Does the word productivity ring a bell? What a question, in companies it is almost the most important thing. That is why most manufacturing technological advances aim to increase productivity.
One of these advances was the Just in Time Inventory. This system was launched in the 1970s and is still valid for all chain manufacturing production processes. Let’s find out more about it in this article.
What Is Just-In-Time Inventory (JIT)?
Just In Time inventory is a manufacturing process where the required materials and components are sent to the production line just in time for use. This means that raw materials, components, parts, etc., are only produced when used immediately in the production process. The great advantage of this system is that it eliminates storage costs and reduces the need for warehouse space.
By not having a large inventory of parts and materials, manufacturers have more control over their production process. They can reduce costs by reducing the labor involved in managing inventory. The goal is to produce only what is needed when it is required.
The following names also know this system:
-
- Toyota method.
-
- Just in Time method
-
- JIT is the acronym for the method (Just in Time).
This way of production began in the Toyota car factory, located in Japan, in the 1970s. It later spread to all of Japan, and in the 1980s, it reached Europe. The Just in Time inventory philosophy can be applied to many companies, although it is always associated with the automobile industry.
PREVIOUS POST — NetSuite Workflows: How to Automate Your Business Processes
What Are the Characteristics of the Just In Time Inventory Method?
Like any production model, the just-in-time (JIT) Inventory has characteristics that distinguish it from others, such as Lean Manufacturing or Fordism. Therefore, we can highlight the main ones:
Production Without Stock
This means that production is carried out without needing large stocks of materials and components, thus eliminating storage costs.
On-Demand Resource Allocation
Just-in-time inventory implies that all resources are allocated at the exact moment they are needed and not before. This reduces waste and allows for greater control over production costs.
Continuous Flow Manufacturing
Just-in-time inventory production is usually done in a continuous flow, which means that the time between the supply of materials and components and their use is minimized.
RELATED POST — NetSuite Inventory Management: Everything You Need To Know
Production According to the Productive Need
This implies that the production line is only supplied with what is needed, and when it is required, no more and no less. This avoids excesses and allows greater control of the production process.
Waste Disposal
Waste is minimized in just-in-time inventory systems, as only the necessary elements for production are supplied and used. This makes it possible to reduce costs associated with waste disposal.
Benefits of Just-In-Time Inventory
Many benefits come with implementing a Just In Time inventory system. Some of these benefits include:
Waste Reduction: The JIT inventory management model eliminates overordering and overordering of all kinds.
-
- Reduce obsolete inventory and dead stock – Low inventory levels significantly reduce the risk of inventory not selling and becoming obsolete in the warehouse. If you don’t know what obsolete inventory is, read our article on what obsolete inventory is.
-
- Reduce defective product loss – Defective inventory items are easier to identify and repair when production levels are low, reducing scrap costs.
Improved Efficiency – JIT eliminates the costs of additional raw materials, unnecessary inventory, and product storage.
-
- Increase Inventory Turn Rates – Higher efficiency brings higher inventory turns.
-
- Minimal inventory obsolescence – High inventory turnover prevents items from sitting on your premises for too long and becoming obsolete.
-
- Minimize available raw materials – Taking deliveries in the smallest possible quantities, sometimes multiple times a day, virtually eliminates raw material inventories.
-
- Local sourcing: When suppliers are located close to a company’s production facilities, short distances contribute to timely deliveries. On-time and reliable delivery of goods reduces the need for safety stocks.
Increased productivity: JIT improves productivity by reducing the time and resources involved in manufacturing processes.
-
- Faster product delivery – Manufacturers can produce products more quickly.
-
- Shorter production Runs – With JIT, manufacturers can deliver new products faster and easier.
-
- Simplify change orders: Having fewer raw material stocks to reduce before product changes make it easier to implement engineering change orders on existing products.
Smoother production flow: JIT can eliminate bottlenecks and delays in the production process.
-
- Shorter production cycles: JIT shortens manufacturing time, reducing lead customer times.
-
- Reduce Product Defects – Production errors can be detected and corrected faster, resulting in fewer defective products.
-
- Shorter Production Runs – Fast equipment setup times reduce production cycles, reducing investment in finished goods.
-
- More Functional Production Cells – Employees guide individual parts through processing steps in a work cell, reducing scrap levels. Cellular models also eliminate work-in-process queues that build up at more specialized workstations.
-
- Compressed Operations: Arranging production work cells close to each other limits the work-in-process inventory that moves between cells.
Lower Costs – Receiving goods as needed reduces inventory costs.
