Just-In-Time is an Inventory Management Strategy where you focus on reducing the inventory holding cost by ordering raw materials. They arrive when there is a need for those materials on the production floor.
For effectively using JIT manufacturing house needs
Reliable and Flexible Suppliers
This is perhaps one of the biggest challenges when implementing JIT. Suppliers should be able to ship goods on brief notice. They should be flexible to cater to smaller quantities of goods, i.e., the supplier should be flexible on lot-sizing.
Proper demand forecasting
If demand forecasting is not accurate, we end up ordering either more or less (unless you use Pull System for replenishing raw materials). If we order more, then the whole concept of JIT is wasted. If we order less, then we might have to pay with the opportunity cost lost.
Streamlined Production Floor
If your production floor is not streamlined and encounters unexpected breakdowns, the entire JIT strategy advantage is negated and affects the entire supply chain.
To conclude, if you have reliable suppliers of the streamlined manufacturing floor and an accurate demand forecasting technique in place, you can leverage JIT to reduce inventory manufacturing holding costs, reduce overproduction or under-production and eliminate inefficient processes/manual activities in your manufacturing house.
Why is Just-In-Time (JIT) manufacturing difficult to implement?
There are a lot of reasons. Some of them are:
Leading companies keep the raw material inventory for 2–3 hours only. This means the raw material gets replenished within that time, and a new truck of raw material has to arrive to continue the production. The industries like mine have hundreds of components. If even a single component failed to reach, production might stop.
Supplier and logistics management
Now think of the 2-hour Time Inventory again. It’s okay if the raw material is of A, B class (read ABC analysis of inventory management), i.e., if the product is bigger, since 2 -3 hours. Time inventory may fill a truck. But if the raw material is smaller in size, the full truck would be 8–10 hours. So it wouldn’t be economical for the supplier. Hence the concept of Milk run has to be appropriately managed. There are also the need to have software for logistic services, tracking, and management.
The finished good has to be delivered from time to time. Remember, the milk run concept has to be appropriately applied not only from supplier to industry but also to the internal logistics system, i.e., movement of material from inventory to assembly line.
The basic reason that all study is minimizing inventory management. As the inventory blocks the capital of an industry, that money could be invested somewhere else with good returns instead of purchasing huge inventory management.
Another important reason is to become flexible. Respond Quickly to market changes and customer demand. Because of JIT, manufacturing lead time inventory(time taken from raw material to finished goods, including time spent in inventory lot) reduces. Imagine when the industry has purchased the raw material of a product X for several weeks, and the marketing team finds out the company is not getting any benefit from that product. Because of the high lead time inventory, it will do changes in the manufacturing unit after a long time.
The total space occupied by raw material would be less.
If the industry is dealing with a variety of products, then it is difficult for the industry to hold large varieties of raw materials. So reducing the overall quantity, it is necessary to reduce the quantity of each type and therefore implement just in time. So, the more varieties of products there are, the more important the Just in time be.
What are the benefits of a “just in time” (JIT) production strategy?
Just in time in production environments is used to reduce the costs of storage.
The costs of storage come in two ways:
● We cannot use elsewhere the invested capital
● Stock can become obsolete because of deterioration of quality or changing customer demands
This shows the benefits as well: capital can be used elsewhere, and the agility of the operation improves, which makes continued customer satisfaction easier when customer demands change.
The reasoning behind just in time is that customers are not willing to pay for the costs of storage, but these costs are included in the product’s price, anyway.
When customers’ demand can be satisfied with “on-demand” delivery, where a short delivery time is paid for with a premium and a longer delivery time is discounted, companies can take the time pressure of customers as an additional factor in value delivery (and with that price).
This can lead to the situation where you as a customer choose between a showroom car at 1000 delivered today, a similar standard car with three weeks delivery time (manufacturing + transport) for 800, and a special customization delivery within one week for 3000.
The flexibility of Just in time makes this possible, as long as the production process line supports the creation of the desired car.
What types of products would benefit from a just-in-time inventory strategy?
JIT inventory essentially helps when you deliver something after doing some work. Mostly it applies to any production work such as Car, Fridge, and more. But, it can equally apply to your services such as Software Product delivery or even processed/cooked food items.
I would probably list the criteria for JIT inventory as below:
● No pre-work is required. The goods can just be used in your product.
● You do not anticipate any shortage of inventory goods shortly
● You do not anticipate a significant price rise shortly
● The goods are readily available in the market, or you have established a reliable subcontractor/vendor (‘supply chain’) to supply the just-in-time goods.
For example, standardized components such as screws, bolts, pipes, and more, qualify for just-in-time inventory. Similar is the case with cement, provided we do not anticipate cement shortage or steep price rise.
Advantages of just in time inventory management
Companies like to use JIT as it is seen as a more cost-efficient method of holding stock. Its purpose is to minimize the number of goods you own at any time, and this has numerous advantages:
Less space needed
With a faster turnaround of stock, you don’t need as much warehouse or storage space to store goods. This reduces the amount of storage a company needs to rent or buy, freeing up funds for other parts of the business.
A faster turnaround of stock prevents goods from becoming damaged or obsolete while sitting in storage, reducing waste.
This again saves money by avoiding investment in unnecessary stock and reducing the need to replace old stock.
JIT inventory management is ideal for smaller companies that don’t have the funds available to purchase huge amounts of stock at once. Ordering stock as and when it’s needed helps to maintain healthy cash flow.
Disadvantages of just in time inventory management
JIT, unfortunately, comes with several potential disadvantages, which can have a significant impact on the company if they occur.
Risk of running out of stock
By not carrying much stock, you must have the correct procedures to ensure stock. Also, customer orders become readily available and quickly. To do this, you need to have a good relationship with your supplier(s). You may need to form an exclusive agreement with suppliers that specifies supplying goods within a certain time frame, prioritizing your company. JIT means you become extremely reliant on the consistency of your supply chain. What if your supplier struggles with your requirements or goes out of business? Can you get the products quickly from somewhere else?
Lack of control over the time frame
Having to rely on the timeliness of suppliers for each order puts you at risk of delaying your customers’ receipt of goods. If you don’t meet your customers’ expectations, they could take their business elsewhere, which would have an enormous impact on your business if this occurs often.
More planning required
With JIT inventory management, companies must understand their sales trends and variances in close detail.
Most companies have seasonal sales periods, meaning several products will need a higher stock inventory level at certain times of the year because of higher demand. Therefore, you need to consider planning for inventory levels, ensuring suppliers can meet different volume requirements at different times.
Jit systems have been solving production systems since world war ii. Hence, companies can focus on meeting customer demand at reducing inventory costs.
Are you looking to reduce the inventory holding cost and ensure continuous flow manufacturing and production system, then look no further. Jordan Ketchens, the CEO of 3PL Bridge, brings inventory costs solutions just in time to meet customer demand.