Logistics & Supply Management

Just-in-Time Inventory

 

Just-in-Time (JIT) is a production strategy that strives to improve a business’ return on investment by reducing in-process inventory and associated storage costs. To meet JIT objectives, the process relies on signals between different points in the process which tell production when to make the next part and what to order. Since large inventory of items are not kept in stock, JIT requires purchasing to order new stock as needed.  Managing stock depletion is critical to the inventory reduction at the center of JIT. Implemented correctly, JIT focuses on continuous improvement and can improve a manufacturing organization’s return on investment, quality, and efficiency. To achieve continuous improvement key areas of focus could be flow, employee involvement and quality. [1]

The JIT concept is considered by many to be a technique used to reduce inventories but its more than that. The complete JIT concept is an operations management philosophy whose dual objectives are to reduce waste and increase productivity. However, operationally, the basic theme of the JIT concept is that inventory is bad.  Inventory is considered undesirable for three reasons: [2]

  • It hides quality problems
  • It hides production inefficiencies and productivity problems
  • It adds unnecessary cost to the production operations: carrying cost of approximately 25 to 35 percent of the inventory value per year.

JIT manufacturing can be a real money-saver for a company. Companies are not only more responsive to their customers, but they also have less capital tied up in raw materials and finished goods inventory, allowing companies to optimize their transportation and logistics operations (UPS, 2003). [3]

JIT manufacturing results in lower total system costs and improved product quality. With JIT, some plants have reduced inventory more than fifty-percent and lead time more than eighty-percent (Droge, 1998). JIT is lowering costs and inventory, reducing waste, and raising the quality of products. [3]

Weaknesses of JIT:
Just as JIT has many strong points, there are weaknesses as well. “In just-in-time, everything is very interdependent. Everyone relies on everybody else” (Greenberg, 2002). Because of this strong interdependence with JIT, a weakness in the supply chain caused by a JIT weakness can be very costly to all linked in the chain. JIT processes can be risky to certain businesses and vulnerable to the supply chain in situations such as labor strikes, interrupted supply lines, market demand fluctuations, stock outs, lack of communication upstream and downstream in the supply chain and unforeseen production interruptions. [3]

Labor strikes, stock outs, and port lockouts can quickly disrupt an entire supply chain while JIT processes are in place. “Adhering to the just-in-time concept can be expensive in times of emergency such as at ports” (Greenburg, 2002). When a ship arriving from Asia full of supplies cannot make it to shore, the company using JIT generally has very little inventory to compensate for the emergency. This lack of inventory is exactly what makes JIT so great to companies in reducing costs, yet making it risky as well by in some cases not having enough buffer inventories to react and keep the supply chain moving. [3]

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