A vital part of maintaining the efficiency of any business or warehouse is in coordinating the supply-and-demand of your inventory. To avoid overstocking items that surpass the customer demand, it is important for companies to implement a leaner practice that manages production on an as-need basis. That’s where the just-in-time inventory system comes into play.
What Is the Just-In-Time (JIT) Inventory System?
Just-in-time (JIT) inventory management is a unique system of controls and lean practices that ties production directly to customer demand. Specifically, JIT is a process that only allows manufacturing to occur in response to a customer order. Every part of the production process—from acquiring raw materials to creating the product—is done to fit an order like a glove.
On the sales end of things, JIT means only ordering a product in response to a customer’s purchase and not keeping inventory on hand or in storage. The end result is more manageable inventory levels, lower costs, and more efficient practices; however, JIT isn’t suitable for every type of product.
Advantages of the Just-In-Time Inventory Management System
There may be many benefits of just-in-time inventory management. Here are just a few reason JIT is a good option for your business:
Since products are only ordered in response to a customer’s purchase, there is no need to devote space to storing a product except for the brief period between delivery to a store and when the customer comes to pick it up. If you deliver directly to a customer, then you don’t even need that. This significantly reduces overhead now that warehousing facilities are not required and frees up funds for other functions.
As goods of any sort sit on shelves or in storage, they can become damaged, go obsolete, expire, or otherwise need to be replaced due to never getting sold. JIT is based around no floating inventory, so these forms of waste never happen. Everything made is sold because it is only made when it is sold.
Healthier Cash Flow
Buying large amounts of stock at once can significantly cut into funds, but this practice was tolerated for a long time as a necessary business expense. Under just-in-time inventory management, this is no longer the case and business will be able to enjoy more flexibility in their spending and savings.
Disadvantages of the Just-In-Time Inventory System
Like any other management practice, there cons to be had to JIT. You should carefully consider all of these points before instilling it into your business.
Sensitivity to Demand
JIT plans are set up with certain expectations about order frequency. If this rate suddenly increases beyond projections, production won’t always be able to keep up with demand. This can result in longer waits for customers and leave you scrambling to placate them. To avoid this, you need sufficient planning and supply chain management.
Since raw materials are purchased only on an as-needed basis, JIT is more vulnerable to adjustments in market prices. This can be seen now with the current oil prices and the subsequent way it is affecting plastics. Although this can be a good thing at times when low prices emerge, sudden spikes in demand can force you to raise prices. This can be mitigated with supply agreements but depends on the product in question. So, it is not as constant a problem.
Since JIT, by definition, requires imposing a waiting period on customers, it isn’t going to work for certain types of products. For instance, you are going to need a compelling reason why someone would buy a product from you and wait to receive it rather than go to a store with it in stock to get the item immediately. As a result, JIT tends to be more suitable for online-only businesses, or specialty or larger, more customized products.
Making Sure Your Supply Chain Is up to Snuff
Since JIT inventory management is heavily reliant on a flexible and effective supply chain, it’s important to partner with fulfillment services that are agile and experienced. APS Fulfillment is a specialist in direct mail marketing, e-commerce fulfillment, and other forms of supply chain management. Contact us by phone at 954-582-7450 or by email at [email protected] for more ways our services can support and grow your business.