What Is Just In Time Inventory Management? And Its Importance

The concept of inventory management has evolved over time. Formerly, it was only important to keep a company’s warehouse stocked with the necessary amount of stock, but this approach was less than customer-centric. Today, Just In Time Inventory Management is essential when companies want to maintain customer satisfaction.

Just In Time Inventory Management is an economic term that has been in use since the 1980s, which governs how and where a company should produce or procure its products.

In this article, we’ll explore what is Just In Time Inventory? Why it is Important and some Pros and Cons of Just In Time Inventory Management.

What is Just In Time Inventory Management?

Have you ever wondered how some businesses are able to keep their inventory levels low, without running into stock-outs? The answer is Just-In-Time (JIT) inventory management.

JIT is a lean manufacturing technique that strives to eliminate waste and increase efficiency by only producing or ordering goods as they are needed. This means that instead of holding onto large quantities of inventory just in case it might be needed in the future, businesses using JIT will only order or produce what they need, when they need it.

There are many benefits to using JIT inventory management. Perhaps the most obvious is that it can save your business a lot of money. By not tying up your cash in excess inventory, you can use it for other purposes such as investing in new equipment or expanding your marketing efforts.

In addition, JIT can help to reduce storage costs and free up valuable space in your facility. Having less inventory on hand also reduces the risk of damage or theft. And because JIT orders are typically smaller, there is less chance of ending up with obsolete or slow-moving items.

Finally, Just-In-Time inventory management can help to improve your customer service levels. By always having the products your customers want on hand, you can avoid shortages. This way, your customers will never have to wait for a product to be restocked and can instead be served immediately.

Not only does this lead to greater customer satisfaction but it also builds customer loyalty. From a business standpoint, Just In Time is the answer to many of today’s most pressing inventory problems:

1. Excess inventory costs money;
2. Too much inventory ties up valuable capital;
3. Under-stocking leads to customer dissatisfaction;
4. Carrying obsolete or slow moving products increases risk and damages profitability.

By using JIT techniques, you stand a better chance of solving these problems and improving your business’ bottom line.

Why Is Just In Time Inventory Management Important?

In today’s business world, Just In Time Inventory Management (JIT) is considered an important tool for managing inventory.

• JIT is a system where inventory is only ordered and delivered as needed, which eliminates the need for large inventory stockpiles. This can save businesses a significant amount of money on inventory costs, and also help to reduce the risk of stock obsolescence.
• In addition, JIT can help to improve customer satisfaction levels by ensuring that products are always available when needed. This can be especially important in businesses that deal with time-sensitive products, such as restaurants or food manufacturers.
• “Just In Time” is also sometimes referred to as the “Pull” system of production. This means that customers pull items from inventory as they need them, rather than suppliers pushing products onto customers.

Pros and Cons of Just In Time Inventory Management

There are many different inventory management strategies that businesses can use, and Just In Time (JIT) inventory management is one option. JIT is a system where inventory is only produced or delivered when it is needed, in the exact amount that is needed. This can be a great way to save on storage costs and reduce waste, but it does have some potential downsides that businesses need to be aware of.

Pros of Just In Time Inventory Management

There are many pros to implementing a just in time inventory management system. Perhaps the most obvious are mentioned below:

1. Save Unnecessary Expenses:
   Just In Time Inventory Management can save the company money. By only ordering the necessary amount of inventory which are demanded by the customer, you avoid the cost of storing excess stock.
2. Improves Cash Flow:
   Just in time inventory management can help to improve your company’s cash flow. Rather than tying up large amounts of money in inventory, you can use that money to invest in other areas of your business.
3. Lean and Efficient:
   Just in time inventory management can also lead to improved efficiency and shorter lead times. Because you are not stockpiling inventory, you can reduce the amount of time needed to receive and process orders. This can lead to a leaner and more efficient operation overall. In addition, customers may appreciate shorter wait times for their orders.
4. Improved Customer Service:
   With Just in Time Inventory Management, you can have your products delivered to customers faster than ever before.This means that you can improve the customer service standards delivered by your business.
   Customers are more likely to be satisfied with their experience when they do not have to wait forever for their order to arrive.
5. Increased Profits:
   As mentioned above, the companies can get better cash flow, by avoiding the unnecessary cash burn due to holding of excess stock, which in return reduces the cost of procuring stocks. As a result, the profit increases.

Also, by reinvesting the amount you will have more resources at your disposal that you can use to make improvements and hiring additional employees is often a good idea so that you can meet the needs of the growing demand.

Cons of Just In Time Inventory Management

Of course, just in time inventory management is not without its challenges. Few of them are mentioned below:

1. Supply of Stocks:
   One of the biggest is ensuring that your suppliers are able to meet your just in time delivery needs. This can be a difficult task, especially if you are working with international suppliers. In addition, just in time inventory management requires careful planning and coordination. If something goes wrong, it can throw off your entire production schedule.
2. Low or No Inventory:
   One of the biggest potential problems with JIT inventory management is that it can lead to disruptions in the supply chain. If something happens that causes a delay in delivery, then businesses may find themselves without the inventory they need. This can be especially problematic if the business is reliant on just a few suppliers.
3. Difficult to Implement:
   Another downside of JIT inventory management is that it can be difficult to implement. There needs to be close coordination between all parts of the supply chain, from suppliers to manufacturers to retailers. Any delays or problems at any stage can cause disruptions further down the line.
4. High Setup Costs:
   Inventory management generally requires a significant investment in resources. This means that it is only suitable for companies that are large enough to make it worth their while. Small businesses can also take advantage of JIT inventory management, but they will need to purchase additional equipment and hire specialized workers.
5. Risky:
   The biggest problem with JIT inventory management is that it carries high risk. In order to maintain short supply chains and fast turnaround times, businesses need to have a steady flow of raw materials coming in and finished goods going out regularly. If there are disruptions at any stage the entire process can grind to a halt, putting the whole enterprise at risk of failure.

Conclusion

Despite some potential drawbacks, JIT inventory management can be a very effective way for businesses to reduce waste and save money. When implemented properly, it can help businesses run more efficiently and respond quickly to changes in demand.

It’s important to understand the basics of JIT before implementing it in your own business. With some planning and preparation, JIT can help you take businesses to the next level.