According to the International Federation of Accountants, just-in-time inventory management can reduce total costs by up to 35%.
So, whether you are a small business owner or a corporation, you may find JIT equally useful. JIT inventory involves setting your desired delivery date for each item in your line and producing them immediately after this date. However, it has another benefit that cannot be missed. It prevents excess stock of finished products from building up and taking up space in your warehouse.
JIT inventory, also known as just-in-time inventory, was once the standard method of inventory management.
What are the possible benefits of JIT? How does it work? These are some of the aspects we shall learn in this post.
Here is all that we shall discover:
- What is Just-in-time Inventory?
- How does JIT Work?
- What is JIT Inventory Methodology?
- What Are Some Examples of Just-In-Time Inventory Processes?
- Why is Kanban Significant for the JIT Inventory System?
- 5 Reasons for Manufacturers to Implement JIT
- Drawbacks of JIT
- How can Deskera Help You?
- Key Takeaways
- Related Articles
What is Just-in-time Inventory?
JIT inventory (just-in-time inventory) is a production method where products are created only as they are needed. This allows the companies to save on inventory costs. They can avoid the need to store large amounts of stock.
JIT works by having the company detect demand through customer orders. They can then produce the required items as soon as possible. This helps to reduce waste and increase efficiency. The process facilitates the production of only the required items. This further helps to reduce production costs. The company can also adjust the production process quickly to changes in customer demand.
The method is used to describe a supply management model of having both goods and services inventory, based on demand.
It is helpful for manufacturers to receive an inventory of raw materials just before production. Coordination with the suppliers can enable them to obtain raw material inventory in time.
The process has good financial results. It allows the supplier to have enough inventory to meet demand. However, it can be difficult to implement because changes at one point need to be reflected at many other points throughout the supply chain.
How does JIT work?
A major advantage of Just-in-Time inventory management is the ability to reduce waste and increase efficiency. Many manufacturers have found that JIT systems can increase their customer satisfaction, reduce customer complaints and free up resources. However, it may face one challenge. It is to find reliable suppliers that are willing to offer long-term contracts.
JIT is an interdependent system that relies on the flow of information and goods throughout a company. This diagram illustrates the process of continuous improvement in JIT inventory management.
While organizations may implement Just-in-Time concepts in different ways, the general steps tend to be consistent. Let’s look at them here:
- Design: The beginning of the JIT process is a review of manufacturing's essential building blocks. These are product design, process design, personnel, and manufacturing planning. Plans are then put into place to eliminate disruption, minimize waste, and build a flexible system.
- Manage: A total quality management (TQM) review ensures that companies are continually improving their products or services. A TQM review first defines workers’ roles and responsibilities. This is followed by establishing standards for measuring statistical quality control. Finally, they must stabilize schedules by checking out load and capacity levels.
- Pull: Introduce Kanban and other signaling methods to educate the team on production and withdrawal methods. Reduce lot sizes as part of this process.
- Establish: In JIT, vendor relationships are critical to success. Review your list of preferred suppliers and negotiate contracts for them. Learn how to make the most of those vendors in the supply chain by negotiating lead times, delivery expectations, and usage metrics
- Fine-tune: Understand the inventory you have, and develop policies and controls to minimize unnecessary movements.
- Build: Inform your team about the skills and capabilities it needs to complete its work, and help educate them in these areas.
- Refine: Simplify and streamline production by reducing the number of parts needed, standardizing their design, and reviewing the assembly process.
- Review: Use quality measures and metrics to define problems within JIT, conduct root cause analyses of these issues, and implement improvements. Track trends in order to ensure continuous improvement across all areas of the operation.
What is JIT Inventory Methodology?
The just-in-time inventory method uses a variety of techniques to improve operations. The lean approach focuses on optimizing the organization. It also pays attention to having small lot sizes. In the process, it also increases transparency. Thus, it fosters cell manufacturing which is a type of production line. Cell manufacturing requires perfect coordination between workers.
Finally, the JIT process relies heavily on pull rather than push. Output from each section depends not only upon what comes before it but also measures its actual need at that moment. Here are the methodology steps:
- Order: Strive for high levels of physical and organizational discipline.
- Better Quality: Find, fix and prevent defects by constantly looking for ways to improve.
- Reduced Time: When demand for a product or service fluctuates, you should be ready to make changes. This will allow production processes to continue uninterrupted.
- Small Lot Size: A small lot size is ideal in JIT. It reduces inventory costs, storage space requirements, and inspection difficulty while encouraging rework if needed.
- Load Uniformity: Leveling is a technique used to stabilize fluctuations. Also, you will be able to maintain load uniformity.
- Flow Balance: Flow scheduling distributes workload evenly among employees.
- Diversified Skills: You can have cross-trained workers. They can be deployed to different areas to keep production moving.
- Visibility for Control: You can utilize communication tools. Kanban is a good example. Such tools can be instrumental in providing inventory-level updates to the entire team.
- Understand Fitness: JIT spaces designed to fit each process speeds up production. One workstation pulls output from the one before it, as needed, based on a master schedule or customer demand.
