Inventory management is both a critical asset and a vital process for businesses around the world. Managing and storing inventory can be a difficult, time-consuming and costly process. As a result, organizations are always on the lookout for management theory alternatives that can help cut inventory-based expenses and improve overall operational efficiency. One such approach is JIT inventory management using a just in time inventory system. With this strategy, inventory managers are able to align raw material supplies and orders in parallel with production.
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What Is Just in Time Inventory Management?
JIT inventory management is a lean methodology specially created for increasing organizational efficiency, decreasing unnecessary expenses related to inventory wastage and ensuring that goods are received only as and when needed.
In order to implement this strategy, several internal as well as external risk factors — like inflation, technology failure, change in policies, high competition, and change in consumer tastes and preferences — need to be considered.
Why the JIT Concept Matters
A just in time inventory system offers numerous benefits to its users. Some of the most prominent benefits are:
- Reduce Inventory Waste: Overproduction is common but highly undesirable in most businesses. It occurs when a product’s supply is higher than its demand in the market. This leads to unnecessary accumulation of unsalable products or inventory. These products are dead stocks that lead to wastage and take up unnecessary space. Successful implementation of a just in time inventory management system helps ensure that accumulation of unusable products is reduced or eliminated entirely, thus helping cut inventory wastage.
- Minimize Warehouse Holding Expenses: Maintaining a warehouse is costly and having excess inventory adds up. In fact, reports from logistics management providers suggest that most warehouses measure around 400,000 sq. feet, but the industry is seeing a demand for smaller box facilities, which can be as small as 50,000 sq. feet. With a just in time inventory system in action, goods are ordered only when the consumer makes a purchase. This eliminates the need for stocking up on unnecessary inventory in your warehouse, and in some cases even eliminates the need for having a warehouse altogether.
- More Control to the Manufacturer: Manufacturers have to stay on their toes to increase or decrease production based on fluctuating market demand. Just in time inventory management gives them greater flexibility and control over the production of necessary and unnecessary items. Additionally, this strategy helps deal with the problem of having unusable inventory in stock, and producers are able to adapt to the ever-changing needs of the market quickly.
- Local Sourcing: In order to carry out an agile production process, local sourcing is best for a business using or planning to implement JIT inventory management. Sourcing inventory locally brings in numerous additional benefits to the business. Inventory orders get delivered much faster to clients with fewer transportation costs.
Examples of Successful Implementation
This inventory management strategy originated at Toyota in Japan, and since then the implementation has been yielding successful results. Other popular examples of just in time inventory management systems in action are seen at Apple, Kellogg, Xiaomi, Zara, Tesla and more. Let’s delve a little deeper into the important factors that helped these companies effectively implement just in time inventory systems and how they reaped the benefits of their implementation.
In 1970, Toyota introduced and implemented their own JIT-based strategy successfully. That approach is what’s now known as the Toyota Production strategy, which follows the tenets of a just in time inventory management system. In this, the requisite raw materials don’t arrive at its production floor until a customer places an order. Also, while production is in process, no parts or inventory are put in the next station till they are needed. This enables them to keep inventory levels at the bare minimum, resulting in lower costs. To ensure that things keep flowing, they keep small quantities of raw materials at every production station.
Apple also leverages the benefits of the just in time inventory system strategy in its production process. The tech giant operates through a central warehouse located in the U.S. and has approximately 150 major suppliers around the globe. These key suppliers build and maintain well-strategized relationships with vendors in line. As a result of production outsourcing, Apple is able to reduce overstock and cut down expenses.
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Key Features of a JIT Inventory Management System
For each business, the situations and circumstances in day-to-day operations may vary. For instance, your business may require you to hold or manufacture more inventory than what is actually needed for processing current order requirements. A just in time inventory management system makes it possible for businesses to operate by keeping realistic levels of bare minimum inventory. So, let’s have a look at the key features to see if adopting JIT would be the right step for your business.
Barcode & Tag
Having a barcoding module can help deal with common human errors that are most often a result of manual data entry. Barcode scanning offers quick, reliable solutions and saves significant time that would otherwise have been wasted on entering information manually. It also improves inventory control and keeps track of several aspects like pricing, product details and more.
Ideally, no one wants to disappoint their present or prospective customers with their products running out of stock. To ensure that such a situation doesn’t occur, it is extremely important to do an accurate inventory forecast. Some of the benefits of inventory forecasting that are worth considering are improving the user experience, building a loyal customer base and helping manufacturers wisely spend resources, as they are in a better position to analyze which inventory to purchase and in what quantity.
Businesses lose a lot of profits due to out-of-stocks, overstocks and returns. However, you can find peace of mind thanks to inventory management software suites that are equipped to handle this challenge with low stock inventory alerts. Also, reliable alerts through SMS or email are sent that notify the user regarding all crucial aspects of the business. These systems can share what inventory is purchased, what leaves the warehouse, shipment statuses, shipment issue alerts and much more in real time, which leads to quick problem solving and improved operational control.
Inventory Security and Backups
Ensuring that your inventory is thoroughly secured is imperative for all businesses. An inventory management solution can help ensure that your inventory is safe, your data is well-protected and it has a complete backup in place. It can also defend against malicious hacking attempts.