Just-in-time inventory and manufacturing have been prevalent in the supply chain ecosystem for some time now, and quite a few organizations have accepted this approach. With edgy competition and immense pressure to increase profitability, many companies have adopted this method to enhance their bottom line’s overall performance. Just-in-time inventory requires accurate forecasting. That’s why, to utilize this strategy, you need agile inventory planning software for accurate predictions and precise implementation.
What Is Just-in-Time (JIT) in Inventory Management Systems?JIT is an inventory management technique that emphasizes keeping as limited an inventory as possible. Instead of continuing to stockpile products and raw materials, you can order shipments of smaller sizes to replace inventory as you predict and fulfill orders. Just-in-time is designed to minimize costs from the production process while ensuring top-shelf quality products. With just-in-time inventory working side-by-side with you, you don’t have to stress about excess inventory at the moment when an order gets canceled or not fulfilled for any other reason. Grocery stores are the perfect example of companies that adopt just-in-time inventory. When a product runs low, these stores order more. This enables them to keep sufficient stock levels and eliminate unwanted inventory that would lead to waste.
Benefits of Just-in-Time Inventory
JIT requires planning the whole supply chain and using superior technology such as inventory management software software to carry out the entire process until the final delivery, which enhances efficiency and reduces the scope for error, as each process is accurately monitored. Here are some of the benefits of just-in-time inventory management systems.
Inventory waste reductionThe JIT method significantly reduces overproduction, which happens when the supply exceeds the overall demand in the market and unsold inventory accumulates. These unsold items turn into dead inventory, leading to waste and consuming extra inventory space. In just-in-time inventory management, you can order only what you need, so there is no risk of maintaining excess and unwanted stock.
Reduced storage holding costAny kind of storage costs money! Excess stock can double your holding costs. In the just-in-time method, the storage holding costs are kept at a minimum. That’s because you only order when the order is placed. Your product is already sold before it reaches your storage, so there is no need to store your products for too long. Businesses that apply the JIT inventory model can minimize the number of items in their warehouses or decrease the warehouse storage altogether.
More controlWith just-in-time inventory, businesses gain complete control over an accurate manufacturing process, which works on a demand-pull basis. You can respond to customers’ requests by quickly pumping up the production for a bestselling product and reducing output for slow-moving items. This makes the just-in-time inventory method more flexible and able to deliver efficiency in ever-changing market trends. For instance, most automakers do not buy raw materials until an order is received. This enables the company to maintain minimum inventory, thereby reducing costs and enabling easy adaptation to changes in demand without worrying about existing inventory.
Promotes local sourcingSince the JIT method needs you to start the manufacturing process only when the order is placed, you can source your raw materials locally, as these will get delivered to your unit much earlier. Also, sourcing from local vendors reduces the transportation costs and time required. This enables many complementary businesses to run in parallel, improving the overall market and employment rates in that area.
Less parked investmentWith just-in-time inventory, only needed stocks are maintained in the inventory, and that’s why less working capital is required for finance procurement. Reduced stock being held in inventory also results in higher ROI. The JIT model uses the “right first time” processing concept, which means performing the major activities right the first time, thus reducing inspection and rework costs. This requires less overall investment for an organization, less money invested in investigating errors, and more profit generated from selling the products.
Drawbacks of Just-in-Time InventoryEven though JIT makes businesses more efficient and enables cost savings, it has a few challenges:
- Just-in-time makes it challenging to rework orders, as the inventory is always kept at a minimum and only depends on the customers’ original product order.
- The JIT model relies upon suppliers’ timely delivery and performance, which are challenging to ensure. Moreover, the manufacturer has to bear any sudden hike in the price of raw materials because they can’t wait for better pricing before placing the order.
- Since the just-in-time model requires a lot of shipping movements back and forth among suppliers, manufacturers, and customers, it can have adverse effects on environmental sustainability due to overconsumption of fuels and packaging.
- In case of sudden disruptions, a just-in-time inventory method can significantly impact the overall supply chain management. Since there is no adequate stock to fall back on, sales may face some discrepancies.
- JIT in inventory management systems needs to be accurately tracked and organized, which is extremely difficult if you do it manually. Solutions like inventory forecasting software should be adopted to streamline the process.