If we think about the way different companies have been structured historically, we will find that many of the have always kept a vast inventory to supply the demands of their customers. A group of people in each company has been dedicated to keeping the inventory as neat as possible while the marketing department does its best to keep the sales moving creating more demand. This is how inventories have growth instead of diminishing and more room for simple operations has been required.
As David Kiger has said in this blog, there is a different way to do things if you want to reduce waste and be more efficient. One of them is reducing your inventory based on a Just in Time production (JIT) system. This allows your company to eliminate an inventory which is continuously growing, prevent your stock from being full of obsolete products and reduce the percentage of products and raw materials that are overstocking your warehouse. Even though a JIT inventory introduces itself as the ideal way to proceed in terms of managing an inventory, there are some considerations that need to be accounted before implementing it.
Before exploring the good and the bad of having a JIT inventory system, it is important to say that regardless the path you choose to follow, long-term commitment and resources investment is always going to be crucial in order to be successful. No one is going to guarantee that your company is going to be successful unless you take the time to actually believe in what you are doing, do your best in doing it right and keep on pushing it forward in time for as long as it benefits your company.
JIT Inventory at a glance
As almost every concept related to the Just in Time production system, having a JIT inventory refers to implementing an inventory management system where objects are always available to meet the customer’s demand without reaching a point of excess that may lead to potential waste. In other words, a JIT inventory aims to give clients what they want and no more.
The idea of having a JIT inventory is to reduce inventory numbers to zero in every stage of the production chain. This means not having raw material stored, work in progress or finished goods inventory. In the end, reducing your inventory will definitely reduce your costs and will let you have the same workforce who is currently handling the inventory, dedicated to working directly with customers and suppliers.
The first thing you need to know is that if you don’t have a huge room dedicated to keeping stored items, you will have more room to sell or produce them. Also, if you don’t have an inventory there is no need for you to keep a large workforce to take care of it. This gives you the chance to focus on your sales and marketing strategies. This shift in tasks allows you to train your employees in different activities different to keeping a neat inventory and will in the end translate in having a more flexible workforce focused on the quality of the product and the customer’s needs.
Having a zero inventory of obsolete products that you need to sell, allows you to produce new items continuously. This means you would be able to meet the always changing needs of consumers while offering an innovative product that is constantly refreshing according to the client’s preferences.
The main con of moving to a JIT inventory system is that it requires your company to do a considerable investment in both money and time to implement a complex system that will need to be improved continuously until it reaches a stable point. This mindset change implies rethinking the way the entire supply chain operates from the intake of raw materials to the final disposal of them. The entire workflow will need to be restructured in a way suppliers are close enough to supply materials with little-advanced notice and in probably less quantity. Ordering small amounts of materials can be rather complicated to coordinate with suppliers and sometimes companies need to partner up with other companies to meet the minimum amount available for sell.
A JIT inventory system will always require a vital coordination between retailers and suppliers along the distribution channel. This means having to trust on suppliers and their quick response to demand since they are the ones who will have the task to keep a neat inventory. This may imply a risk in terms of having at hand what is needed to produce a determinate good.
The biggest risk that implies having a JIT inventory system is having too much or too little to meet the customer’s needs. This fine line between what is too much or not may lead your company to have distribution problem or upset customers when stocks are out. It is ideal to keep your inventory at a point where you can avoid stock outs but also having a high inventory that may lead to potential waste.