There are three inventory management techniques: pull, push, and just-in-time. Depending on the business requirements, a brand manufactures inventory based on customer demand, also known as the pull method. The push method is when a brand pushes out products based on expected demand.
Apart from these two methods, there is a third method, which is our focus in this blog – the just-in-time inventory management method.
Just-In-Time or JIT is an inventory management method in which goods are received from suppliers only as and when they are needed. The main objective of this method is to reduce inventory holding costs and increase inventory turnover. Businesses use this method to reduce inventory waste, improve efficiency and have accurate demand planning.
Although the history of JIT traces back to Henry Ford, the American businessman who applied similar principles to manage inventory in the Ford automobile company during the early part of the 20th Century, the origins of JIT as a management strategy track down to Taiichi Ohno of the Toyota manufacturing company.
He developed the just-in-time strategy as a means of competitive advantage during the post-World War II period in Japan.
Just-In-Time Management is also known as Lean Management, Cycle Time Management, Quick Response Manufacturing etc. However, while lean management is a customer-centric philosophy focusing on manufacturing and operations management, JIT has a more business-centric philosophy focused on the production process. Hence, businesses prefer it more as their go-to approach.
JIT inventory management ensures that stock arrives as needed for production or to meet consumer demand, not earlier. The goal is to eliminate waste and increase the efficiency of business operations.
Since the main objective is often quality and not the lowest price, JIT requires long-term contracts with reliable suppliers.
In JIT, the parts of the production or service system are interconnected. These systems exchange information and are mutually dependent on generating successful outcomes. It is a continuous improvement process aiming to streamline the business strategy.
For a successful just-in-time model, a business needs the following:
Due to this type of inventory management, businesses require robust network connectivity along with Artificial Intelligence, machine learning, Internet of Things, cloud ERPs, and blockchain technologies to share and analyse data in real-time and make smarter decisions.
Since the just-in-time process aims to reduce waste and improve quality, the strategy goes through an 8-step cyclic process for continuous improvement.
Just-In-Time inventory management has several advantages. It aims to boost a business’s ROI by reducing waste, increasing efficiency and lowering inventory carrying costs.
Some of its other advantages are as follows:
Although JIT has several advantages, there are some disadvantages of the same. The following are the drawbacks of JIT:
JIT inventory management is not for every business. Every business has its own unique requirements and implements inventory management processes accordingly. Here are six factors to consider before opting for just-in-time inventory management.
Just-In-Time inventory management is helpful for businesses to manage production and fulfill orders efficiently. They find it beneficial because it reduces waste and helps maintain a positive cash flow. However, there are downfalls to the same. Now that you have an overview of JIT, you can make an informed decision about your business.
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