What is Keiretsu?
How Does Keiretsu Work?
inventory management method whereby materials, goods and even labor are scheduled to arrive or be replenished only exactly when needed in the production process. Toyota Motor Company developed JIT in the 1950s. JIT is often referred to as a "pull" system, whereas traditional inventory methods are often referred to as "push" systems or "just-in-case" management.
The dominant characteristic of JIT is that it essentially requires the supplier to assume the manufacturer's inventory management function. JIT companies tend to have fewer suppliers than traditionally managed companies. Supplier -- keiretsu -- means suppliers receive larger portions of the company's business and are hence more committed to meeting quality and delivery requirements. Quantity discounts available to the JIT company may also be larger.
Why Does Keiretsu Matter?
The goal of keiretsu is to improve product quality by keeping only enough warranty repair and scrap.
A smaller supplier group also means, however, that JIT companies are more exposed to work stoppages or product shortages if the supplier cannot deliver, and exclusive or long-term contracts may disincent some suppliers to continue improving quality.