What is just in time (JIT)?
The just-in-time inventory system (JIT) is a management strategy that directly aligns raw material orders from suppliers with production schedules. Companies use this inventory strategy to increase efficiency and reduce waste by receiving goods only when they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand precisely.
The JIT inventory system contrasts with strategies just in case producers have sufficient stocks to have enough products to absorb maximum market demand.
Just in time
Key points to remember
- The Just In Time Inventory System (JIT) is a management strategy that minimizes inventory and increases efficiency.
- Just-in-time manufacturing (JIT) is also known as the Toyota Production System (TPS), as automaker Toyota adopted the system in the 1970s.
- Kanban is a planning system often used in conjunction with JIT to avoid overcapacity of the work in progress.
- The success of the JIT production process rests on stable production, high quality workmanship, no machine breakdowns and reliable suppliers.
Just-in-Time (JIT) operation
An example of an inventory system JIT is a car manufacturer that operates with low inventory levels but is highly dependent on its supply chain to deliver the parts needed to build cars, as needed. Consequently, the manufacturer orders the parts necessary for the assembly of the cars, only after receipt of an order.
For JIT manufacturing to be successful, businesses must have stable production, high quality workmanship, trouble-free factory machinery and reliable suppliers.
JIT production systems reduce inventory costs because manufacturers do not have to pay storage costs. Manufacturers are also not left with unwanted inventory if an order is canceled or not fulfilled.
Benefits of the Just In Time Inventory System (JIT)
JIT inventory systems have several advantages over traditional models. The production cycles are short, which means that manufacturers can quickly switch from one product to another. In addition, this method reduces costs by minimizing warehouse requirements. Companies also spend less money on raw materials because they buy just enough resources to make the products they order, not more.
Disadvantages of the just-in-time system
The disadvantages of JIT inventory systems involve potential disruptions in the supply chain. If a raw material supplier is down and cannot deliver the goods in a timely manner, this could theoretically block the entire production process. A sudden and unexpected order of goods can delay the delivery of finished products to end customers.
Special Considerations: Kanban Planning for Just-in-Time (JIT)
Kanban is a Japanese planning system that is often used in conjunction with lean manufacturing and JIT. Taiichi Ohno, industrial engineer at Toyota, developed the kanban in order to improve manufacturing efficiency. The system highlights problems by measuring lead times and cycle times throughout the production process, which helps identify upper limits for the inventory of work in progress, to avoid overcapacity.
Famous for its JIT inventory system, Toyota Motor Corporation only orders parts when it receives orders for new cars. Although the company installed this method in the 1970s, it took 15 years to perfect it.
The terms short cycle manufacturing, used by Motorola, and continuous flow manufacturing, used by IBM, are synonymous with the JIT system.
Unfortunately, Toyota’s JIT inventory system nearly shut down the company in February 1997 after a fire at Japanese auto parts supplier Aisin decimated its ability to produce P-valves for Toyota vehicles. Because Aisin is the sole supplier of this part, its shutdown for several weeks resulted in the production of Toyota being halted for several days. This caused a ripple effect, where other Toyota parts suppliers also had to close temporarily because the automaker did not need their parts during this period. As a result, this fire cost Toyota 160 billion yen.