Is Just-in-Time Inventory Management Still Relevant?
Just-in-time (JIT) inventory management has helped lean manufacturers boost efficiency for decades. Regardless of the disruptions, companies have continued to adapt and ensure JIT inventory.
JIT basically describes the process of ordering and receiving inventory for both production and sales as and when it's needed (and not before).
To get JIT inventory management right, you have to work closely with suppliers of raw materials and manufacturing components to ensure that it only arrives right before it’s needed for production.
The primary objective is to operate with continuously low inventory levels. This approach helps minimize inventory carrying costs and waste. It also allows manufacturers to improve their return on investment by cutting non-essential costs.
For it to work, manufacturers have to forecast sales accurately, and suppliers have to be able to deliver on time.
How Does Just-in-Time Inventory Management Work?
JIT inventory management often focuses on quality and not the lowest price. Thus, manufacturers can only adopt this approach if they have long-term contracts with established reliable component and raw material suppliers.
In the JIT inventory management model, all parts of the production process are interconnected (especially people). As everyone is mutually dependent on each other to achieve successful outcomes, JIT focuses on continuously improving operations and involves all staff from the CEO down to assembly line workers.
Key Advantages of Just-in-Time Inventory Management
When everyone works together towards the same goal, you’ll be well placed to improve quality while reducing waste. JIT inventory management also helps enhance flexibility, improve cash flow, and encourages team empowerment.
When you manage JIT inventory with data, companies are also able to maximize profits by keeping investments in stock down.
Other benefits include:
- Lower product defects
- Streamlined production
- Less staff to manage stocks
- Shorter turnaround times
- Continuous improvement
Key Disadvantages of Just-in-Time Inventory Management
This lean manufacturing model relies heavily on precise forecasting and reliable partners. So, if something goes wrong with either of those, you’re going to have a problem.
In JIT inventory management, there’s no Plan B. You’re not supposed to have a backup because it defeats the philosophy that forms the foundation of this inventory management model.
For example, if your raw material supplier isn’t able to deliver on time, the whole supply chain will come to a standstill. However, some experienced manufacturers and suppliers tend to keep extra stock for such unexpected situations.
For example, at MMI, we provide warehousing and stocking options for our clients that enhance inventory flexibility without carrying costs or loss of warehouse space. What’s more, we have warehouses in China, India, and the United States to support JIT initiatives.
If you get your sales forecasts wrong, then you won’t be able to fulfill present demands. This leads to lost revenue and potentially lost customers.
Other risks include:
- Forecasting flaws
- Natural disasters
- Missed opportunities
- Lack of preparedness
- Unexpected price changes
- Time pressure
- Overreliance on suppliers
So, is just-in-time inventory management still relevant?
While there is a certain amount of risk involved, the advantages far outweigh the risks.
JIT inventory management still fits the bill. All you have to do is plan thoroughly and get all stakeholders to buy-in.
If you’re wondering if JIT inventory management is right for you, first ask yourself the following questions:
- Am I confident in my sales forecasts to predict demand accurately?
- How adaptable is my supply chain? Is it flexible enough to adapt to potential disruptions?
- How reliable are my vendors?
- Do I have enough staff to manage the process efficiently?
Before adopting just-in-time inventory management, it’s crucial to engage your suppliers, employees and consult technical experts. This approach will ensure that it’s implemented correctly across your supply chain
At MMI, we have helped leading brands leverage our extensive network and sub-brands to overcome manufacturing and supply chain challenges. Our decades of experience will help you bring products to market on time both domestically and abroad.
To learn more about our JIT programs and our supply chain management experience, reach out to our in-house expert, Julie!
Sales Manager (West)