What is Just-in-Time (JIT) Inventory? A Detailed Guide with Example

Just in time inventory, widely known as JIT inventory management, is a one-of-a-kind inventory management process that aims to significantly reduce costs and boost efficiency while playing an important role in the supply chain.

JIT inventory management is solely based on occupying a cost-effective space that produces and delivers items only when needed rather than stocking up on inventory unnecessarily. This facilitates having the right amount of usable inventory in the right place at the right time, resulting in reduced expenditure and increased growth. 

What Is Just in Time Inventory?

Just in time inventory management refers to a lean manufacturing inventory strategy that tries to enhance organizational performance, reduce unwanted inventory expenses, and ensure that all necessary items arrive only when required.

This inventory strategy demands managing a wide range of internal and external risk variables, including inflation, technology failure, legislative changes, severe competition, and various changes in customer tastes and preferences.

With mainly targeting to deliver precisely what is wanted, when it is required, and in the necessary quantity at the very moment it is required – this unique and specialized inventory management system has already won numerous hearts. 

The three competing techniques for inventory management are short-cycle manufacturing (SCM), continuous-flow manufacturing (CFM), and demand-flow manufacturing (DFM).

History of Just-in-Time Inventory Management

Organizations have found that just in time inventory management is an excellent tool for planning their operations. Before just-in-time became what it is today, there tends to be a far-stretched history. Let’s dive deep!

In 1799, Eli Whitney, who had a large contract with the United States Army at the best possible price in the late 1890s, introduced Frederick W. Taylor to the just-in-time concept. Taylor then performed research on manufacturing standards and time production.

Henry Ford primarily unveiled the revolutionary Model T automotive system in The Ford System or just-in-time during the 1910s. The year Taichi Ohno founded Toyota and Ford is still being determined. Then with this, JIT inventory management stepped foot in the Toyota production system.

What is the Importance of Just-In-Time Inventory in Business?

The traditional manufacturing processes cost a lot of money and demand extensive space to store raw materials and finished goods. This is where the JIT inventory management system comes into the picture.

With all the sought-after benefits of just in time inventory, businesses tend to experience reduced or eliminated storage of inventories.

To ensure on-time delivery, the whole supply chain must be meticulously organized, and enhanced supply chain software must be employed to control each step of the delivery process. Because every activity is logged, this enhances efficiency and minimizes error-prone situations.

Consumer purchases are what drive production. Most firms fail to recognize and implement this. Have you ever wondered why?

Because they interpret that the just in time inventory definition is a unique method of predicting how much product is required to make in response to current demand using the just-in-time formula. This tends to take things in a completely different direction. 

It’s essential for them to first and foremost verify that the production department can analyze client orders and that this data is linked to the purchasing department so that material can be purchased on time.

The production department must manufacture the item in compliance with the specifications. Using a standardized system and doing an ongoing study on the JIT inventory management production process can decrease unusable inventory.

How Does Just-in-Time Inventory Work?

Every firm takes use of the same just in time inventory benefits. Inventory management ensures that the necessary supplies are available to fulfill consumer demand. A customer goes up to the manufacturer and orders something. After receiving an order confirmation, the company contacts its normal vendors to locate raw material stock.

The suppliers guarantee quality from local sourcing, then fulfill the order and return the supplies to the producer. The maker assembles or manufactures the finished product, which is subsequently sold to the client. The product is accepted and evaluated by the consumer.

The just in time inventory control is a lean manufacturing method, enabling businesses and organizations to grow by relying on one another. To boost productivity and efficiency, they create long-term contracts and agreements. The Japanese pioneered the JIT approach in order to reduce production costs and reinforce their position as industry leaders.

The organization can properly estimate and satisfy customer demand with the right inventory management systems and practices.

What are the Benefits of Just-in-Time Inventory Management?

The JIT inventory system is a method of inventory control that aims to reduce costs and improve the efficiency of businesses in the supply chain. You may prevent over-purchasing defective products by using inventory control systems. The JIT inventory management approach also gets rid of excess goods and overstocking. The JIT system also offers the following significant advantages. Let’s take a look at them!

