One of the culprits of the retail apocalypse is terrible inventory management. Overstocking due to falsely anticipate the customer’s demand, or run out of stock since there is not enough supply to go around are some examples of bad stock management. This is the reason why you need to implement just in time inventory.
Just in time inventory is a method which purpose is to minimizes inventory and increase efficiency. Thus the budget that you have to spend on warehouse management can be reduced to the minimum and increase your sales at the same time.
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What is just in time inventory (JIT)?
This method was pioneered by Toyota and initiated by Mr. Taiichi Ohno back in 1970. Back then, Toyota having difficulties such as rare materials, difficult geographic conditions (80 percent of Japan topography is mountains), and the expensive land price makes Mr. Taiichi Ohno has to develop a solution to tackle these problems.
Just in time inventory synchronized the material purchase from suppliers with the production schedule. This method is quite the opposite of just in case method which anticipates the rise of customers’ demands by stocking enough supplies in the warehouse. With just in case inventory, materials purchased when only there’s a demand from customers.
With this method, Toyota successfully reduce waste, eliminates redundant work and minimalized stock in the warehouse (zero inventory orientation). Later on, this method also known as the Kanban method.
How is it work?
JIT usually implemented by automobile manufacturers, since the pioneer of JIT is Toyota. But as time goes by, other lines of business starting to adopt this method, such as food and beverage industries.
JIT enables automobile manufacturers to maintain the inventory level to a minimum. But this method highly dependant on effective supply management, because productions only happen when there’s a customer who wants to purchase a car.
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To make JIT works, your business must have a steady production, high-quality workmanship, glitch-free plant machinery, and reliable suppliers. Although it’s capable to reduce the inventory cost, this strategy requires quite a sum of money, time and human resources. That’s why you need to know just in time inventory advantages and disadvantages before implementing it in your company.
Just in time inventory advantages and disadvantages
There are some things that you have to consider before implementing this method in your company. By acknowledging them, you can judge whether just in time inventory is suitable for your company, or not.
- Reduce inventory cost: by synchronizing the customers’ demand and the material purchase from the suppliers, the warehouse cost can be reduced to a minimum. The extra space in the warehouse can be used for other purposes.
- Reduce waste: since the materials purchase goes directly to the production line, waste can be reduced significantly. You don’t have to run a stock clearance that will cost you money in the end.
- Potential disruption on supply chain: JIT method will always be haunted by this kind of disruption. A supplier that suddenly unable to fulfill your purchase request or disruption during the deliveries will halt your production. In the end, complaints will rain down on you.
- Inaccurate demand forecast: the everchanging market conditions will surely affect the customers’ demand. This is why it’s hard to create an accurate demand forecast for this method.
From its advantages and disadvantages, we can judge whether JIT is suitable for your company or not. If you have a stable demand and reliable supplier, then just in time inventory is the best for you.
You can also utilize an inventory software that includes this feature to make it easier for you to forecast your customers’ demand and automates purchase order creation when there’s an order from your customers.