What Is Just In Time Inventory? A Guide to JIT Inventory

A just-in-time inventory (JIT) is an inventory management strategy that businesses use to increase efficiency and minimize waste during the production process. Businesses that use this system process inventory and manage supply chains according to the forecasted or current demand of their products. Instead of bulk-ordering and producing extra inventory at the beginning of a sales period, businesses that use the JIT management system will have a limited inventory of products that they will replenish in real-time if there is extra customer demand.

Manufacturers only order inventory on an as-needed basis with JIT management. This system uses Kanban (Japanese for “sign”), an inventory control system that involves tracking materials as they run out. When products run out, new shipments are ordered. Raw materials are delivered when production is about to begin, with only enough supplies to meet production needs (through forecasting) or customer demand. The JIT manufacturing process requires reliable suppliers in order to function effectively because there is no build-up of extra stock. However, JIT inventory can optimize a business’s production cycle, increase revenue, lower inventory costs, and save money when it runs smoothly.

The JIT inventory management technique is used in a variety of industries to streamline production and boost bottom lines. Some industries that use a JIT system include the following.

1. 1. Fashion retail: Major apparel retailers or small e-commerce businesses use JIT management by producing a set number of clothing items or accessories based on forecasting. When the inventory of a popular item runs out, these companies may produce extra for people who sign up on a waitlist. Many large retail chains will also use JIT inventory to order holiday items or seasonal goods.
2. 2. Book publishing: On-demand publishing is a system of book publishing that only prints a certain quantity of books to meet order fulfillment, which cuts down on wasted paper and the number of unsold books.
3. 3. Food: Many independent restaurants use a JIT inventory system where they order less food but more often, rather than ordering large quantities of food and storing it in freezers for weeks at a time. This reduces the cost of food storage and cuts down on waste. Quick-service restaurant (or QSR) chains like fast food purveyors also employ the JIT methodology by only cooking and assembling meals as orders come in, rather than preparing the food earlier and heating it up.
4. 4. Automotive: The just-in-time inventory system was developed in Japan by the automobile manufacturer Toyota, and is sometimes referred to as the Toyota production system (TPS). Many automobile manufacturers continue to manage their supply chains and manufacturers using a JIT inventory management system to avoid the high costs of producing too much inventory of an automobile that doesn’t sell.

The JIT inventory management system has proven itself a shrewd method of saving money for businesses that want to increase their bottom line, and better cater to their customers’ needs. Here are a few of the potential benefits of using a JIT inventory management system.

1. 1. Minimizes waste. JIT inventory systems cut down on deadstock by minimizing excess inventory in place of on-demand ordering. In turn, this management method saves money on raw materials and warehouse space costs for storage, unlike goods that are mass-produced far beyond customer demand.
2. 2. Increases cash flow. Producing a limited inventory through JIT management means lower costs in stock production and storage, potentially increasing your company’s working capital and profitability. If your business only manufactures new products when your customers want to buy them, this lessens the likelihood that you will have a large back stock of unsold materials, incurring storage costs on top of the money wasted producing dead products.
3. 3. Leads to better professional relationships. The JIT inventory model enables a company or small business to put more resources and effort into the quality of the finished product and customer satisfaction rather than fussing over the price and security of storage space or rising inventory levels.

JIT inventory is not a perfect system. Your supply forecasts need to be accurate, and any breakdown in the production process or supply chain can mean lost product. Here are a few potential disadvantages to using this inventory management method.

1. 1. Supply chains can break down. JIT inventory requires a reliable supply chain, with any delays or disruptions potentially throwing off the entire manufacturing process. With no safety stock to rely on, customer orders may be delayed which can harm your business reputation. JIT inventory may also yield an inventory shortage if customer demand quickly shoots up, and the demand for a product exceeds its supply.
2. 2. Prices of inventory can fluctuate. The prices of different types of inventory (like raw materials) can fluctuate, and they may increase right when you need to place a big order. While flexibility may not be a problem for large corporations, smaller businesses may not be able to afford to pay the rising prices of critical materials.
3. 3. Organization is key. In order for JIT to be effective, your company needs to be able to forecast demand in a precise way. All parties in the supply chain must communicate clearly and often with each other to maintain efficiency, and to make sure that inventory demand speculations are accurate. Over-ordering or under-ordering can mean wasting money or losing business.

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