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JIT Analysis
What is JIT?
Introduction
The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies employ this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately.
KEY POINTS
Insight
The just-in-time (JIT) inventory system is a management strategy that minimizes inventory and increases efficiency.
Just-in-time manufacturing is also known as the Toyota Production System (TPS) because the car manufacturer Toyota adopted the system in the 1970s.
Kanban is a scheduling system often used in conjunction with JIT to avoid overcapacity of work in process.
The success of the JIT production process relies on steady production, high-quality workmanship, no machine breakdowns, and reliable suppliers.
How does JIT work?
How does it work
The just-in-time (JIT) inventory system minimizes inventory and increases efficiency. JIT production systems cut inventory costs because manufacturers receive materials and parts as they are needed for production and so do not have to pay storage costs. Manufacturers are also not left with unwanted inventory if an order is canceled or not fulfilled.
One example of a JIT inventory system is a car manufacturer that operates with low inventory levels but heavily relies on its supply chain to deliver the parts it requires to build cars, on an as-needed basis. Consequently, the manufacturer orders the parts required to assemble the cars only after an order is received.
Pros
Pros and Cons
JIT inventory systems have several advantages over traditional models. Production runs are short, which means that manufacturers can quickly move from one product to another. Also, this method reduces costs by minimizing warehouse needs. Companies also spend less money on raw materials because they buy just enough resources to make the ordered products and no more.
Cons
The disadvantages of JIT inventory systems involve potential disruptions in the supply chain. If a raw-materials supplier has a breakdown and cannot deliver the goods in a timely manner, this could conceivably stall the entire production line. A sudden unexpected order for goods may delay the delivery of finished products to end clients.
Example
Famous for its JIT inventory system, Toyota Motor Corporation orders parts only when it receives new car orders. Although the company installed this method in the 1970s,
it took 20 years to perfect it.
Sadly, Toyota's JIT inventory system nearly caused the company to come to a screeching halt in February 1997, after a fire at Japanese-owned automotive parts supplier Aisin decimated its capacity to produce P-valves for Toyota's vehicles. Because Aisin is the sole supplier of this part, its weeks-long shutdown caused Toyota to halt production for several days. This caused a ripple effect, where other Toyota parts suppliers likewise had to temporarily shut down because the automaker had no need for their parts during that time period. Consequently, this fire cost Toyota 160 billion yen in revenue.
Example
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