-
- Reduce working capital – The low inventory levels with JIT limit the working capital needed.
-
- Lower Holding Costs – Inventory holding costs (such as those for storage) are minimal because less space is used.
-
- Less cash investment: Companies invest less cash in inventory because JIT does not require a lot of stock.
-
- Reduce major raw material expenses – In JIT, companies order raw materials when needed, so the cash is available for other uses that might be more valuable to the company.
-
- Reduce labor costs: Labor expenses are lower since the number of person-hours required to fulfill orders is typically less than full-time production.
Improve quality – A flexible workforce can focus on making quality products with lower defect rates. The best results increase customer satisfaction and reduce cash outlay for production.
-
- Reduce work-in-process: Fewer items moving around the shop allow teams to focus on building high-quality products.
-
- Less Damage: Since inventory is kept to a minimum, storage-related accidents are reduced.
-
- Certified quality: Suppliers guarantee quality in advance. Therefore, deliveries go directly to production areas instead of being held at reception to await inspection.
To support these goals, you can invest in new technology or upgrade existing solutions that will link your system with your suppliers to coordinate the delivery of parts and materials.
The Five Zeros of Just In Time
These characteristics are reflected and summarized in the Five Zeros of the JIT;
-
- Zero defects: JIT consists of doing things correctly on the first try, eliminating repetition of processes, so we will not waste energy, hours, and materials.
- Zero breakdowns: This system establishes productive maintenance systems in which the operators contribute to the maintenance of the machinery.
- Zero stocks: The more stock, the more cost, which is why this process eliminates them.
- Zero lead times: Lead time, price, and quality are all competitive attributes, and this system adds heat to them.
- Zero paper: The JIT tries to eliminate all that bureaucracy that hinders proper and efficient administration.
NEXT POST — Simple Guide to NetSuite Grid Order Management
Can any company use the Just in Time system?
The answer is yes! By directly involving the logistics sector of companies and industries, the just-in-time inventory can be applied to any company. It is necessary to filter the applications of the method in some segments due to specific characteristics.
However, regardless of the company or industry, JIT can be used as one of the productive principles.
How to Apply Just-In-Time to Your Industry?
Implementing a just-in-time inventory system into your business can be a daunting task. Fortunately, there are some steps that you can take to make the process easier. Here’s an overview of how to apply the just-in-time inventory system to your industry:
Rethink the Objectives of the Company
The first step is to analyze the current moment of the business and understand if the JIT makes sense in this context.
Although it is efficient and capable of being implemented in any company, it is necessary to consider the business’s objectives and goals and if the model helps in any way to achieve them.
If so, it is time to make the necessary adaptations in the production chain.
Organize the Spaces
Spaces such as stock, warehouse, and raw material storage and distribution sites must be rethought and reorganized to facilitate the JIT production cycle based on efficiency and continuous production.
And one of the essential factors for everything to happen in sync is the optimization of physical spaces, especially in large companies and industries. In manufacturing, for example, the distance between the storage of materials and the room must be rethought.
Empower Employees
Any change in the productive system must invariably be transmitted to professionals, who must be trained to make it feasible and operational. This means investing in training for everyone involved, directly and indirectly.
PREVIOUS POST — NetSuite SuiteBilling: Billing the way you want it
Take Control of All Processes
A JIT-based system must be controlled at all levels; as a process, failures can lead to barriers, delays, rework, and customer dissatisfaction.
The logistics and management team must do an integrated job, controlling the processes from the raw material to the final result. Only then is there a guarantee of success in just-in-time adoption.
Invest in Improving Internal Communication
As you already know, integration is characteristic not only of JIT but also of all intelligent factories modernizing through the 4.0 model.
Therefore, investing in internal communication is a way to implement correctly just in time and modernize the entire production.
Create New Metrics for the Processes Involved
The changes in the processes are directly reflected in the control of their effectiveness, that is, in evaluating the metrics used and if they make sense in the new productive context.
What Should Care be Taken When Implementing Just In Time Inventory?
Naturally, the adoption of the characteristics of the just-in-time philosophy requires some care related to factors internal and external to the company/industry, for example:
-
- Attention to the human factor and organizational culture of the company;
-
- The consensus among all business leaders on the implementation of the model;
-
- Ensure that employees do not lose perception of processes;
-
- Empower everyone involved in the process, as we explained above.
Just In Time Inventory Vs. Kanban
The Kanban system is very similar to the JIT system, which is also based on organizing and controlling inventory levels. However, the main difference between them lies in their approach. While JIT focuses more on reducing the need for raw materials and information stocks, Kanban focuses more on optimizing production processes.
