What is Just-In-Time Inventory Management?

Businesses are shifting back to just-in-time (JIT) inventory management. They had transitioned to a just-in-case (JIC) approach in response to shortages caused by the supply chain disruptions of the pandemic years. However, the shift back to JIT is an effort to leverage the benefits of this strategy and offset rising interest rates and the higher cost of the JIC strategy.

Regardless of the advantages of JIT, it’s essential to enter this approach prepared to meet key requirements for success and recognize the risks of JIT. Otherwise, you may be blindsided by potentially negative impacts and issues.

What is a JIT Warehouse?

JIT is an inventory management method focused on keeping inventory to a minimum. Instead of stockpiling products or raw materials, JIT is intended to reduce production costs while maintaining product quality.

JIT warehouses prevent the accumulation of unwanted inventory, limiting the waste associated with the disposal of excess products or materials.

How does JIT inventory management work

A just-in-time inventory management strategy is intended to minimize inventory and increase efficiency while containing costs. However, the JIT process varies based on the type of business. A typical JIT process involves the following steps:

• A customer places an order.
• The business receives the order and procures the product or raw materials from suppliers to satisfy the order.
• Suppliers receive the orders and deliver them to the business.
• The business manufactures the product, if needed, and fulfills the order.
• The customer receives their order.

Establishing a JIT process is not a one-time event. It’s essential to monitor the efficiency and effectiveness of each step closely. This enables crucial supplier, logistics, and process adjustments to address issues as they arise, minimize costs, and ensure quality and customer satisfaction.

Advantages & Disadvantages

Implementing JIT comes with a mix of advantages and disadvantages. It’s important to weigh your options before proceeding.

Advantages 

• Lower costs: Ordering goods and materials as needed reduces inventory costs. This ties up less capital in inventory and reduces costs associated with their movement and storage.
• Enhanced productivity: Shorter production runs translate to faster product delivery.
• Improved customer satisfaction: Producing goods on demand ensures the latest model or the freshest perishable item is used to fulfill orders. The smaller production runs facilitate greater quality standard enforcement. These elements boost customer experience and satisfaction.
• Less waste: JIT reduces overordering and stockpiling, decreasing the risk of accumulating unwanted or obsolete inventory and its disposal.
• More flexibility: JIT involves manufacturing products in response to customer orders. This allows businesses to easily adjust to changing market conditions and customer preferences without surplus inventory concerns.

Disadvantages

• Potential supply chain disruptions: As seen during the recent Pandemic, not all aspects of the supply chain are under our control. Unforeseen events such as natural disasters, geopolitical issues, and strikes can disrupt the transportation of products and materials resulting in shortages and production delays.
• Greater complexity: Managing JIT processes is more involved, requiring tighter inventory, staffing, and risk management, better demand forecasting, and diligent planning.
• Less production scheduling flexibility: The JIT strategy means manufacturing smaller batches in response to customer demand leaving production at the mercy of supply chain delivery schedules.
• Increased transportation costs: Smaller, more frequent supply orders and delivery requirements to meet production schedules may lead to higher transportation costs. These stem from technology requirements to ensure visibility throughout the supply chain and the higher costs to move smaller orders on a tighter timeframe.
• Higher risk inventory imbalances:  The JIT model requires the maintenance of minimal inventory based on demand forecasting. However, reliance on supplier performance and timeliness, demand forecast accuracy, and supply chain predictability increases the risk of stockouts and overstocking.

Requirements for JIT to work

The requirements for effective JIT implementation include: 

• Small, frequent production runs: Secure suppliers able to produce and deliver smaller, more frequent orders to accommodate production based on customer demand. This also reduces inventory costs, improves overall efficiency, and enables overall flexibility.
• Streamlined operations: Efficient production processes minimize delays and ensure timely customer order fulfillment. Good communication and coordination with suppliers is essential for JIT process efficiency. Automation tools and formal process improvement methods also help streamline operations.
• Strong supplier relationships: Keeping production and delivery of goods on schedule is essential to JIT. Suppliers must be able to deliver goods and materials in frequent small quantities with tighter delivery requirements. They must also be responsive and consistently timely in delivery and quality.
• Excellent stakeholder communication: JIT manufacturing requires excellent communication internally throughout the organization and externally with suppliers and logistics partners. This ensures everyone is always up to date on schedules and deadlines and allows the organization to recognize customer demand changes and adapt accordingly.
• Well-defined production process: Establishing standardized operations ensures production efficiency while helping minimize delays and errors. A consistent process facilitates problem identification and resolution for continuous improvement.
• Production pull system: Controlling production based on actual demand for the product, also called a pull system, helps reduce established inventory levels. Under this method, raw materials and components are ordered from suppliers as needed.
• Establish backward planning: Planning production steps starting from the customer’s due date and working backward, minimizes delays and stockouts. Doing so ensures everything needed is available throughout the process.
• Continuous improvement: Looking for ways to increase supply chain efficiency and effectiveness is essential to JIT’s success while helping companies remain competitive and aligned with market changes.

Who uses JIT

Businesses with fast-changing market and customer demands, short product life cycles, and a need for cost containment can benefit from JIT. 

Industries that commonly use JIT include:

• Paper and Pulp
• Plastics and Packaging
• Steel and Metal Fabrication
• Electronics
• Food & Beverage
• Aerospace & Automotive
• Fast-Moving Consumer Goods
• Industrial Equipment
• Chemical Processing

Logistics role in JIT

Logistics plays a crucial role in JIT’s success. Managing inventory properly with accurate demand forecasting allows for effective delivery scheduling. Real-time monitoring of production, transportation, and delivery is necessary to ensure issues are detected early on to prevent production delays. Automation aids in streamlining processes to minimize delays.

Warehouse location, storage design, and proper shipping preparations and planning play a major role in supporting efficient JIT operations. Plus, effective transportation management is key to JIT’s success ensuring optimum routes, modes, and carriers deliver materials and products without incident.

Getting started with JIT

Businesses are shifting back to just-in-time inventory management from a just-in-case approach. Although JIT has many benefits it’s crucial to be aware of the key requirements of and potential risks of this strategy. Otherwise, your transition may be fraught with issues and fall short of expectations.

Contact WSI to talk with an expert to learn how we can help with the logistics of JIT inventory management.