One of the culprits of the retail apocalypse is terrible inventory management. An example of bad stock management is overstocking due to falsely anticipating the customer’s demand. Running out of stock since there is insufficient supply to go around is another example of bad stock management. This is the reason why you need to implement just-in-time inventory.
Just-in-time inventory or JIT is a method whose purpose is to minimize inventory and increase efficiency. Thus, you can reduce the budget you have to spend on warehouse management and simultaneously increase your sales. Moreover, adopting a warehouse management system can be helpful in calculating and tracking your warehouse capacity automatically.
Related article: What is Retail Apocalypse and Its Impact on the Retail Industry
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What is Just-in-Time Inventory (JIT)?
Toyota and Mr. Taiichi pioneered this method back in 1970. Back then, Toyota had rare materials and difficult geographic conditions (80 percent of Japan’s topography is mountains). The expensive land price makes Mr. Taiichi Ohno develop a solution to tackle these problems.
Just in time, inventory synchronized the material purchase from suppliers with the production schedule. This method is quite the opposite of just in case method which anticipates the rise of customers’ demands by stocking enough supplies in the warehouse. With just-in-case inventory, materials are purchased when only there’s a demand from customers.
With this method, Toyota successfully reduces waste, eliminates redundant work, and minimizes stock in the warehouse (zero inventory orientation). Later on, this method was also known as lean manufacturing.
How Does it Work?
JIT is usually implemented by automobile manufacturers since the pioneer of JIT is Toyota. But as time goes by, other lines of business start to adopt this method, such as the food and beverage industries.
JIT enables automobile manufacturers to maintain the inventory level to a minimum. But this method is highly dependent on effective supply management because productions only happen when there’s a customer who wants to purchase a car.
Related article: An Overview of Supply Chain Management
To make JIT work, your business must have steady production, high-quality workmanship, glitch-free plant machinery, and reliable suppliers. Although it’s capable of reducing inventory costs, this strategy requires quite a sum of money, time, and human resources. That’s why you need to know just-in-time inventory advantages and disadvantages before implementing it in your company.
Just-in-Time Inventory Advantages and Disadvantages
There are some things that you have to consider before implementing this method in your company. By acknowledging them, you can judge whether just-in-time inventory is suitable for your company, or not.
JIT advantages
- Reduce inventory cost: by synchronizing the customers’ demand and the material purchase from the suppliers, the warehouse cost can be reduced to a minimum. The extra space in the warehouse can be used for other purposes.
- Reduce waste: since the materials purchased go directly to the production line, waste can be reduced significantly. You don’t have to run a stock clearance that will cost you money in the end.
Also read: The Importance of an Inventory List for Companies
JIT disadvantages
- Potential disruption in the supply chain: JIT method will always be haunted by this kind of disruption. A supplier that is suddenly unable to fulfill your purchase request or disruption during the deliveries will halt your production. In the end, complaints will rain down on you.
- Inaccurate demand forecast: the everchanging market conditions will surely affect the customers’ demand. This is why it’s hard to create an accurate demand forecast for this method.
You can try Supply Chain Management Software from HashMicro that enables you to keep up with fast-paced markets with complete visibility and advanced analytics.
Conclusion
From its advantages and disadvantages, we can judge whether JIT is suitable for your company or not. If you have a stable demand and reliable supplier, then just in time, inventory is the best for you.
You can also utilize inventory software to forecast your customers’ demand more easily and automate purchase order creation when there’s an order from your customers. Schedule a free demo now to experience the transformational power it brings to your operations.
