Just-in-Time Inventory: All You Need to Know (2024)

Just-in-time (JIT) inventory and just-in-time manufacturing have been buzzwords in the worldof supply chain for some time now, and quite a few businesses have adopted this approach.With growing competition and increasing pressure to boost profitability, many businesseshave adopted this strategy to boost their bottom lines — which can be problematic whensupplychains come to a screeching halt.

This article will cover:

• A diagram of the JIT process and steps
• Pros and cons of JIT inventory management
• Questions to help determine whether it’s time to adoptJIT inventory management

What Is Just-in-Time (JIT) in Inventory Management?

JIT is a form of inventory managementthat requires working closely with suppliers so that raw materials arrive as production isscheduled to begin, but no sooner. The goal is to have the minimum amount of inventory onhand to meet demand.

Key Takeaways

• There are more advantages than disadvantages to practicing JIT if you have a proven,reliable supply chain and accurate demand planning.
• JIT has potential risks if you don’t have accurate and frequently updated salesforecasts.
• Before implementing JIT, make sure your inventory system works with JIT inventorymanagement.

Video: What Is JIT Inventory Management?

Just-in-Time (JIT) Inventory Management Explained

JIT inventory ensures there is enough stock to produce only what you need, when you need it.The goal is to achieve high-volume production with minimal inventory on hand and toeliminate waste.

Why Use JIT Inventory Management?

Companies often adopt JIT inventory management as a cost-cutting strategy. When implementedcorrectly, JIT can create more value than traditional methods that require more extensiveinventories.

How Does Just-in-Time Inventory Management Improve Businesses?

Just-in-time inventory management reduces waste, improves cash flow, increases flexibility,optimizes human resources and encourages team empowerment.

Companies that are successful at JIT inventory management maximize profits by keepinginvestment in stock as low as possible. They use data to manage inventory. They use an enterprise resource planning (ERP) system to gatherinformation on shipping,customer satisfaction, loss prevention, warehousing, purchases, reorders, goods in storage,receiving, stock turnover and more.

How Does Just-in-Time Inventory Management Work?

JIT inventory management ensures that stock arrives as it is needed for production or to meetconsumer demand, but no sooner. The goal is to eliminate waste and increase the efficiencyof your operations. Since the main objective is often quality and not the lowest price, JITrequires long-term contracts with reliable suppliers.

JIT is what’s known as a lean management process. In JIT, all parts of any productionor service system, particularly people, are interconnected. They inform each other and aremutually dependent on generating successful outcomes. This practice’s origin comesfrom Kaizen, a Japanese term meaning “change for the better.” Originating inJapan, the business philosophy looks to continuously improve operations and involve allemployees, from assembly line workers to the CEO. Like JIT, the goal is to reduce waste andimprove quality.

The JIT Process Diagram and Steps

Organizations may vary in how they implement JIT in their environment, but the general stepsare the same. This diagram shows how the cycle of continuous improvement works in JITinventory management.

Steps in Cycle of Continuous Improvement for JIT Inventory

1. Design: The JIT process begins with a review of the essentialmanufacturing building blocks: product design, process design, personnel andmanufacturing planning. Then plans are put into place to eliminate disruption, minimizewaste and build a flexible system.
2. Manage: A Total Quality Management (TQM) review ensures thereis continuous improvement throughout the process. A management review definesworkers’ roles and responsibilities, defines and measures statistical qualitycontrol, stabilizes schedules, and checks out load and capacity schedules and levels.
3. Pull: Educate the team on production and withdrawal methods usingsignaling methods like Kanban. Review lot size policies and reduce lot sizes.
4. Establish: Vendor relationships are vital to the success of JIT. Reviewvendor lists. Settle on preferred suppliers, negotiate contracts, discuss lead times,delivery expectations and usage metrics and measures. Learn how to make the most of themin the supply chain.
5. Fine-tune: Determine inventory needs, policies, controls and reduceinventory movements.
6. Build: Inform your team about the skills and capabilities it needs tocomplete its work and conduct team education and empowerment sessions to educate them.
7. Refine: Reduce the number of parts and steps in production by refining,standardizing and reviewing the entire process.
8. Review: Define and implement quality measures and metrics and conduct aroot cause analysis of any problems. Emphasize improvements and track trends to improveevery aspect of JIT.

Pros and Cons of JIT Inventory Management

JIT inventory management has its pros and cons: less inventory saves money but relies onstrong coordination between workers and suppliers. Also, strict protocols and forecastingrequirements produce value, but various factors can disrupt it.

Benefits of JIT Inventory Management

JIT inventory management boosts a company’s ROI by lowering inventory carrying costs,increasing efficiency and decreasing waste.

• Waste Reduction: The JIT inventory management model eliminatesoverordering and excess of all kinds.

  • Reduce Obsolete Inventory and Dead Stock: Low inventory levelssignificantly reduce the risk of inventory going unsold and sitting in thewarehouse obsolete.
  • Reduce Defective Product Loss: Defective inventory items areeasier to identify and fix when production levels are low, which reduces scrapcosts.

• Improved Efficiency: JIT eliminates the costs that come with extraraw materials, unneeded inventory and product storage.

