Just In Time - JIT

Loading the player...

What does 'Just In Time - JIT' mean

Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This method requires producers to forecast demand accurately.

This inventory supply system represents a shift away from the older just-in-case strategy, in which producers carried large inventories in case higher demand had to be met.

BREAKING DOWN 'Just In Time - JIT'

A good example would be a car manufacturer that operates with very low inventory levels, relying on its supply chain to deliver the parts it needs to build cars. The parts needed to manufacture the cars do not arrive before or after they are needed; instead, they arrive just as they are needed.

Advantages

Just-in-time inventory control has several advantages over traditional models. Production runs remain short, which means manufacturers can move from one type of product to another very easily. This method reduces costs by eliminating warehouse storage needs. Companies also spend less money on raw materials because they buy just enough to make the products and no more.

Disadvantages

The disadvantages of just-in-time inventories involve disruptions in the supply chain. If a supplier of raw materials has a breakdown and cannot deliver the goods on time, one supplier can shut down the entire production process. A sudden order for goods that surpasses expectations may delay delivery of finished products to clients.

Case Study

Toyota uses just-in-time inventory controls as part of its business model. Toyota sends off orders for parts only when it receives new orders from customers. The company started this method in the 1970s, and it took more than 15 years to perfect. Several elements of just-in-time manufacturing need to occur for Toyota to succeed. The company must have steady production, high-quality workmanship, no machine breakdowns at the plant, reliable suppliers and quick ways to assemble machines that put together vehicles.

Toyota's just-in-time concept almost came to a crashing halt in February 1997. A fire at a brake parts plant owned by Aisin decimated its capacity to produce a P-valve for Toyota vehicles. The company was the sole supplier of the part, and the fact that the plant was shut down for weeks could have devastated Toyota's supply line. The auto manufacturer ran out of P-valve parts after just one day. Production lines shut down for just two days until a supplier of Aisin was able to start manufacturing the necessary valves. Other suppliers for Toyota also had to shut down because the auto manufacturer didn't need other parts to complete any cars on the assembly line. The fire cost Toyota nearly $15 billion in revenue and 70,000 cars due to its two-day shutdown, but it could have been much worse.

RELATED TERMS
  1. Do It Right The First Time - DRIFT

    A theory from managerial accounting that relates to just-in-time ...
  2. Inventory Management

    Inventory management is the overseeing and controlling of the ...
  3. Inventory

    The raw materials, work-in-process goods and completely finished ...
  4. Average Inventory

    A calculation comparing the value or number of a particular good ...
  5. Ending Inventory

    The value of goods available for sale at the end of the accounting ...
  6. Inventory Financing

    A line of credit or short-term loan made to a company so it can ...
Related Articles
  1. Economics

    What is Involved in Inventory Management?

    Inventory management refers to the theories, functions and management skills involved in controlling an inventory.
  2. Active Trading Fundamentals

    Toyota's 4 Key Financial Ratios (TM)

    Learn about important financial ratios for Toyota Motor Corporation that are crucial in evaluating the company's business and its financial statements.
  3. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  4. Investing

    Just In Time

    Just in time (JIT) is a system of supplying goods as close as possible to when they are actually needed. For a company that resells, that means goods arrive just before hitting the shelves for ...
  5. Investing

    Days Sales of Inventory

    Days Sales of Inventory, also called Days Inventory Outstanding, is a key financial measurement of a company's performance pertaining to inventory management. In simple terms, it tells how many ...
  6. Economics

    Explaining Carrying Cost of Inventory

    The carrying cost of inventory is the cost a business pays for holding goods in stock.
  7. Stock Analysis

    Toyota Stock: A Dividend Analysis (TM)

    Learn about Toyota Motor Corporation, its dividend policy, its historic dividend yield in comparison to the company's competitors and dividend safety.
  8. Economics

    How to Calculate Average Inventory

    Average inventory is the median value of an inventory at a specific time period.
  9. Stock Analysis

    How Toyota Succeeds at Home and Abroad (TM)

    Japan's biggest car manufacturer is also one of North America's biggest, delighting shareholders with its high profit margins.
  10. Economics

    How Does a Perpetual Inventory System Work?

    Perpetual inventory is a system that continually tracks inventory items for quantity and availability.
RELATED FAQS
  1. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Understand the principles behind just-in-time inventory management and customer-managed inventory. Learn the difference between ... Read Answer >>
  2. Who are Toyota's (TYO) main suppliers?

    Learn which companies make up Toyota's supply chain. The automotive giant provides awards to its largest and most efficient ... Read Answer >>
  3. How is investing in a corporate bond different from buying shares of the company's ...

    Learn what the just in time, or JIT, inventory system is by contrasting it with the just in case inventory system and reviewing ... Read Answer >>
  4. Does working capital include inventory?

    Learn about inventory that is part of current assets and working capital, which is the difference between current assets ... Read Answer >>
  5. What are the main problems with a JIT (just in time) production strategy?

    Learn about the just in time (JIT) production strategy and how the precise coordination and timing it requires can end up ... Read Answer >>
  6. What are the main benefits of a JIT (just in time) production strategy?

    Learn about the just in time (JIT) business strategy and how using an on-demand production process can increase a company's ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center