“Just-in-Time” (JIT) is an inventory management strategy aimed at reducing the costs associated with inventory and increasing efficiency. The goal of JIT is to purchase and receive components or goods only as they are needed in the production process, which reduces inventory holding costs and waste.
In a JIT system, the focus is on producing items exactly at the time they are needed in the production process, not before. JIT requires precise forecasting and coordination with suppliers to ensure that materials arrive just as they are needed. This requires reliable suppliers and effective logistics.
The JIT system originated in Japan and is a key component of the Toyota Production System, which emphasizes eliminating waste, continual improvement, and boosting efficiency.
Benefits of JIT include:
- Lower Storage Costs: By keeping inventory levels low, companies can minimize the costs associated with storing and managing inventory.
- Improved Cash Flow: By purchasing inventory only as needed, companies can keep their cash until the last possible moment, improving cash flow.
- Less Waste: If product designs change, companies using JIT won’t be left with obsolete inventory.
- Increased Efficiency: The focus on continual improvement can lead to increased efficiency over time.
However, JIT can also present some risks:
- Supply Chain Disruptions: If a supplier fails to deliver on time, it can halt the entire production process.
- Lack of Buffer Stock: If demand suddenly increases, a company might not be able to meet it quickly without a buffer stock on hand.
Despite these risks, many companies find that the benefits of JIT outweigh the potential downsides.
Example of Just-In-Time
Let’s use Toyota, the company that originated the JIT system, as an example.
Toyota operates its production lines on the principle that a product, such as a car part, should be produced just in time for it to be used in the assembly of the final product, and not before.
Here’s how it works:
When a car reaches a certain point on the production line, and a part, such as a car seat, is about to be installed, a signal is sent to the beginning of the car seat assembly line. This signal could be electronic, but in Toyota’s case, it often takes the form of a physical “kanban” card.
The card indicates the type and quantity of seats to be produced. The seat assembly line then produces the exact number of seats required for the cars currently on the main assembly line.
The seats are transported to the main assembly line and installed in the cars just in time for the cars to move to the next production station. There’s no need for Toyota to produce extra seats and store them, waiting for cars to reach the seat installation station.
The JIT system, with its emphasis on signals (like kanban cards) and producing items only as they’re needed, helps Toyota reduce the costs associated with storing inventory, minimize waste, and make its production process more efficient. It also necessitates a strong and reliable relationship with suppliers, as any delays in supplying raw materials can disrupt the entire production process.