Just in Time (JIT) Method

An inventory management methodology where the goods are received from the designated suppliers only when they are needed in the production process.

Author: Shriya Chapagain
Shriya Chapagain
Shriya Chapagain
Reviewed By: Sakshi Uradi
Sakshi Uradi
Sakshi Uradi
As a qualified Certified Management Accountant (US CMA), I have developed a strong foundation in financial planning, budgeting, forecasting, performance management, cost management, internal controls, technology, and analytics. Currently working as a data analyst at S&P Global, where I analyze and deal with financial data and estimates. I thrive in dynamic environments that demand continuous learning and adaptation. I am thrilled about the endless possibilities that lie ahead in the finance and data analytics realm.
Last Updated:May 29, 2024

What Is Just-in-Time (JIT)?

The Just-In-Time (JIT) is an inventory management methodology where the goods are received from the designated suppliers only when they are needed in the production process.

JIT is a comprehensive inventory and production management methodology developed in the US in the 1970s. Organizations using this production and inventory management methodology only order the materials when needed.

The materials required in the manufacturing process arrive when the need for a particular item is intimated. Demand creates a need. 

The demand "pulls" the product into the system. Therefore, the JIT system is preferred because it reduces unnecessary inventory storage, obsolescence, and depletion costs.

JIT inventory ensures sufficient stock to produce only what is required at the time of need. High-volume production with little inventory on hand and waste elimination are the objectives. Excess inventory can cause your holding costs to double and the warehouse to be expensive.

For the just-in-time method to work, the company must accurately predict customer demand for products and services.

For instance, a just-in-time car manufacturer will order the inventory needed to manufacture cars after receiving an order.

An organization with a robust and reliable network of suppliers who can provide the correct quantity and quality of materials and deliver them at the right time should use this method to take advantage of this production management technique.

The automaker will only order the quantity of inventory needed to deliver the order. This saves the automaker money on inventory storage and minimizes waste.

Key Takeaways

  • Just-In-Time (JIT) is an inventory management and manufacturing strategy that aims to improve efficiency and reduce waste by receiving goods only as they are needed in the production process.
  • The Just-In-Time (JIT) inventory management approach minimizes inventory costs and maximizes the flow of goods from suppliers to production and from production to customers.
  • Enterprise Resource Planning (ERP) systems are often used to manage JIT operations, providing real-time data on inventory levels, production schedules, and supply chain activities.
  • Understanding JIT is crucial for improving operational efficiency, reducing costs, and responding better to market demands. Effective JIT implementation requires careful planning, strong supplier relationships, and a commitment to continuous improvement.

Understanding Just-in-Time Method

In manufacturing, the just-in-time inventory method is known as a "pull" strategy. Inventory is "pulled," and more manufacturing supplies are ordered when sales activity justifies increasing production.

JIT cuts the funds and cash tied in the inventory by ordering the inventory-at-hand only when it's required in a particular department or process. It facilitates using funds where it can prove to be more productive. 

The objective is to reduce waste and improve the effectiveness of business operations. Since quality rather than the lowest price is frequently the primary goal, JIT necessitates long-term agreements with dependable suppliers.

JIT is an example of a lean management technique. All components of any production or service system, especially people, are connected in JIT. They share information and depend on one another to produce successful results.

Kaizen, which means "change for the better" in Japanese, is where this practice started. The business philosophy has its roots in Japan and aims to continuously enhance operations while involving every employee, from the CEO to assembly line workers. 

Importance of just-in-time

Just-in-time production demands meticulous supply chain planning and top-notch software to complete the entire process until delivery, improving efficiency and reducing room for error because each process is tracked.

A just-in-time inventory management system has the following significant effects, to name a few:

1. Increases manufacturer control

In a JIT model, the manufacturer controls the demand-pull-based manufacturing process. As a result, they can quickly increase the production of a product in high demand and decrease the production of products in low demand to meet customer demand. 

As a result, the JIT model is adaptable and able to meet the constantly shifting market needs.

2. Local sourcing

To meet the requirements of just-in-time manufacturing and begin production only after an order has been placed, the raw materials must be purchased locally and delivered to the unit as early as possible.

Local sourcing also cuts down on the time and expense associated with transportation. However, this necessitates the parallel operation of numerous complementary businesses, raising employment rates for that particular demographic.

3. Reduced risk, lower investment

Only necessary stocks are acquired in a JIT model, necessitating less working capital for finance procurement. Therefore, the organization would see a high return on investment due to the lower inventory.

This model uses the "right first time" concept, which refers to performing tasks correctly the first time, to reduce inspection and rework costs.

As a result, the business needs to invest less money, less money is required to fix mistakes, and more money is made when an item is sold.

