The just in time, or JIT, inventory ordering process has been around since the 1970s, but much newer examples show how much more efficiently a business can run when it adopts the practice of ordering what is needed only when it is needed.
- Some retailers now use the JIT method to streamline the delivery process. For example, a company that markets office furniture but does not manufacture it may order the furniture from the manufacturer only when a customer makes a purchase. The manufacturer delivers it directly to the customer. The retailer has saved the cost of storing inventory.
- Burger King franchisers keep a substantial inventory of hamburger ingredients on hand all the time, but a hamburger is only cooked when it is ordered. This saves waste and gives the chain bragging rights for the freshness of its food.
- On-demand publishing is a prime example of the JIT inventory method, and it has become popular with independent publishers and self-publishing businesses. Master manuscripts of books are kept on hand, but texts are only printed and assembled as needed when a retail sale is made. This reduces book store returns and wasteful pulping of unsold inventory.
Where JIT Began
And, of course, the JIT inventory system can be found in automobile manufacturing, where it was first developed by Toyota Motor Company. Executives reasoned that the company could adapt more quickly and efficiently to changes in trends or demands for model changes if it did not keep any more inventory in store than was immediately needed.
Moreover, the executives realized that it was more cost-efficient to replenish parts or finished goods only when they are immediately needed for daily production or pending retail orders.
That meant a manufacturer didn't need a warehouse full of windshields and brakes. It could have those parts delivered hours before they were scheduled to be used on the assembly lines. And it could have the parts delivered to the right assembly station immediately before they were scheduled to be installed.
More recently, the Dell computer company has gained kudos in its industry for its innovative use of JIT methods. Instead of storing vast supplies of parts, Dell negotiated with its suppliers to maintain adequate levels of inventory that could be ordered and delivered on short notice. This proved popular with suppliers, who could depend on a reliable stream of orders. And it worked for Dell, which no longer needs to maintain a massive inventory of miscellaneous parts.
The JIT system can be especially helpful to small businesses that are just starting out. It can reduce the amount of capital required to get the business up and running. Less money is tied up in unused inventory, and less storage space is needed.
Obviously, using this sort of inventory method works only if a company has an efficient inventory management system and reliable suppliers.