What is Just In Time - JIT
The just-in-time inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies use 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.
The JIT inventory supply system is a shift away from other just-in-case strategies, in which producers hold large inventories to have enough product to absorb maximum market demand.
Just In Time
BREAKING DOWN Just In Time - JIT
One example of a JIT system would be a car manufacturer that operates with 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 the manufacturer needs them; instead, they arrive just as the manufacturer needs them.
Just-in-Time Inventory System Advantages
JIT inventory controls have several advantages over traditional models. Production runs remain short, which means manufacturers can move from one product to another easily. This method reduces costs by minimizing warehouse needs. Companies also spend less money on raw materials because they buy just enough resources to make just the ordered products and no more.
The disadvantages of JIT inventories involve disruptions in the supply chain. If a raw materials supplier 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.
Toyota uses JIT 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 over 15 years to perfect. Several elements of JIT 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 JIT concept almost came to a crashing halt in February 1997. A fire at an Aisin-owned brake parts plant 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 remained closed 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 two days until a supplier of Aisin could manufacture the 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.