The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately.
Just-in-time (JIT) manufacturing is also known as the Toyota Production System (TPS) because the car manufacturer Toyota adopted the system in the 1970s. During Japan's post-World War II rebuilding of industry: 1) Japan's lack of cash made it difficult for industry to finance the big-batch, large inventory production methods common elsewhere. 2) Japan lacked space to build big factories loaded with inventory. 3) The Japanese islands were (and are) lacking in natural resources with which to build products. 4) Japan had high unemployment, which meant that labor efficiency methods were not an obvious pathway to industrial success. Thus the Japanese "leaned out" their processes. The just-in-time (JIT) inventory system is a management strategy that minimizes inventory and increases efficiency. The success of the JIT production process relies on steady production, high-quality workmanship, no machine breakdowns, and reliable suppliers.
Under JIT system production mistakes can be spotted more quickly and corrected, which results in fewer products being produced that contain defects. Since production runs are very short, it is easier to halt production of one product type and switch to a different product to meet changes in customer demand. With a faster turnaround of stock, you don’t need as much warehouse or storage space to store goods. This reduces the amount of storage an organisation needs to rent or buy, freeing up funds for other parts of the business.
JIT also has some disadvantages like potential disruptions in the supply chain. If a raw materials supplier has a breakdown and cannot deliver the goods in a timely manner, this could conceivably stall the entire production process. A sudden unexpected order for goods may delay the delivery of finished products to end clients. With JIT inventory management, it’s imperative that companies understand their sales trends and variances in close detail. Most companies have seasonal sales periods, meaning a number of products will need a higher stock level at certain times of the year due to higher demand. Therefore, you need to factor that into planning for inventory levels.
Thus, JIT inventory management system is very effective and efficient and helps in minimizing cost while improving the quality of the products. If planned properly, JIT can help achieve wonders.
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