- Diversified Skills: Cross-trained workers can be moved from one part of a production process to another. This allows employers the flexibility to deal with an ever-changing business environment.
- Visibility for Control: Using a Kanban system makes it possible to communicate inventory levels throughout the entire company.
- Strong Supplier Network: Strong relationships with vendors help JIT inventory systems be the most effective.
- Worker Contribution: Every team member should contribute to and support the group's efficiency goals.
- Pull System: This is the process of replacing products only after they have been used to create other, new products.
What Are Some Examples of Just-In-Time Inventory Processes?
Here are some examples of JIT inventory:
- Vendor-Managed Inventory (VMI): This is a system in which suppliers manage the inventory levels of their clients and provide goods as needed.
- Kanban: This is a card system that signals when components or materials should be replenished.
- Point-of-Sale (POS) Tracking: This system tracks sales and usage in real-time to help businesses quickly identify what items need to be restocked.
- Electronic Data Interchange (EDI): This system electronically shares inventory and order information between a supplier and a business.
- Automated Replenishment System (ARS): This system monitors inventory levels and automatically places orders to replenish stock.
Why is Kanban Significant for the JIT Inventory System?
With Kanban, you can keep the work in progress at a minimum. Thus, the process reduces inventory and waste.
Kanban is significant for the JIT inventory system because it helps to ensure that the right items are produced and supplied at the right time. It is a method that uses visual signals to trigger the production and delivery of items, which reduces the amount of inventory needed and reduces the costs associated with keeping excess inventory.
Kanban also helps to reduce the risk of inventory stockouts and improves the effectiveness of the production system. Additionally, it allows for better management of the supply chain and facilitates communication between different departments. Finally, it provides an easy way to monitor and track inventory levels and production schedules.
Here is a summary:
- Kanban improves inventory accuracy, as it enables precise tracking of materials and parts.
- Kanban reduces the need for safety stock, as it enables materials to be available when needed.
- Kanban reduces the cost of inventory, as it reduces the amount of inventory needed and the amount of time wasted searching for items.
- Kanban reduces lead times, as it allows for a steady flow of materials and parts to be available when needed.
- Kanban improves overall efficiency, as it reduces the amount of time and resources needed to manage inventory.
5 Reasons for Manufacturers to Implement Just-in-time
Just-in-time inventory management reduces inventory levels and improves cash flow. It improves profitability by reducing unit costs. Minimizing stockouts and eliminating over-production are the other characteristics of JIT.
As a business, inventory represents a considerable cost to your company. When inventory levels go up too high, it could cause significant financial issues.
Just-in-time is a fundamental concept to help ensure that you do not run out of products. It can also save you time and money by helping you avoid costly mistakes associated with an unneeded stock. It is an inventory system that balances supply and demand.
When you have a large amount of stock sitting around, the company is losing money on it. But, when the company does not have enough inventory, it can lose customers who cannot find what they are looking for.
Here, we have the top 5 reasons to implement JIT in your company. Let’s check them out here:
Just-in-time inventory is a supply chain management strategy that eliminates overproduction and unsold products. It does so by reducing inventory build-up and boosting responsiveness. It is a method of planned production whereby raw materials, work-in-progress or finished goods are sent directly to production sites.
It sends them at regular intervals as needed within the same day or within 24 hours. The idea is to have a minimal amount of inventory in the system. So, when an order comes in, you can fill it immediately with only what you need. This significantly reduces waste and helps prevent costly mistakes from happening.
Lowers Warehousing Costs
Warehousing costs are a constant cost for most businesses. In a just-in-time inventory system, you do not need to hold on to your items in a warehouse unless there is a demand for them.
That is why companies that follow the just-in-time inventory model can eliminate warehouses altogether. This is because they do not need them since they are only holding items when needed.
Unlike other forms of inventory, just-in-time inventory is a best practice in which products are produced before they are needed. This allows businesses to keep their inventories low and cut costs associated with holding and storing inventory.
Empowers Manufacturers with Clear Insights
The supply chain in a JIT model is more flexible and responsive than those of traditional ones. A factory can meet customers' needs by quickly increasing the production of an in-demand product. Also, they can reduce the production of slow-moving items. This makes the JIT model flexible. It is crucial because it enables companies to cater to new demands with minimal inventory.
In a JIT model, the manufacturer has perfect control over the manufacturing process. This is the opposite of an MROM model, where the manufacturer has no control over production. The factory just does whatever it is told to do by its customers.
A factory with a JIT model will respond to customer needs by quickly increasing production for in-demand products. However, it reduces the production of unsold products. This makes it very flexible in responding to changes in demand. They also do not have to worry about existing inventory.
It also minimizes costs, which lowers the cost per unit. Thus, making it possible for a company to carry less inventory (making decisions based solely on demand).
Just-in-time inventory management requires you to start manufacturing only when an order is placed. This means that you will source your raw materials locally as soon as possible and have them delivered to your unit much earlier.
This in turn lowers the transportation time and cost of doing business. This translates into many complementary business opportunities running parallel. Additionally, it helps improve employment rates in the same demographic.