How Does Just-in-Time Inventory Work?

The JIT method enables businesses to maintain minimum inventory levels while still having enough inventory to fulfill customer orders. First, let's talk about the JIT inventory's efficient steps:

1. Ensure plant efficiency

JIT manufacturing is centered on total plant efficiency. Therefore, it's crucial to maximize overall equipment effectiveness (OEE). 

OEE measures how well a production line operates with its intended capacity when it is scheduled to perform.

Control systems like programmable logic controllers (PLCs) and supervisory control and data acquisition (SCADA) systems can be easily integrated into the current production lines to help uncover any inefficiencies that may already exist.

2. Maintain quality control

Effective traceability techniques are essential for a JIT production process to be successful. Installing traceability technology will help keep waste to a minimum, maintain quality control, and pinpoint the date, time, and location of any problems that occur during the processing stages.

Risks can be located and tracked back to their source, preventing contaminated or improperly packaged goods from entering the value chain. In addition, individual item-level traceability can be implemented affordably with bar codes.

It's also crucial to prevent environmental contamination. Users can accomplish this by choosing machinery with few moving parts and using materials that are simple to clean, like stainless steel.

3. Identify the appropriate equipment.

For the JIT approach, the proper machinery with the appropriate features and technology is crucial. Then, users can use it to minimize waste, increase production line sustainability, and minimize downtime.

Install sensing tools to track and pinpoint instances of product and material waste. The logged data will produce a thorough report for analysis, reducing the possibility of regulatory fines and promoting a secure, long-lasting, and effective JIT operation.

4. Maintain a secure supply chain

The supply chain must be tightened if you want to implement a JIT manufacturing process. Partnering with a single source supplier who can provide customized solutions for your entire production line is something to think about.

This straightforward step can help you save time and paper by providing a single point of contact and quick access to a wide range of technology, services, and skills.

Additionally, you gain from this strategy's improved production flow. Solutions from a single source supplier are typically created, put together, and installed so that every part works well with the others.

Conversely, independent machines from various suppliers frequently struggle to perform at their best, lowering the line's overall efficiency.

Just-in-Time Method Advantages

JIT inventory management increases a company's return on investment by reducing inventory carrying costs, boosting productivity, and cutting waste.

With a JIT strategy, you can spend less on your inventory over time, freeing up money that could use for other business expenses. 

1. Reduces inventory waste

A just-in-time approach prevents overproduction, which occurs when the market's supply of a good exceeds its demand and results in the buildup of unsalable inventories.

These unsaleable items become the dead stock in the inventory, which increases waste and takes up space. In a just-in-time system, you only order what you require, eliminating the possibility of building up unnecessary items.

2. Decreases warehouse holding cost

Excess inventory can double holding costs, and warehousing is expensive. Therefore, a just-in-time system keeps warehouse holding costs to a minimum.

You only place an order when a customer does, so by the time it gets to you, the item has already been sold, negating the need for long-term storage.

Businesses that use the just-in-time inventory model can scale back or do away with their warehouses altogether.

3. Streamlined production

Through-the-board production bottlenecks and delays can be removed with JIT. As a result, it reduces lead times for customers by speeding up manufacturing. In addition, fewer defective products result from quicker detection and correction of production errors.

Quick equipment setup times shorter production runs, lowering finished goods investment. In addition, workers in a work cell process individual parts step-by-step, reducing the amount of scrap.

Additionally, cell models remove work-in-process queues that accumulate at more specialized workstations. Finally, by placing production work cells close to one another, the amount of work-in-process inventory that moves between them is minimized.

Just-in-Time Method Disadvantages

The JIT method places a significant emphasis on accurate forecasting and enduring connections with essential suppliers. However, because there aren't any fallback plans, it's a problem if either of them breaks down.

Let's discuss some of the other disadvantages:

1. An organization won't have enough stock to fill those orders if it's forecasting, for example, cannot account for a spike in demand. Losing customers and revenue could result from this.

2. It will be challenging to track and organize a just-in-time system if you do it manually. Software should be used because it simplifies the process overall.

Adopting a new software system and training your staff on its use can be difficult and expensive, even though good software can help you.

3. The performance and timeliness of the suppliers, which are crucial to the model, are difficult to guarantee. The manufacturer must also be able to cover any unexpected increases in raw material costs because they cannot wait to place their order when prices are lower.

4. The entire business workflow must be transformed into a lean framework. Due to these actions, the organization's supply chain may need to adjust its procedures and practices.

5. JIT depends on local sourcing, which can be more expensive for various reasons. In the quest for dependability, this dependence may also impact profitability. Systemic inventory issues can result from shortages and stock-outs.

Just-in-Time Method FAQs

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