For centuries companies needed to deal with the problems related to manufacturing good and keeping a nice and neat inventory in order to do so. Often, resources were wasted, the timing wasn’t always good and buyers would simply get tired of this ridiculous display of disorganization.
It was only at the beginning of the 20th century when Toyota, the Japanese car company, was inspired to change this paradigm and move to another system. One that could actually work according to their needs and what the marked was demanding. This system was called the Just in Time method or simply JIT.
JIT states that materials need to be moved to the manufacturing facilities only when needed, this way inventories should be reduced, as well as the needed time to produce something. According to JIT, processes need to be properly synchronized in order to make the manufacturing operation possible.
This method focuses its energy on keeping inventories at their minimum but still operating in a cost-effective way. There are definitely great benefits associated with keeping a JIT inventory (costs reduction, saving space and time). However, there are also some cons related to keeping this type of inventory that need to be kept in mind when moving to a JIT system.
In this article, we will show a list of some of the most important pros and cons that need to be kept in mind when moving to a JIT inventory system.
Pros of a JIT inventory
Probably, the most important and most appealing pros of moving to a JIT inventory system is the reduction of costs and time. Within a JIT model, manufacturers don’t need to worry about the amount of stock they keep in their warehouses. This means that they don’t need to worry about the logistics related to keeping the warehouse organized, and for the materials to become obsolete of damage if they are not used.
Another pro of keeping a JIT inventory comes with the reduction of labor needed to keep a proper inventory of many items in stock, as well as the reduction in storage-related expenses and risks. This means that your company will have more space to grow strategically, instead of investing a considerable share of resources and energy in operative tasks.
The improvement in the relationship with customers is also a great pro related to JIT inventories. This happens when you are able to meet your client’s needs as soon as it presents them. JIT inventories help companies having everything the precise at hand whenever they precise it in order to produce items efficiently. All this translates in the possibility of being their “in time” for customers when they require it.
In terms of keeping customers happy, JIT inventories also help companies keep the proper stock of items during special moments of the year (like Christmas, mother’s day, etc.), so they don’t run out of stock during these high-demand periods. JIT helps companies ensure that they will be able to meet the market’s demands, avoiding the loss of sales due to inefficiencies in the way the inventory is kept and controlled.
Bottom line, by having a more efficient inventory, companies can start focusing their energy on other things, like the customer service experience, their e-commerce platforms, or their dreamed layout for retail businesses. It is a matter of starting focusing on the customer’s experiences instead of wasting time, energy and money on simply trying to hand something to that customer when it wants to buy it.
Disadvantages of JIT
Like everything in life, everything that is good is not perfect. With JIT inventories it happens the same way. There are some cons also associated with this model that need to be kept in mind when moving to it. Especially because we are talking about a model that is managed by people to serve other people, and let’s face it, people are prone to make mistakes.
The biggest and most significant con of keeping a JIT inventory is the risk of running out of stock. This happens because having a JIT inventory is not an easy task. It demands being actually focused on running a coordinated operation where supplies can be received, managed, transformed, and delivered efficiently. A tiny mistake made in any of these steps will lead to a major failure in the process that will be reflected in the results, and the way the final customer access the products and feels about the shopping experience.
In this sense, one of the most challenging things about keeping a JIT inventory is to be able to forecast or predict what your company will need based on that the market is going to demand. That calculation of the customer’s demand is not always accurate and may lead to the waste of resources. However, companies need to be prepared for any scenario in case they exceed their tolerance limits and end up with a huge stock of things that they don’t need anymore because at last minute the market trends shifted.
Related: Four significant cases of companies using the Just in Time system by David Kiger
* Featured Image courtesy of Unsplash at Pexels.com