off – or consumer tastes change between production cycles – it can create problems that require a complete reconfiguration of factory scheduling. Other potential issues include:
Potential for Downtime
If any components are damaged or flawed – or if a part of the assembly line goes down – the entire operation can be halted for hours or days. The resulting loss in productivity means that moving finished goods will be delayed, which can cost companies time and money.
Complex Supply Chains
Just in time manufacturing requires a complex supply chain to ensure that all of the raw materials arrive when they’re needed. Instead of relying on one material supplier, JIT manufacturers often have to hold multiple relationships to ensure that orders get to their factories on time and on schedule. Relying on one supplier can create issues if there are breaks in the supply chain or if the supplier cannot provide the needed material
Must Meet Demand
Just in time manufacturing and logistics also rely on understanding the market demand for production. If there is a run on a product, factories need to be able to scale production to meet it. If they’re unable to produce enough to meet customer needs, they could lose business to competitors or face excessive shipping times for their completed products.