In other words, Kanban is a system that allows managers to follow the production flow in real-time and adjust it according to their needs, while JIT emphasizes the need for fewer resources and less waste.
Both models are highly effective, but depending on your business or industry, one may be more suitable than the other. It is essential to know the needs and characteristics of your organization to make the best decision. In conclusion, implementing just-in-time inventory can significantly save time and money while optimizing production processes.
RELATED POST — OdeCloud Aiming to Become Leader in NetSuite-Related Content
Potential Risks of Just-In-Time Inventory
JIT’s main risk comes from its philosophy. JIT inventory management requires everyone in an ecosystem and supply chain to engage and work cohesively. If any part of that arrangement breaks, the entire infrastructure is at risk.
-
- Lack of preparation: the company’s entire workflow must become a tight framework. These actions affect the organization and the supply chain, which may need to change its procedures and practices.
-
- Supply Chain Disruptions – Supply chain disruptions can bring the production process to a standstill.
-
- Missed Opportunities – With few or no finished products, a business may not be able to fill unexpected, massive orders immediately.
-
- Unexpected Price Changes – In JIT, the cost of parts is constant. When costs increase, profit margins decrease.
-
- Excessive reliance on forecasts: Adapting to sudden spikes or drops is difficult due to the reliance on forecasts.
-
- Ordering issues: Shortages and stockouts can disrupt inventory systems.
-
- Local Sourcing Costs: JIT relies on local sourcing, which can cost more for several reasons. This dependency can also affect profitability in the search for reliability.
-
- Time pressure: Scheduling can increase the cost of goods sold (COGS) because there is no guarantee that a company will always get the best price for a supplier’s raw materials.
-
- Unruly Staff – Team members not on board the JIT can affect productivity, quality, and other issues.
-
- Supplier Dependence: A supplier who does not deliver the products on time and in the right quantities can disrupt the entire production process.
-
- Acts of Nature: A natural disaster that interferes with a supplier’s flow of goods can halt production.
RECOMMENDED POST — How to Setup NetSuite Billing Schedules
Questions to Ask Before Converting to JIT Inventory Management
-
- Delivery times: Can my products be manufactured or delivered quickly?
-
- Forecast: Am I confident in my sales forecast to represent fluctuating consumer demand, including seasonality accurately?
-
- Flexibility: Do I have enough flexibility in my manufacturing and supply chain to accommodate disruptions like supplier outages or natural disasters?
-
- Suppliers: Are my suppliers reliable enough to deliver on time, every time? Is my order fulfillment system efficient enough that orders are delivered on time even when they have to make up for delays in the supply chain?
-
- Workforce: Implementing a JIT system requires the full support and understanding of all operating divisions, especially employees. JIT relies on cross-training cross-functional employees to perform various tasks so team members can fill in when and where it’s needed in the production line cell. Is my workforce engaged and up to the task?
-
- Technology: Does my inventory management software support JIT inventory management?
NetSuite ERP and Just In Time Inventory
For organizations to achieve the most tremendous success with JIT inventory, it is essential to have a robust ERP system like NetSuite that can handle the complexities of JIT. NetSuite enables companies to quickly and accurately manage their stock levels, process orders more efficiently, monitor suppliers and partners closely, proactively plan for disruptions or changes, and develop a more resilient supply chain.
With NetSuite’s real-time visibility, organizations can also closely monitor their inventory levels and use predictive analytics to forecast demand for future products, which is essential for JIT success.
NEXT POST — NetSuite ERP: The Ultimate Business Management Solution
Additionally, NetSuite provides advanced reporting capabilities that enable companies to view key performance indicators across the entire supply chain, detect any risks and take corrective action to reduce or eliminate them. This ensures that inventory is regularly replenished and that resources are used in the most efficient way possible.
NetSuite helps organizations minimize operational costs while maximizing customer satisfaction and improving their bottom line by optimizing the JIT inventory process.
By having a complete view of their processes and operations, companies can quickly identify areas for improvement and adjust their strategies to ensure maximum success with JIT inventory. With NetSuite’s advanced capabilities, organizations that implement JIT can be sure of achieving improved customer satisfaction, greater efficiency, and better margins.
Just In Time Inventory Examples
JIT is specially designed to create value in manufacturing environments and service companies that must match production with customer demand. For many companies, this emphasis on timing helps them maintain and grow their market presence.