By implementing the Just-in-time or JIT inventory systems, you can have your financial costs reduced. Moreover, you can achieve increased productivity. Cost reductions will occur when a company is able to obtain only the amount of raw materials needed immediately.
This way, it can deliver the products faster than usual because of their shorter lead times. This concept is called a “just-in-time” delivery system because all of the products are obtained at their finishing stage. Also, it ensures that it has no stock-holding costs associated with it.
The less time spent on shipping inventory means more products can be sold at higher levels on an hourly basis. This translates into increased sales revenue.
The JIT inventory model is one of the most widely used inventory management systems in business operations. A key advantage of JIT inventory models is that it results in less stock holding (which is important for keeping your costs low). This in turn increases profits.
Drawbacks of Just-in-time
While the JIT method is useful, it also exhibits a few disadvantages.
- Reworking orders: One disadvantage of the just-in-time model is that it makes reworking orders very difficult. For example, if customers want to return an item or change their order (and they are within their rights as consumers), the company must incur additional costs in reprinting labels and other materials. These costs may not be covered by insurance.
- Dependence on suppliers: The manufacturer must depend on suppliers for performance and timeliness. These aspects are hard to ensure. Additionally, the manufacturing process is vulnerable to rises in raw-material costs. If prices suddenly rise unexpectedly then orders will not be placed when they can be afforded — only later than planned.
- May not be Eco-friendly: JIT involves frequent shipping and packaging. Thus, it is possible for such systems to have negative effects on the environment due to the overconsumption of resources.
- Risks: A JIT system can introduce significant risks to a company. Because it does not allow for stockpiling, disruptive events may cause a complete halt in sales.
- Necessitates software: If you do not use a just-in-time system, it is difficult to keep track of inventory and orders. To do this effectively, you should use a software program to help keep everything in order.
Just-in-time may be a good solution for companies, who do not have time to preserve the goods. Hence, it saves them from degradation by storing them back in the manufacturing facilities. In addition, it helps manufacturers to reduce costs. However, this strategy should be used very carefully. The company must ensure that it does not affect the sales of your product in any way.
The effectiveness of this strategy comes from the fact that just-in-time delivery simplifies inventory management. In other words, it eliminates storage costs and reduces shipping costs.
How can Deskera Help You?
How can you benefit from just-in-time? We suggest that you implement our ERP and MRP solutions, which greatly simplify the production schedule and make your life easier.
Deskera ERP and MRP solutions can assist you in the following areas:
Create production schedules: The production scheduler allows you to set your products into different stages, from the start of manufacturing through the stocking of the warehouse. This allows you to build a complete bill of materials that can be used for planning and budgeting, as well as recording and processing information about each stage.
Make a Bill of Materials: The BOM module permits you to make a bill of materials based on suppliers’ product specifications. Alternatively, it can be used to create a list of variants of an item by selecting items from different manufacturers or vendors.
Deskera ERP is a comprehensive and integrated business management software that offers powerful features, intuitive workflow, and flexibility to simplify your work.
With Deskera Books, you can streamline your accounts and finances more effectively by automating billing, invoicing, and payment processing. It helps to maintain good accounting standards. It also allows you to focus on revenue generation for your business.
Deskera CRM is a powerful tool that may help you arrange your sales and close deals rapidly. It enables you to perform key tasks such as lead generation via email, gives a full view of your sales funnel by creating custom reports, and manages leads and online marketing campaigns – all while saving time and money.
Deskera People is a central payroll, employee benefits, and other HR services application. It provides all the functionality you need to streamline your organization's HR functions. Deskera People enables the creation of payroll direct deposits, timecard entry, employee data files (including federal forms), benefit configuration and recordkeeping, leave management, and much more.
- Just-in-time inventory is a term that implies ordering inventory only as they are required.
- The method is used to describe a supply management model of having both goods and services inventory, based on demand.
- It is helpful for manufacturers to receive an inventory of raw materials just before production.
- Coordination with the suppliers can enable them to obtain raw material inventory in time.
- A major advantage of Just-in-Time inventory management is the ability to reduce waste and increase efficiency.
- The just-in-time inventory method uses a variety of techniques to improve operations. The lean approach focuses on optimizing the organization.
- Lean improves JIT production through Kanban. With Kanban, you can keep the work in progress at a minimum. Thus, the process reduces inventory and waste.
- Kanban is a flexible production process that removes downtime and reduces waste.
- With Kanban, you can pull inventory off your shelves before demand outstrips production space. Also, you can buy more stock when demand spikes.
- Just-in-time is a fundamental concept to help ensure that you do not run out of products.
- As a business, inventory represents a considerable cost to your company. When inventory levels go up too high, it could cause significant financial issues.
- There are 5 reasons why implementing JIT would be good. JIT helps reduce waste and lowers warehouse costs. It provides clear insights to the manufacturers. It also helps in local sourcing and making smaller investments.
- There are certain disadvantages to JIT. It makes reworking orders difficult. It tends to increase dependency on the suppliers. Also, JIT may not be eco-friendly. Furthermore, there are risks and it necessitates the use of a software.