What is Just in time (JIT)?
Just in time is an inventory management technique in which the materials, goods and labour are scheduled or re-filled to arrive in the manufacturing process, exactly when required.
If the JIT approach is applied adequately in an organisation, then it extends a competitive advantage to the organisation as the production capacity increases, product quality improves and the wastage is minimised significantly.
- Just in time is an inventory management technique in which the manufacturing process occurs exactly when required.
- If applied adequately, the JIT approach extends a competitive advantage to the organisation.
- Two main components of JIT are continuous improvement and waste elimination.
Frequently Asked Questions (FAQs)
What are the elements of JIT?
The two main components of JIT are continuous improvement and the elimination of waste.
Continuous improvement – Identifying the problems and the activities which do not add any value to the overall production process and eliminating the same.
- It involves devising systems to locate the problem in the production process.
- It states that the system should be simple, easy to understand and manageable. It helps locate the problem easily and minimises the issues as well.
- The layout should be product oriented as less time will be devoted to the parts.
- Quality control should be taken at the source, that is, workers will be held responsible if any defect is detected in the product. It reduces the chances of error.
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Eliminate waste – Waste can be categorised into seven parts, namely,
- Time wastage
- Transportation wastage
- Wastage due to defects in the product.
- Processing waste
- Inventory waste
- Waste due to overproduction.
The primary objective of JIT is to eliminate wastage and it should be implemented throughout the supply chain to gain positive results. Earlier, the manufacturing industry was aiming at reducing the inventory and focusing on operations. The waste can be reduced by adopting six principles which were introduced by Schniededans,
- Reduction in the buffer inventory.
- Zero inventory.
- Reliable suppliers
- Focusing on reducing the cost of purchase.
- Material handling is improved.
- Reducing the lot sizes and increasing the order’s frequency.
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What is the importance of JIT?
For gaining the full advantage of the JIT approach, the entire supply chain needs to be planned and superior software should be employed. By efficiently employing JIT, an organisation can achieve the following benefits –
- Inventory waste reduction – Overproduction is eliminated by JIT, that is, the approach ensures that the supply and demand match and there is no excess unusable inventory. The unusable inventory is termed as dead stock and adds to the inventory storage cost. In the JIT system, the supply order is only placed when it is required, so there is no accumulation of unusable inventory.
- Reduction in warehousing cost – Warehousing adds to the cost and holding excess inventory further adds to the cost. JIT approach aims at keeping the warehousing cost minimum as the inventory is only ordered when the need arises. This can happen when a customer places an order or when daily orders need to be fulfilled. With JIT, the warehouse cost can be reduced, or it can be avoided as well.
- The manufacturer gains control over the manufacturing process – The manufacturing department gains full control over the supply and demand process. The production is increased when the demand increases, and the production process is slowed down when the demand is reduced. Therefore, JIT introduces flexibility in the process as the supply can be managed as per the demand.
- Local sourcing – The manufacturing process starts when the order is received, therefore, the organisation must arrange raw material locally, so that raw material is delivered when the requirement arises. With local sourcing the cost of transportation and time also reduces. Moreover, the employment opportunities increase within the location.
- Smaller investments – Less working capital is required for financing the manufacturing process as the stock of raw materials is only ordered when the demand arises. The stock in inventory is less, therefore the return on investment will be high. JIT involves the concept of “right first time”, that is, activities undertaken should be perfect when the activity is conducted the first time, ultimately reducing the cost of rework, resulting in a reduction in investment cost.
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What are the drawbacks of JIT?
The JIT methodology is effective in increasing the production capacity and reducing the production cost; however, the methodology suffers from few drawbacks, which are:
- In the JIT approach, the inventory is generally kept to a bare minimum or in accordance with the customer’s order, therefore, it becomes nearly impossible to rework orders.
- The model is dependent upon the timeliness and performance of the suppliers, and it is difficult to control the same. Moreover, the manufacturers must a plan in case there is a sudden hike in the raw material prices. The organisation cannot stop the manufacturing process while looking for competitive rates in the market.
- The JIT model includes a lot of shipping for the purpose of arranging material and making the product available to the end customers. It can lead to the creation of pollution and leave a negative externality on the environment as fossil fuel is burnt.
- In case of any external disruption, the business (which has adopted the JIT approach) might face a lot of losses as there is no extra stock on which the company can rely.
- The JIT needs to be organised and managed carefully in accordance with the changing business requirements, and it becomes difficult if done manually. Therefore, the organisation needs to adopt software, gaining access to which can be an expensive affair.
What are some real-life examples of JIT?
- Majority of the perishable goods companies adopt the JIT approach for managing their inventory. For example, Kellogg’s uses the JIT approach and makes sure that the production matches the consumer’s demand and limited inventory is stored.
- Xiaomi is a mobile manufacturing company and utilises the JIT approach. A limited quantity of smartphones is produced every week. The strategy allows the company to reduce the overall cost and eliminate the wastage significantly. However, it also acts as a drawback as the consumers have to wait to gain access to the product and it might result in buying the competitive brand.