Here are examples of five companies that practice just in time inventory successfully. Often, you may have to purchase raw materials with higher costs which in turn affects your margin. Since you will have to procure fast, the option to scope and choose the best supplier goes away. Wrong demand calculations can leave a business with dry spells. Proper demand forecasting and being able to predict customer buying behavior is key if you are to succeed going JIT. Since you procure only when there's demand, the risk of having stockouts and not being able to meet demands also increases. With the added efficiency, JIT inventory also brings a set of drawbacks: Stockout risks Lower chance of stock units going bad or not getting sold. Replenishing and manufacturing when required also means that there'll be less dead stock in your warehouse. JIT also reduces productive staff hours spent on maintaining inventory, tracking sales and inventory reports which again saves costs. The result of reduced carrying costs is that you have more working capital at your disposal to spend on other activities like investing in a more efficient production line or in R&D for more product skews, applications, and so on. Since raw materials are bought and held only when manufacturing orders need to be fulfilled, no surplus cash is locked away in raw material units stored in warehouses. Let's take a look at the pros of just in time inventory. So if JIT is so good and obviously saves money, why doesn't every company go the lean way and use JIT? Well, because it's not easy and there are multiple factors to consider and plan for before using JIT as your go-to inventory strategy. For heavy items, the shipping costs can add up quickly. The first and most obvious is the inventory cost of excess materials, secondly, on space costs, and thirdly, on transportation costs by reducing how much has to be shipped from suppliers to your warehouse. Using JIT in a business means fewer products will be sitting around waiting to get sold or thrown away which saves money on multiple fronts. When the demand is uncertain, high carrying costs is a big chunk of money locked away in inventory. ![]() Procuring raw materials only when required means there is minimal or no surplus in warehouses. The first company to use this lean method was Toyota in the 1930s, but over time other companies such as FedEx and Walmart have been implementing it. This means stores would need to have little to no stock and rely solely on deliveries to provide what's needed when they're needed which oftentimes leads to less wasted inventory as well as lower inventories overall. Just in time inventory relies on an almost instant supply of products at any given moment. JIT was first practiced by Henry Ford after which the concept expanded into lean in Toyota. In many industries, the labor is also scheduled with contractors as and when required. In JIT, the raw material inventory levels are replenished only when it’s necessary to manufacture finished goods. But one of the methods used in lean, just in time inventory, or JIT, is a powerful way to increase efficiency and reduce waste. ![]() What is just in time inventory?Īchieving lean manufacturing can be difficult for many businesses. Read on to find out the pros, cons, and examples of JIT. Let’s see about this and how effective it can be for your business. Just in time inventory reduces stock liability but also comes with its risks.
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