Just-in-Time (JIT) Inventory Management

Increase Efficiency and Decrease Waste

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Just-in-time (JIT) inventory management, also know as lean manufacturing and sometimes referred to as the Toyota production system (TPS), is the process of ordering and receiving inventory for production and customer sales only as it is needed and not before. This means that the company does not hold safety stock and operates with low inventory levels. This strategy helps companies lower their inventory carrying costs by increasing efficiency and decreasing waste.

 This method requires producers to forecast demand accurately.

Just-in-time inventory management is a cost-cutting inventory management strategy though it can lead to stockouts. The goal of JIT is to improve return on investment by reducing non-essential costs.

Competing inventory management systems are short-cycle manufacturing (SCM), continuous-flow manufacturing (CFM) and demand-flow manufacturing (DFM).

This inventory system represents a shift away from the older just-in-case strategy, in which producers carried large inventories in case higher demand had to be met.

History

The management technique originated in Japan and is often attributed to Toyota. However, many believe that Japan's shipyards were the first to develop and successful implement this approach. Its origins are seen as three-fold: Japan's post-war lack of cash, lack of space for big factories and inventory and Japan's lack of natural resources.

 Thus the Japanese "leaned out" their processes. " 

News about JIT/TPS reached western shores in 1977 with implementations in the US and other developed countries beginning in 1980.

An Example

Toyota started with just-in-time inventory controls in the 1970s and it took more than 15 years to perfect. Toyota sends off orders for parts only when it receives new orders from customers.

For Toyota and just-in-time manufacturing to succeed, the company must have steady production, high-quality workmanship, no machine breakdowns at the plant, reliable suppliers and quick ways to assemble machines that put together vehicles.

Concern

Just-in-time inventories court disruptions in the supply chain. Just one supplier of raw materials who has a breakdown and cannot deliver the goods on time can shut down the entire production process. A sudden order for goods that surpasses expectations may delay delivery of finished products to all customers.

For instance, in 1997 a fire at a brake parts plant owned by Aisin decimated its capacity to produce a P-valve for Toyota vehicles - Aisin was the sole supplier and had to shut down production for several weeks. Toyota ran out of P-valve parts after just one day. 

A fire in the company was the sole supplier of the part, and the fact that the plant was shut down for weeks could have devastated Toyota's supply line. The auto manufacturer ran out of P-valve parts after just one day. Fortunately, a supplier of Aisin was able to retool and start manufacturing the necessary values after two days. Nevertheless, the fire cost Toyota nearly $15 billion in revenue and 70,000 cars.

 Other suppliers for Toyota also had to shut down because the auto manufacturer didn't need other parts to complete any cars on the assembly line. It could have been much worse.