PREVIOUS POST — NetSuite Consultant: Why You Need One for Your Business
The leading companies that use the Just In Time system:
-
- Amazon.com – The retail e-commerce giant uses a variation of JIT: setting up a dedicated space within key vendors’ warehouses. For example, in Pennsylvania, Amazon has a small fenced-off area inside a Proctor & Gamble (P&G) warehouse. P&G loads products on pallets and moves them to the Amazon area. Amazon employees then package, label, and ship the products to the consumers who ordered them. The Pennsylvania location is five miles from P&G’s most significant manufacturing plants and close to major cities in the Northeast and Canada. Amazon can meet the critical 24-hour delivery period for P&G personal care products.
-
- Apple – With a central warehouse in the US and over 150 crucial global suppliers, Apple has strategic solid supplier relationships. Outsourcing production has made Apple more agile, allowing most inventory to be stored in retail stores and overstocking reduced. This approach has helped make the technology company one of the most profitable companies in the world.
-
- The Boeing Company: Beginning in the mid-1990s, Boeing applied company-wide JIT to work more closely with suppliers to eliminate redundancies, reduce costs, and improve product quality. Boeing continues transforming into an extensive parts and systems integrator and implementing lean manufacturing principles. The company relies heavily on its supply base to meet customer demand.
-
- Dell Technologies – Dell embraced Lean/JIT operations in the 1980s with direct-to-consumer sales. The company ordered parts when making a sale to a customer. Instead of stocking a warehouse full of pre-assembled computers, Dell reduced costs and lead times with JIT. Over time, the company became a well-known computer brand.
-
- Grayton: The high-end watchmaker was the first to adopt lean manufacturing strategies in the watch industry. As a result, Grayton increased its cash flow by 70% in one year. The company created a streamlined, cost-effective, fast-fashion manufacturing model, a challenging feat in the traditionally entrenched watch industry.
-
- Harley-Davidson USA: The motorcycle manufacturer reduced its significant inventory habits by using the JIT method to resolve inefficiency. Harley-Davidson reduced its inventory by 75%, eliminating additional storage costs. The company responds to customer orders with minimal lead time, increasing its productivity.
-
- Kellogg Company: Kellogg’s is a large-scale food manufacturer that stocks just enough inventory to fill customer orders. The company uses JIT for operations, production, merchandise, and distribution. Optimize production and inventory costs and budgets with JIT. Kellogg sources its food raw materials from leading suppliers worldwide to produce 40 different kinds of cereal and snacks.
-
- Motorola: The company uses a “zero latency” status view to show real-time inventory levels. As a result, Motorola reduced needs by 20% and cut average resolution time from weeks to sometimes just hours.
-
- Nike – In 2012, Nike implemented JIT to improve its disconnected production facilities in Southeast Asia. Since then, the company has reduced lead times by 40%, increased productivity by 20%, and can introduce new models 30% faster.
-
- Tesla: Despite Tesla’s growth, the company cannot independently enjoy the same economies of scale as the big automakers. Tesla takes ownership of its supply chain, maintains minimal inventory, and builds on demand. This practice helps Tesla have more capital available because it is not tied to excess inventory.
-
- Toyota Motor Corporation: Toyota is one of the best-known examples of companies that use the JIT method. When a customer orders, Toyota only receives raw materials at the factory when it’s ready to start building the car. This process minimizes inventory holding costs.
-
- Zara SA: Operating under the motto inventory = death, the fast-fashion leader owns its supply chain and gets products to market extraordinarily quickly. Zara blocks 50-60% of its line at the beginning of the season. That means the company designs and manufactures up to 50% of its clothing in the middle of the season. When a particular style or design suddenly becomes fashionable, Zara reacts by creating new products and bringing them to stores as the trend continues.
RELATED POST — NetSuite SuiteSuccess: Accelerate Your Company’s Growth
Conclusion
Just-in-time (JIT) inventory systems have become a popular tool for many companies looking to reduce costs and improve efficiency. Companies such as Boeing, Dell, Grayton, Harley Davidson USA, Kellogg’s, Motorola, Nike, Tesla, Toyota Motor Corporation, and Zara SA have all embraced JIT principles in various ways to reduce inventory expenses, cut costs and increase efficiency.
By taking ownership of their supply chain and maintaining minimal inventory, they have been able to free up capital and respond quickly to changing customer needs and trends. JIT can be an effective way for companies of all sizes to reduce operating costs while providing better customer service. As more companies adopt this approach, JIT will likely become an increasingly popular option for inventory management.
