What Is a Just-in-Time Inventory Management Strategy?
Just-in-time inventory management is a technique that’s not for the faint of heart. However, when implemented successfully, it can greatly improve your organization’s efficiency.
We are going to explain what just-in-time inventory management is, who it works best for, and how to make it work for your company.
What Is Just-in-Time (JIT)?
The JIT concept was first introduced by the Japanese automotive industry, where it has been used for decades to reduce lead times and costs of manufacturing vehicles. In fact, the strategy is sometimes referred to as the Toyota Production System (TPS).
The basic idea behind this strategy is simple: instead of ordering products, parts, or materials at fixed intervals, retailers order them only as needed. This allows companies to avoid unnecessary stockpiling of products and reduces the overall cost of goods sold. Also, because there is no need to store large amounts of product, space requirements can be reduced.
In other words, companies want to maximize their output per unit of input. To achieve these goals, manufacturers and retailers use a “just-in-time” inventory management strategy.
How Does Just-in-Time Inventory Management Work?
Inventory management systems are designed to reduce or eliminate excess capacity at any time during the product life cycle. The goal is to minimize the amount of stock held while maximizing utilization rates.
“Just-in-time,” or JIT, refers to the process of companies manufacturing or ordering as much product as possible before customers place orders.
In contrast, most businesses use a model called “just-in-case” so there’s always an appropriate amount of inventory on hand.
Examples of JIT in Action
JIT inventory management is used across the globe in industries ranging from fast food, to retail, to tech. Keep reading for some examples of just-in-time inventory management in action.
Toyota has been utilizing just-in-time inventory strategies since the 1970s. In fact, the company credits the TPS concept for helping them become one of the world’s largest automakers.
Toyota has implemented several different versions of the strategy over time, each designed specifically for particular industries or markets.
For example, Toyota’s automotive division used a strategy called “Lean Manufacturing” while the electronics industry utilizes one they call “Continuous Flow Production.”
The fast-fashion giant, Zara, is known for releasing new products at an alarming speed.
Zara adopts the ideal that inventory = death.
So, the brand only commits to 15 to 25% of a season’s line six months in advance. By the time their season begins, they’ve only locked in 50-60% of their line. This means that up to 50% of their inventory is manufactured right in the middle of their busy season.
Kellogg’s produces cereal and other perishable food products. So, it shouldn’t be surprising that they use JIT as an efficient stock management system.
Kellogg’s keeps a limited amount of stock on hand and makes sure to only make enough products to fulfill orders. This way, they’re not stuck with an abundance of expired cereal if sales are unexpectedly low.
Who Should Use a JIT system?
If you’re looking to save some serious money on housing inventory, then a JIT system might be right up your alley.
The key here is finding a solution that works for your specific industry. For example, if you work in retail clothing stores, you may want to consider a JIT system designed specifically for apparel manufacturers.
If you operate a restaurant, you could benefit from a JIT system that integrates with your specific POS system.
Pros of Just-in-Time Inventory Management
JIT inventory systems have a number of advantages.
Short production runs allow manufacturers to move from one product to another quickly. This method reduces costs because of the minimized warehouse needs. Manufacturers also spend less money on raw materials because they buy only enough resources to make the ordered products—and no more.
Cons of Just-in-Time Inventory Management
While JIT inventory works great for some companies, others may find it too limiting. For example, if you’re running a business where most customers buy only one thing each time they shop, there’s little benefit to ordering large quantities ahead of time.
You could instead focus on stocking popular items and letting shoppers know about new arrivals by sending frequent marketing emails or posting signs in your physical locations.
Another downside: JIT inventory requires a lot of manual labor if you’re not managing it effectively with an automated system.
Isn’t This Strategy a Bit Risky?
Yes, there is a risk involved in using a JIT inventory system. However, companies like Toyota have found ways around these risks through careful planning and execution.
For example, Toyota’s Lean Manufacturing System (LMS), allows their managers to monitor every step of the production cycle. LMS provides real-time information about how much product each worker produces per hour, so managers know exactly what workers should be doing next.
How to Prepare Your Business for the JIT Method
So, you’ve decided to explore adopting a JIT strategy for your ecommerce business, but where do you start? To prepare, you should:
Make Sure Your Supplier Is Local
A local supplier doesn’t have to ship your items halfway around the world, So, you can have your purchase orders fulfilled sooner. It also means you can keep less inventory on hand, which will save you more money.
Start Tracking Sales Data
When you move to a JIT strategy, tracking sales data will help you determine demand fluctuations and seasonal trends so that you can order the right amount of product.
Sign up for a Cloud-Based Inventory Management System
Invest in cloud-based inventory management software. These systems provide real-time inventory tracking, which allows for better time management when replenishing products. You can easily renew your supply as soon as it’s needed.
If you can better time replenishment orders, you will be able to refill your supply quicker.
Build Relationships with Dependable Vendors
Third-party logistics companies and manufacturing vendors can sometimes have unreliable production times.
You can get your JIT shipments faster if you replace them with more dependable partners.
Are JIT Solutions Only for Established Businesses?
A JIT system isn’t always easy to implement, especially if you haven’t implemented one before. However, once you partner with the right solutions provider, you should start seeing some pretty big benefits from implementing a JIT strategy.
It’s a great way to reduce costs and improve efficiency. A JIT strategy can lower your inventory storage expenses but also allow you to spend less on inventory at a time when you need it the most.
You are less likely to over-invest in products that you can’t sell with fewer items on hand.
If you run into supply chain disruptions or miscalculate customer demand when running a JIT system, you can run into stockouts. This is why JIT is best for established businesses with strong supply chain relationships and a solid understanding of customer demand and production times.
A JIT system can also be used for a new business on a budget with limited space for product storage. Just keep in mind that a system like this would benefit from continuous improvement as you develop your supply chain and manufacturing processes.
Is Just-in-Time Inventory Management for You?
Just-in-time inventory management helps retailers to remain extremely agile, giving them the ability to manage a much shorter production cycle. However, this method isn’t for everyone.
If your products can be manufactured or replenished in a short period of time and your suppliers are reliable, you may be in a good position to begin reaping the benefits of this inventory management strategy.
If you’d like to explore different ways to manage inventory inside of a centralized, cloud-based system, talk with an expert today.
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