Just in Time Inventory System
What is Just in Time?
Just-in-Time (JIT) is an inventory management system intended to increase production efficiency and profit by controlling inventory and associated costs. Products are produced when they are needed and in the quantity needed.
Companies often store excess product inventory to be responsive to customer demand. This is known as the Just-in-Case (JIC) inventory system. Opposite to Just-in-Time, the goal of the JIC system is to reduce the risk of a stock shortage due to unexpected circumstances, such as a rise in customer orders, supplier reliability issues, and logistic issues. Stocking up on inventory to ensure demand is satisfied may seem ideal, but it comes with a significant cost. Companies risk capital tied to inventory, warehouse costs, and obsolescence to name a few.
This is what Just-in-Time aims to eliminate.
JIT has proven to increase operational efficiency. However, the system relies heavily on the reliability of parts and supplies entering the production stream along with smooth operational flow on the production floor. When implemented correctly, JIT enables companies to eliminate waste, cut unnecessary costs, and improve its overall productivity and profitability.
History of Just-in-Time in Manufacturing
It is known that during the post-World War II era, the Japanese developed and used the concept of Just-in-Time. Due to the aftermath of the war, Japanese companies were lacking the capital to spend on large-scale productions compared to more highly developed countries at that time. They also faced a shortage of natural resources and space to rebuild their factories, which forced them to carefully utilize what they had. This resulted in a smaller lot productions and carefully designing processes to be as lean as possible.
The birth of the Just-in-Time philosophy may have come out from a necessity to survive. However, the concept had proved to be so effective that the Japanese identified it as an essential foundation to implement a truly lean process.
JIT was seen to have been fully implemented and formalized by the automobile industry in Japan, particularly Toyota. Taiichi Ohno, known as the father of the Toyota Production System, traveled to the United States to study and observe their manufacturing processes. This was when he conceptualized Just-in-Time, and along with it, the Kanban methodology.
Just-in-Time and Kanban
The Kanban methodology is a critical element in implementing the Just-in-Time inventory system. Through Kanban companies are able to communicate their production needs in a systematic and efficient manner.
It is important to highlight that Kanban works hand-in-hand with JIT. Kanban serves as the control method that signals when it is time to pull raw materials or parts, in the right quantity or amounts. Kanban cards are used as the “go-signal” for upstream processes to work on the parts and make it available for the downstream processes.
The Kanban system fundamentally facilitates the implementation of Just-in-Time. It serves as the guide within the production floor on what and when to work on an item. With Kanban’s visual manner of relaying information, companies are able to better monitor and manage the flow of work-in-progress, goods, and demand requirements within the process.
Benefits of Just-in-Time
When implemented correctly, Just-in-Time delivers great benefits to businesses. Some of which include:
- Lower inventory storage costs – Since goods almost instantaneously delivered to customers, companies don’t need to invest in big warehouses to store their goods.
- Minimize dead stock – Since production has done as close to demand as possible, businesses lessen the risk of leaving their goods stocked up on shelves.
- Reduction in Work-in-Progress (WIP) goods – Lesser WIP moving in the shop floor allows teams to focus on getting products out the pipeline in the highest quality possible.
- Shorter production cycles – With smaller lots and a decreased throughput time, companies are able to satisfy demand faster.
- Free up cash flow for other investments – Money that would have spent on inventory costs and excess production can allocate to other investments.
These benefits don’t come instantly though. A proper implementation of Just-in-Time requires a good understanding of a company’s supply chain, where the reliability of both upstream and downstream process kept intact. Any breakdown on a supplier’s process in which they are unable to keep commitments creates a domino effect that can put production into a halt. The little room for error in JIT, all of the nuts and bolts need to be functioning properly. In order to do this, companies must employ the use of other lean techniques to make their processes robust.
Potential Risks of Just-in-Time Inventory System
Implementing JIT greatly depends on a high level of accuracy of customer demand, supplier response, and resource reliability. Deviations would most likely incur costs with the possibility of losing customers to competitors.
Companies using JIT will also experience difficulty adapting to sudden surges in customer demand. Any shortage of raw materials or parts will inevitably cause delays in shipment to the customer. With time-sensitive orders, businesses risk losing customers.
Production in smaller lots could also result in spending more rather than ordering raw materials in bulk. This is one of the main reasons why companies prefer producing in large batches. It is because the cost of production decreases as the amount in production increases.
Business are not confined to use JIT or JIC exclusively, as many benefit from implementing a hybrid approach. It boils down to finding the right balance. It will work best for the business and regularly fine-tuning your processes to improve flow, reliability, and flexibility.
