What Is Just-in-Time (JIT)?
The just-in-time (JIT) inventory system is a management strategy that aligns raw-material
orders from suppliers directly with production schedules. Companies employ this inventory
strategy to increase efficiency and decrease waste by receiving goods only as they need them
for the production process, which reduces inventory costs. This method requires producers to
forecast demand accurately.
❖ The just-in-time (JIT) inventory system is a management strategy that minimizes
inventory and increases efficiency.
❖ Just-in-time manufacturing is also known as the Toyota Production System (TPS)
because the car manufacturer Toyota adopted the system in the 1970s.
❖ Kanban is a scheduling system often used in conjunction with JIT to avoid
overcapacity of work in process.
❖ The success of the JIT production process relies on steady production, high-quality
workmanship, no machine breakdowns, and reliable suppliers.
❖ The terms short-cycle manufacturing, used by Motorola, and continuous-flow
manufacturing, used by IBM, are synonymous with the JIT system.
How Does Just-in-Time Inventory Work?
The just-in-time (JIT) inventory system minimizes inventory and increases efficiency. JIT
production systems cut inventory costs because manufacturers receive materials and parts as
needed for production and do not have to pay storage costs. Manufacturers are also not left
with unwanted inventory if an order is cancelled or not fulfilled.
One example of a JIT inventory system is a car manufacturer that operates with low inventory
levels but heavily relies on its supply chain to deliver the parts it requires to build cars on an
as-needed basis. Consequently, the manufacturer orders the parts required to assemble the
vehicles only after an order is received.
For JIT manufacturing to succeed, companies must have steady production, high-quality
workmanship, glitch-free plant machinery, and reliable suppliers.
Advantages and Disadvantages of JIT
JIT inventory systems have several advantages over traditional models. Production runs are
short, which means that manufacturers can quickly move from one product to another. Also,
this method reduces costs by minimizing warehouse needs. Companies also spend less money
on raw materials because they buy just enough resources to make the ordered products and no
more.
The disadvantages of JIT inventory systems involve potential disruptions in the supply chain.
If a raw-materials supplier has a breakdown and cannot deliver the goods promptly, this could
conceivably stall the entire production line. A sudden unexpected order for goods may delay
the delivery of finished products to end clients.
Example of JIT
Famous for its JIT inventory system, Toyota Motor Corporation orders parts only when it
receives new car orders. Although the company installed this method in the 1970s, it took 20
years to perfect it.
Sadly, Toyota's JIT inventory system nearly caused the company to come to a halt in February
1997, after a fire at Japanese-owned automotive parts supplier Aisin decimated its capacity to
produce P-valves for Toyota's vehicles. Because Aisin is the sole supplier of this part, its
weeks-long shutdown caused Toyota to halt production for several days.
This caused a ripple effect, where other Toyota parts suppliers likewise had to temporarily shut
down because the automaker had no need for their parts during that time period. Consequently,
this fire cost Toyota 160 billion yen in revenue.
What Exactly Do You Mean by Just-in-Time?
A just-in-time (JIT) inventory system is a management strategy that has a company receive
goods as close as possible to when they are actually needed. So, if a car assembly plant needs
to install airbags, it does not keep a stock of airbags on its shelves but receives them as those
cars come onto the assembly line.
Is Just-in-Time Manufacturing Risky?
A chief benefit of a JIT system is that it minimizes the need for a company to store large
quantities of inventory, which improves efficiency and provides substantial cost savings.
However, if there is a supply or demand shock, it can bring everything to a halt.
For instance, at the beginning of the 2020's economic crisis, everything from ventilators to
surgical masks experienced disruption as inputs from overseas could not reach their
destinations in time to meet a surge in demand.
What Types of Companies Use JIT?
The JIT inventory system is popular with small businesses and major corporations alike
because it enhances cash flow and reduces the capital needed to run the business. Retailers,
restaurants, on-demand publishing, tech manufacturing, and automobile manufacturing are
examples of industries that have benefited from just-in-time inventory.
