Tags: Supply Chain
Inventory management, or the supervision of the flow of goods from manufacturers to warehouses to points of sale, is imperative to ensure a business can meet customer demand. Without an adequate inventory management system, companies can lose money. One example of an inventory management system is the Just in Time methodology.
The Basics of Just in Time Inventory Management
The (JIT) methodology is a version of lean manufacturing. Lean manufacturing is based on the practice of ordering and receiving materials only as they're needed within the production process. JIT inventory management uses the lean approach with regards not just to materials for production, but also manufactured goods.
This methodology originated in Japan, supposedly coming from Toyota's practices. However, many shipyards in Japan had already put the system into use to combat the lack of cash and space for big factories and warehouses. That said, it's still known colloquially as the Toyota Production System.
Key Considerations for Just in Time Inventory Management
The key goal of the JIT approach is to maximize efficiency while minimizing waste. When businesses implement lean manufacturing or the JIT inventory method, they do have to keep some key considerations in mind.
The first consideration is their supply chain. Lean manufacturing is largely dependent on a timely supply of materials or goods. Therefore, businesses must know their supplier well. The approach works best when they have a strong relationship with their suppliers. However, consultants often recommend having more than one supplier available.
Another consideration is transparency, especially for businesses that are changing to a JIT system. Customers may not be able to receive their products instantly anymore. However, if a business is producing a high-quality product, customers will usually wait. They don't, however, like to be taken by surprise with wait times.
Finally, the approach relies heavily on an analysis of customer behavior. Because companies aren't keeping stock on hand, they have to understand their customers' buying patterns. They should keep factors such as seasonal demand and location-based demand in mind when developing their JIT plan. Otherwise, they may lose sales based on being out of stock.
Potential Pitfalls of Just in Time Inventory Management
Being out of stock of key products is one of the biggest pitfalls of lean manufacturing. Combating this pitfall requires not only an accurate analysis of customer behavior, but also help in managing the supply chain. Consultants often recommend software to help with JIT inventory management.
Another major pitfall is any interruption in the supply chain. Companies can have a solid supply chain, but a breakdown with one of the suppliers can disrupt production. For example, Toyota suffered lost revenue due to a fire that broke out in one of its suppliers' plants. Potential disruption is the reason to have backup suppliers on hand.
Advantages of Just in Time Inventory Management
Even with the potential pitfalls, the JIT inventory management system is advantageous. The most obvious advantage is that companies don't have to run a large warehouse to store their materials or inventory. This advantage saves them space and, especially, money.
Indeed, another cost-related advantage to the JIT approach is that companies don't spend inordinate amounts of money on stock they may not sell or don't need for manufacturing. They therefore avoid loss of revenue in dead stock, which is stock that's expired, out of season, or otherwise unable to be sold.
Finally, JIT inventory management affords companies the ability to keep production runs short. If they need to switch to a new product, they can do so easily. They don't have to worry about a large stock of materials or inventory that might fast be reaching a dead stock phase.
Inventory management, whether the JIT approach or another methodology, is essential for your business's efficiency. Don't suffer revenue loss with an inaccurate or outdated inventory management system. Instead, contact Group O to streamline your inventory management.