Just in Time – often referred to as Just in Time Manufacturing, Just in Time Production, Just in Time Inventory Management, Lean Manufacturing, Stockless Production, or the Toyota Production System – is an inventory system that does away with large stocks. Businesses can switch to an alternative method of stock control which minimizes spending and boosts competitiveness. With ‘just in time’, a company holds virtually no stocks and instead relies on the prompt deliveries of components and raw materials, which must arrive the moment they are required.
Rather than occasional major deliveries to a warehouse, in a just in time system components and raw materials arrive only when required and are immediately taken to the factory floor.
This system contrasts with ‘Just in Case’, an inventory management strategy that businesses use when they store huge amounts of inventory because there is a risk that they might run out of stock.
As this image shows, as soon as the inventory manager gets an order, she makes sure the suppliers are informed. The delivered components and raw materials go straight to the factory floor, where the product is made. It is then delivered to the customer. Just in time inventory management involves keeping stocks to a minimum at all times.
Just in time (JIT) is only advantageous for the company when the reduced warehouse costs more than make up for the lost purchasing economies of scale from the bulk-buying of components and raw materials and more frequent deliveries.
The Institute for Manufacturing at the University of Cambridge in England made the following comment regarding just in time:
“Just in time is a management philosophy and not a technique. It originally referred to the production of goods to meet customer demand exactly, in time, quality and quantity, whether the’customer’ is the final purchaser of the product or another process further along the production line.”
“It has now come to mean producing with minimum waste. ‘Waste’ is taken in its most general sense and includes time and resources as well as materials.”
Toyota – the just in time pioneer
Automaker giant Toyota in Japan first adopted the system in the 1960s. Experts believe it resulted from a lack of cash in post-WWII Japan as the country was rebuilding its industry.
Japan also lacked space to create giant factories laden with inventory. Japanese industry was forced to ‘lean out’ its processes, which meant smaller factories and warehouses, with inventories kept to a minimum.
‘Just In Case’ functions as a push system – the company stocks up its inventory as much as it can. ‘Just in Time’ is a pull system which allows for demand to set the tone of production. ‘Pull’ is made to order, while ‘Push’ is made for inventory.
JIT only began to have an impact in the Western world in the late 1970s. Even then, the pioneers in North America and Western Europe used a number of different terms. Hewlett Packard referred to it as ‘stockless production’ – the term ‘lean manufacturing’ was also used.
In a paper published online by Brunel University in London, England, J. E. Beasley made the following comment regarding the emergence of just in time manufacturing and worker participation:
“One often reads nowadays that JIT involves employee participation, involving workers so as to gain from their knowledge and experience. Such participation is meant to ensure that workers feel involved with the system and make suggestions for improvements, cooperate in changes, etc.”
“Personally I am not convinced that this aspect of JIT, as it is interpreted nowadays, played any part in its initial development.”
For just in time manufacturing to work successfully, producers need to be able to forecast demand accurately.
Today, many car manufacturers across the world operate at varying degrees of JIT. They rely on their supply chains to deliver the parts they require to make cars. The parts do not arrive before or after they are required, but rather just as they are needed.
All the terms above have virtually the same meaning.
Advantages of just in time
Manufacturers like to use JIT because it is a more cost effective way of holding stock – when done properly. The advantages are:
Space: if the turnaround of stock is fast, companies do not need as much storage space. Less space means smaller warehouses to rent or build, which frees up money for other parts of the commercial enterprise.
Waste: items are less likely to become damaged or obsolete if stock turnaround is fast, which reduces waste. Money is saved because there is less investment in unnecessary stock.
Investment Size: just in time inventory management is ideal for smaller businesses that do not have the resources to buy large amounts of stock in one go. Cash flow is healthier if you can order stock as and when you need it.
Greater Flexibility: as your production runs are extremely short, it is easier for your company to halt production of one product and rapidly switch to a different product to meet changes in customer requirements.
Addressing Mistakes: mistakes in production can be detected more quickly and corrected.
Taiichi Ohno, a Japanese industrial engineer and businessman, is considered to be the father of the Toyota Production System – Toyota’s Just in Time system – which became known as ‘Lean Manufacturing’ in the US. Next to him in the image above is the old Japanese Toyota logo from 1935 to 1989. (Image: Adapted from Wikipedia)
Disadvantages of just in time
Before deciding whether to adopt a JIT inventory management strategy, you should weigh up the possible disadvantages carefully. When they do occur, they can have a devastating impact on the business. The disadvantages are:
You Lack Stock: if you have virtually no stock, or very little, it is vital that you have well-planned procedures in place to make sure stock can become available rapidly. If the parts and raw materials required for manufacturing do not arrive on time, you are in trouble.
Less Control: if parts and components do not arrive on time, you won’t be able to supply your customers punctually. Your company could lose customers – they may tell others that you are unreliable. Losing customers and potential future business could be the kiss of death for many companies.
Requires Excellent Planning: you must understand your sales trends and variances. The ability to forecast demand accurately is crucial. If you do not have state-of-the-art forecasting software and models and suitably qualified staff, your risk of failing to supply your customers on time increases considerably.
Strikes & Natural Disasters: a natural disaster or a major strike may interfere with the flow of goods to your company from your suppliers, which could bring production to an abrupt halt.
Big Orders: you are less likely to be able to meet an unexpected giant order.
If run optimally, just in time inventory management is considered one of the best ways to manage inventory – many experts say it is ‘the best’ method. It is not, however, without risks. A successfully run JIT strategy has significant rewards and is ideal for companies that are able to plan ahead carefully, and build strong relationships with their suppliers.
Video – What is ‘Just in Time’?
In this Fishbowl video, James Shores explains what ‘Just in Time’ is – a lean manufacturing process that helps businesses keep as little inventory available as possible.