1. Reduced Expenses

   The primary benefit of JIT inventory management is reduced inventory costs of supply chain management. Excess inventory might more than treble your holding costs, which makes warehousing expensive. By eliminating the need for large warehouses and bulky inventory stockpiles, companies can avoid the inventory costs associated with storing and maintaining those items with JIT manufacturing.

   Several inventory management systems offer a wide range of importance and benefits since it plays a pivotal role in the cash flow of a supply chain. This includes reducing their need for expensive delivery services, excess inventory, and storage costs, as they only need to purchase and ship the products necessary for current operations. 

   As a result, companies are able to operate more efficiently, reducing their overall inventory costs through JIT inventory management and boosting their cash flow. Moreover, through this unique inventory system, meeting customer demand becomes a mere cakewalk.

2. Increased Customer Satisfaction

   Amongst the many benefits of JIT system of the supply chain, increased customer satisfaction is one of the most valuable ones. By ensuring that the essential raw materials are available when customers need them, businesses can ensure that customers receive timely deliveries. This improves consumer retention and repeat business.

3. Improve Manufacture Control

   To increase or reduce output in response to shifting consumer demand, it’s crucial for manufacturers to be flexible in the supply chain.  

   Having a JIT inventory system by their side, they have more flexibility and control over the creation of both necessary and unnecessary goods because of a just-in-time inventory management software. Using this approach, producers may respond to the market’s shifting wants more quickly while also solving the problem of storing unsold goods.

   JIT inventory can be a great way to save money and improve efficiency, especially if you implement it correctly. By carefully managing their inventories through the JIT inventory system, businesses can improve their bottom line and remain competitive.

What Are The Drawbacks of Just-In-Time Inventory?

Undoubtedly, there is a long list of benefits of just in time inventory. However, certain disadvantages of JIT inventory systems also come along the way. Some of the most common ones of a JIT system include:

1. Stock Unavailability Risks

   This may occur at inconvenient times due to insufficient inventory. Running out of products lowers consumer satisfaction and could even deter repeat purchases from devoted consumers when it comes down to inventory management software.

2. Limited Pricing Availability

   Lower profit margins are the effect of the production process of time management in the supply chain. You don’t have time to wait and offer products at their best price when you replenish stock near to sales. To combat this, get ready in advance.

3. Last-Minute Errors

   It’s challenging to handle issues of inventory systems like a missed buying window or halted manufacturing when you have a small number of things on hand, especially in the supply chain.

JIT Inventory Methodology

The just in time inventory system uses a variety of approaches to improve operations. Lean manufacturing strategies facilitate organizational optimization. Moreover, it emphasizes the use of tiny batch sizes. During the process, transparency is also improved. As a result, the JIT system promotes cell manufacturing, which is a type of production line.

With JIT inventory systems, a significantly lower rotating stock is employed instead of maintaining a sizable volume of items or raw material inventory in production processes. It is a well-known inventory management software that is utilized across the globe, which helps to lower your profit margins extensively. Companies may utilize open source inventory software to save money and make their inventory more safe than proprietary software.

This robust inventory management system optimizes and streamlines the supply chain system by locating the appropriate stock just in time to satisfy demand and lowering inventory handling and holding various kinds of expenses (order processing, production process, stocking, and delivery).

Examples of JIT Inventory

Here are some of the most popular examples of just in time inventory. 

1. Vendor-Managed Inventory (VMI): This is an example of the JIT system in which local sourcing suppliers control their clients’ inventory levels and provide items as needed.
2. Kanban: A card system that indicates when components or resources must be replenished.
3. POS (Point-of-Sale) Tracking: Point of sale system records sales in real time to assist businesses in determining which goods need to be replenished.
4. Electronic Data Interchange (EDI): Out of the many examples of just in time inventory, this one sends inventory and order information between a supplier and a business electronically.
5. Automatic Replenishment System (ARS): This system analyzes inventory levels and puts orders to refill supplies automatically.

Wrapping Up

Just in time inventory systems offer businesses a chance to streamline their purchasing, ensure a steady stream of supplies, and keep inventory costs on the lower side for efficient supply chain management.

Turn to {brand} and get your hands on the successful implementation of inventory management solutions that take your business to the next level seamlessly. 

Stay tuned to learn more about JIT inventory management today!