Managing inventory and storage can be costly. Therefore, businesses are always looking for ways to reduce the need for warehouse space and lower expenses in the process.
One of the most innovative and effective approaches for doing so is by using Just in Time (JIT) inventory. It can not only help reduce the expenses associated with inventory management, but also greatly improve operational efficiency, which has benefits reaching far beyond just inventory.
But can it work for your business? To find the answer to this question, first we need to understand what Just in Time inventory management means.
What is Just in Time Inventory Management?
In the simplest sense, Just in Time inventory is a system that produces or acquires materials needed for production only when the demand requires it. Instead of storing huge amounts of raw production materials on-site, businesses choose to instead place smaller and more frequent inventory orders from their suppliers.
The process has been made popular by Japanese companies such as Toyota, which popularized it in the second half of the twentieth century. Today, it’s an increasingly popular option among many different manufacturing businesses. Toyota is still perfecting the art of Just in Time inventory, as they’ve been striving to reduce the time from order to production to just 14 days.
That’s in large part because of advances in software, which allow for much more efficient collaboration between suppliers and retailers, which has made JIT inventory management easier than ever to implement.
In an ideal scenario, Just in Time inventory can have a very positive effect on the efficiency of production, as well as result in a decrease of waste during the production process. The materials and goods are only received as they’re required in the production process, and specific types and quantities of the goods are received at the precise time that they become necessary.
For a JIT system to function correctly, multiple material deliveries from different suppliers are often needed, which makes the process more complicated. It requires not only great relationships with the suppliers, but also a very comprehensive communications system so that adjustments can be made in real time. The end goal of a Just in Time system is that there would be no on-hand inventory, and thus no need for storage.
A good example of a company that makes good use of the Just in Time inventory management model is Dell. The electronics giant has a unique approach to JIT, in that they place a lot of the burden of making it work on the suppliers. The company has perfected the model to such an extent that it’s able to offer incredibly short lead times to its customers, while maintaining little to no material storage of their own. Instead, the company relies on an extensive network of suppliers that carry inventory on their own and efficiently deliver it on demand.
In the electronics industry, this model gives Dell a huge competitive advantage. Since component costs are known to depreciate by as much as 1% per week in the electronics industry, Dell is able to gain an incredible competitive advantage by not stocking up in advance.
But even though Dell is a prime example of how much the JIT inventory management system can benefit a company if its full potential is realized, the success may not transfer so easily to other industries.
So How Can Your Business Benefit from Just In Time Inventory Management?
There are numerous advantages of JIT compared to more traditional inventory management systems. It can still maintain relatively short production runs, allowing manufacturers to quickly move between different types of products, while drastically cutting warehouse storage costs.
What’s more, by buying just enough supplies to make the products that are currently required, businesses can actually better manage their overall expenses on materials.
This leads to many secondary benefits as well, such as:
- Saved funds from storage and inventory that can be allocated to other areas
- Space that was previously used for storage can be used for more productive activities, or let go of altogether
- Since the JIT system requires synchronicity between suppliers and manufacturers to be successful, when it’s fully implemented, the overall production time is reduced as the entire process is made much more efficient
How Can You Smoothly Implement JIT?
While there’s no question of just how beneficial a Just in Time inventory management system can be, it’s nonetheless a very complex process. The entire system is very susceptible to disruption – just one breakdown in the supply chain can cause big production delays.
In order for it to work, a business must apply a proactive approach instead of a reactive one. It’s essential to anticipate potential problems and have plans in place to make immediate corrections if any problems arise. For instance, if there’s a breakdown of just one of the suppliers, a contingency plan must already be in place to solve the problem. Even seemingly common situations such as an unexpectedly big order can pose a challenge to the JIT model.
Luckily, with the help of inventory management software, making the Just in Time Inventory Management system work is easier than ever. The entire concept of the software is based on ensuring that companies can quickly react and avoid out-of-stock and overstock situations by quickly reacting to changes in demand. The ability to track orders, sales, inventory levels, work orders and bills of materials are just some of the essential functions that inventory management software provides.
Here are some of the top software solutions if you want to implement a just in time inventory management system:
Acumatica brings a wide range of functions that are essential for successful implementation of JIT. You can easily track inventory, fill orders, manage sales and perform dozens of other functions. The system was acquired by EQT Partners, which owns IFS AB, in June 2019. Although the vendors remain separate, they can leverage shared capabilities and resources to improve functionality and market reach.
Acumatica provides an efficient way to manage distribution processes, with real-time updates of inventory, inventory in transit, reordering, costs and much more. This gives you all the necessary tools to minimize your storage needs and the costs associated with it.
You can completely eliminate delays using automated sales order processing and shipping order generation. After rules have been pre-set, Acumatica can help you have total control over your inventory and ensure seamless coordination, even when multiple suppliers are involved.
SAP Business One is a great inventory management solution because it has all the tools necessary to completely streamline your inventory and production management processes. You can manage warehouse data, handle production orders and track and record stock movements, all while having real-time data at your fingertips.
SAP has developed the software with small and medium businesses in mind. Therefore, it offers simple yet very effective solutions for minimizing inventory costs without compromising lead times and consistency.
The solution, which is available on both the cloud and on-premise, allows you to easily track and manage warehouse and stock data while executing orders quickly without compromising quality.
SAP Business One allows you to eliminate shortages altogether by synchronizing production, sales, inventory and warehousing data. It’s even able to automatically evaluate the movements of goods and track the changes in cost or price. This minimizes the need for manual interaction and thus, reduces the potential for errors.
SYSPRO is a top-shelf enterprise resource planning software solution for businesses of all sizes. It’s successful because of its flexibility and comprehensiveness that few other solutions can match. The software is easy to implement and use, providing countless reports that give you real-time insights into your business.
With its inventory module, which is designed with distribution and manufacturing companies in mind, it provides a range of advanced features such as BOM, kitting, barcoding, bin tracking, multiple warehouse tracking and inventory tracking with Just in Time options.