Just-In-Time (JIT) inventory is a strategy used to increase efficiency and minimize waste in the manufacturing process. The overarching concept of JIT is relatively simple, with a JIT approach, when an inventory item is in demand, it is delivered and as a result this system does not have high inventory levels. By receiving goods only as they are needed in the production process, it minimizes inventory costs. There are many factors that must work in harmony for such a system to be successful. Below are some of the key highlights of a JIT inventory system.
Low Inventory Levels
Inventory is only received from a supplier at the exact time it is needed for production or sale. This means orders are placed in smaller batches, on a more frequent basis. With JIT, inventory levels are kept low which keeps on-site inventory at a minimum.
Elimination of Waste
Eliminating waste in manufacturing operations leads to a reduction in overall costs. With a JIT inventory system there is not a need for excessive production resources. In addition, overproduction is not an issue as each production process is streamlined and forecasted to produce exact numbers. Precise inventory management leads to low inventory levels; therefore, excessive inventory is eliminated. Lastly, minimizing the initial capital investment spent on inventory prevents overstocked items and increased holding costs, and allows a business to run leaner to reduce waste. Large inventories demand an unnecessarily high capital investment. As these factors culminate, waste is eliminated.
Efficiency is key to successful JIT inventory. The ‘just-in-case’ method of inventory is where a reserve amount of inventory is kept in a warehouse, just in case it is needed. This is not nearly as efficient as it means extra stock has been delivered weeks or months in advance and held in a warehouse. Keeping extra stock on hand would lead to additional stock-takes and more moving and handling of the stock will occur, which also allows for more errors. Supply operations in JIT inventory sees materials arrive as needed. Performance and stock inadequacies can be identified on the spot, rather than at a much later time when the stock would be used in a ‘just-in-case’ scenario.
An automated purchasing method streamlines the purchasing process. Automation can effectively and efficiently source, order and plan for the delivery of materials. An advanced inventory management system is imperative for the JIT system to work as an automated inventory management system can identify current inventory and production levels, as well as identify the time needed for ordering and receiving materials. Also, a cloud-based inventory system would allow for up-to-date information about the company and supplier stocks. It is vital to have the right computerized systems in order to communicate and coordinate aspects of a JIT system.
In order to implement a JIT inventory system, the business must have dependable relationships with their suppliers. A strong network of suppliers will allow the JIT inventory system to flourish. Communicating information about the logistics of the supply, including quantity, timing and product detail, is vital to this process. If the business can reach out and depend on a strong network of suppliers, chances are the suppliers will be more willing to adapt and help when situations change. In addition, the relationships built with suppliers can often lead to the formation of long-term contracts.
JIT inventory is a very effective and efficient way of developing and growing a business through strong inventory management processes. These highlights are simply a few of the key features of this innovative system.