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Just in Time (JIT)

Updated January 9, 2021

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, just in time practices help companies reduce waste and align all processes of their production. 

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 at first, just in time can help companies of all sizes improve and grow their bottom line.

What Is Just in Time (JIT)?

There are two definitions of just in time, depending on where you are in the supply chain. While just in time defines one process for manufacturers, it provides a completely different insight for logistics managers. 

Also known as the Toyota Production System, just in time manufacturing management focuses on aligning production with supply and demand. Using the just in time model, factories focus on reducing manufacturing time for goods. As raw materials come in, the factory produces goods that are in demand and can immediately move down the line to distributors, retail outlets, and (ultimately) the end consumer. 

In logistics, just in time inventory management focuses on reducing waste and choosing the most efficient methods for moving goods. As items roll off the assembly line, just in time principles focus on moving 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 as well as the 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 components needed to manufacture products are depleted, the next set of raw materials arrive in time with 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 move inventory from the factory to maintain the book-to-bill ratio. Using a network of suppliers including trucks, railroads 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

As a just in time example, let’s assume a mattress manufacturer makes three different models of mattresses. At the factory, it’s up to the management to determine which models get made and when they’re 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 AMattress BMattress C
Jan. - Mar.12,0003,30012,000
Apr. - Jun.8,00015,0004,500
Jul. - Sep.$14,00019,0007,000
Oct. - Dec.$6,0003,5009

In this example, we see that 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 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

But JIT manufacturing is just 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 with the goal of holding enough inventory to serve customer orders.

Advantages of Just in Time

One of the key advantages of the just in time process 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, and on warehousing their parts, materials, and finished products. This not only reduces the odds of lost or damaged goods, but 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 be used as an advantage: By having high quality control, companies using just in time methodology can reduce flaws in workmanship and reduce waste throughout their manufacturing process. High quality control measures can give distributors, retail partners, and consumers increased confidence in products, resulting in more trust from stakeholders and better sales over time. 

When a company uses just in time principles in 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 lead to brand loyalty).

Disadvantages of Just in Time

Although it would seem that just in time manufacturing and logistics are the gold standard, there are certain disadvantages. In order to work optimally, this process 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 at the factory. This may require a complete reconfiguration of factory scheduling. 

Another key disadvantage of just in time manufacturing is the 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, even days. The resulting loss in productivity means that moving finished goods will be delayed, which can cost time and money. 

In addition, just in time manufacturing requires a complex supply chain to ensure all the raw materials arrive when they are needed. Instead of relying on one material supplier, just in time manufacturers often have to hold multiple relationships to ensure orders get to their factories on time and on schedule. Simply relying on one supplier can create issues if there are breaks in the supply chain or if the supplier cannot provide the needed materials. 

Just in time manufacturing and logistics also relies 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 are unable to produce enough to meet the customer needs, they could lose business to their competition or face excessive shipping times for their completed products.

Ask an Expert about Just in Time (JIT)
At InvestingAnswers, all of our content is verified for accuracy by Rachel Siegel, CFA and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Just in Time (JIT).

What Is Just in Time Inventory?

Also called “lean manufacturing,” just in time inventory management focuses on efficiency throughout the supply chain. Building on the just in time manufacturing process, just in time inventory is focused on ordering just enough inventory to meet customer demand, thus reducing the inventory on hand, and in turn, lowering risk and costs associated with holding on to inventory.

Just-in-time Systems Are What Part of the Value Chain?

Just in time systems are part of the operations activities in the value chain. Because just in time manufacturing and inventory management focuses on reducing waste by understanding real time sales and inventory, just in time can save time and money throughout the operational cycle.

Does Creating a Just In Time Inventory System Cause Supply Chain Problems?

Creating a just in time inventory system does not necessarily create supply chain problems, because it is focused on creating harmony between inbound and outbound logistics. However, if there are delays in receiving raw materials – or producing goods along the production line – it may result in delays or supply chain disruption.

Rachel Siegel, CFA
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Chartered Financial Analyst

Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.

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