Just in Time Inventory Management

As the name suggests, just in time (JIT) is the inventory management method where the stocks are received from the supplier at the time of their requirement. This decreases inventory holding costs and increases the inventory revenue turnover by increasing cash flow in the business. The entire process of Just in time inventory management requires proper planning of the whole supply chain and the usage of superior software to plan the industrial task to eliminate any error in the process.

Following are some acute effects of the Just in time inventory management system:

 

[1] Gives Manufacturer more control: The Manufacturer gets more control in the JIT inventory management model. It helps them to Manufacturer at varying speeds to cater to ever-changing market needs. For example, Toyota orders raw materials when an order is received, which allows them to reduce the inventory holding cost and gives the Manufacturer more control in product manufacturing.

 

[2] Decreases warehouse holding cost: If you don’t use the JIT model, you will probably increase the holding cost in inventory and warehouses. The finished product can’t be shipped until the order is received. Using the JIT inventory management model, the cost of warehouse holding will also decrease significantly. 

 

[3] Local sourcing: You have to order the raw material as soon as the order is received. The raw material is ordered from a local supplier (near the industry), reducing transportation costs and ensuring quick delivery.

 

[4] Smaller investments: In the JIT model, fewer stocks are required for product manufacturing, decreasing financial procurement. This led to smaller investments in product manufacturing and shipment in the market. 

 

Working of Just in Time Inventory Management model:

 

Step 1: The Process starts with the customer placing the order and the Manufacturer receiving the order.

Step 2: The Manufacturer orders the raw material required to manufacture the product ordered. 

Step 3: Supplier delivers the material required for manufacturing the product. 

Step 4: The Manufacturer starts manufacturing as per the requirement and finishes the product manufacturing.

Step 5: The product is sent directly to the customer, and the customer receives the product.

 

The entire process of JIT saves time for inventory storage and warehouse holding, making the whole process of the supply chain quick, and increasing customer satisfaction with the product. However, the process of Just in Time has certain drawbacks, which are as follows:

 

[1] It is challenging to rework the ordered product to keep the minimal inventory cost.

[2] The model is highly dependent on the timeline of product manufacturing, supplier raw material delivery, and product shipping, which is very hard to maintain.

[3] In very high demand, it will be challenging to follow JIT as the supplier will have less raw material available at their place.

 

In the end, just in time saves you many costs that would otherwise be tied up as inventory holding costs. At the same time, just in time should be executed carefully so that your business does not face loss in times of unpredictable events.