Just In Time (JIT) Inventory: Definition, Advantages & Examples
Just In Time (JIT) is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand.
Just in Time Inventory Definition
Just in time (JIT) inventory is a strategy to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. In other words, JIT inventory refers to an inventory management system with objectives of having inventory readily available to meet demand, but not to a point of excess where you must stockpile extra products.
JIT Inventory Example
General Motors operates using a JIT inventory, relying on its supply chain to deliver the parts it needs to build cars. The parts needed to manufacture the cars do not arrive before or after they are needed; rather, they arrive just as they are needed.
The ABC Company supplies GM with all the seats it needs for the production of its full-size trucks. The ABC Company and GM work closely together so that the seats arrive at the assembly plant as they are needed for each truck being built. The seats are never stored at GM’s assembly plant, waiting to be installed onto the trucks. The seats are delivered to the plant and are immediately installed into the new trucks.
Why Use JIT Inventory?
The JIT inventory method requires that producers be able to forecast demand accurately. JIT inventory supply system represents a shift away from the older ‘just in case’ strategy where producers carried large inventories in case higher demand had to be met.
A few of the advantages of using JIT inventory include:
Free up capital: Funds used to pay for inventory that was being stockpiled can now be used elsewhere.
Free up physical space: Areas previously used to store inventories can now be used for other, more productive things.
Throughput time reduced: JIT reduces the time it takes to assemble a product, resulting in greater potential output and quicker response to customers.
Defect rate reduced: With JIT inventory, if there is a problem with the item being used in the production of a product line, workers can identify it and request changes quickly. This results in less waste and greater customer satisfaction.
JIT Risk
Implementing thorough JIT procedures can involve a major overhaul of business systems. It can be difficult and expensive to introduce. JIT manufacturing also opens businesses to a number of risks, notably those associated with the supply chain. With no stocks to fall back on, a minor disruption in supplies to the business from just one supplier could force production to cease at very short notice.
Lesson Summary
Just in time (JIT) inventory refers to an inventory management system with objectives of having inventory readily available to meet demand, but not to a point of excess where you must stockpile extra products. JIT inventory is used to help keep cost down, free up physical space, and reduce defect rates.
Take these assessments in the link below to improve what you know on:
• Objectives of JIT inventory
• Benefits of the inventory
• JIT inventory risks
• The main idea of using JIT inventory