  • Raise Inventory Turnover Ratios: Greater efficiency bringshigher inventoryturnover.
  • Minimal Inventory Obsolescence: The high inventory turnoverrate keeps items from sitting in your facility for too long and becomingobsolete.
  • Minimize Raw Materials on Hand: Receiving deliveries in thesmallest possible quantities — sometimes multiple times per day —virtuallyeliminates raw material inventories.
  • Local Sourcing: When suppliers are located near a company'sproduction facility, the shortened distances contribute to timely deliveries.On-time, reliable delivery of goods reduces the need for safety stock.

• Greater Productivity: JIT enhances productivity by reducing the timeand resources involved in manufacturing processes.

  • Faster Product Turnaround: Manufacturers can more quicklyproduce products.
  • Shorter Production Runs: With JIT, manufacturers can delivernew products more quickly and easily.
  • Simplify Change Orders: Having less raw material stock to drawdown before product changes makes it easier to implement engineering changeorders to existing products.

• Smoother Production Flow: JIT can eliminate bottlenecks and delaysacross the entire production process.

  • Shorter Production Cycles: JIT shortens manufacturing time,which decreases lead times for customers.
  • Reduce Product Defects: Production mistakes can be spottedfaster and corrected, which results in fewer defective products.
  • Shorter Production Runs: Fast equipment setup times reduceproduction runs, lowering investment in finished goods.
  • More Functional Production Cells: Employees walk individualparts through the processing steps in a work cell, which reduces scrap levels.Cell models also eliminate work-in-process queues that build up at morespecialized workstations.
  • Compressed Operations: Arranging production work cells neareach other limits the amount of work-in-process inventory moving between cells.

• Lower Costs: Receiving goods on an as-needed basis reduces inventorycosts.

  • Reduce Working Capital: The low inventory levels that come withJIT limit the amount of working capitalneeded.
  • Lower Holding Costs: Inventory holdingcosts (like those forwarehousing) are minimal because less space is used.
  • Lower Cash Investment: Companies invest less cash in inventorybecause JIT doesn’t require having a lot of stock on hand.
  • Reduce Large Raw Material Spends: In JIT, businesses order rawmaterial when needed, so cash is available for other uses that could be morevaluable to the company.
  • Reduce Labor Costs: Labor expenses are lower since the numberof person-hours required to fulfill orders is usually fewer than full-timeproduction.

• Improve Quality: A flexible workforce can focus on making qualityproducts with lower defect rates. Better outcomes increase customer satisfaction andreduce the cash outlay for production.

  • Reduce Work-in-Progress Goods: Fewer items moving on the shopfloor allows teams to focus on building high-quality products.
  • Less Damage: Since minimal inventory is on hand,storage-related accidents decline.
  • Certified Quality: Suppliers guarantee quality in advance. So,deliveries go straight to production areas instead of being held in receiving toawait inspection.

To support these goals, you can invest in new technology or update existing solutions thatwill link your system with your suppliers to coordinate the delivery of parts and materials.

Drawbacks of Just-in-Time Inventory

JIT inventory management relies heavily on precise forecasting and strong relationships withkey suppliers. When something goes wrong with either of those, that’s a problembecause there are no backup options in place.

For example, a single supplier that can’t deliver for any period of time can disruptthe entire supply chain and halt your operations. In addition, companies practicing strictJIT inventory management probably won’t have extra stock to satisfy unexpected orders.

If an organization’s forecasting can’t account for a surge in demand, forinstance, it won’t have the stock to fill those orders. That could mean lost revenueand, potentially, lost customers.

Potential Risks of Just-in-Time Inventory

The primary risk of JIT comes from its philosophy. JIT inventory management requires everyonein an ecosystem and supply chain to commit and work cohesively. If any part of thatarrangement breaks down, it risks the entire infrastructure.

• Lack of Preparedness: The business’s entire workflow needs toconvert to a lean framework. These actions affect the organization and the supply chain,which may need to change its procedures and practices.
• Supply Chain Disruptions: Disruptions in thesupply chain canstall theproduction process. Think back no further than 2020, when global supply chains groundto a halt during the COVID-19 pandemic.
• Missed Opportunities: With few or no finished goods on hand, a companymay not be able to meet massive and unexpected orders immediately.
• Unexpected Price Changes: In JIT, the cost for parts is constant. Whencosts rise, profit margins drop.
• Overreliance on Forecasts: Adapting to sudden surges or declines isdifficult because of the reliance on forecasting.
• Order Issues: Shortages and stock-outs can disrupt inventory systems.
• Local Sourcing Costs: JIT relies on local sourcing, which can cost morefor a number of different reasons. This dependency can also affect profitability in thepursuit of reliability.
• Time Pressure: Scheduling may increase the costof goods sold (COGS)because there’s no guarantee a company will always have the best price for rawmaterials from a supplier.
• Undisciplined Staff: Team members that are not on board with JIT canaffect productivity, quality and other issues.
• Supplier Dependence: A supplier who does not deliver goods on time andin the right amounts can disrupt the entire production process.
• Acts of Nature: A natural disaster that interferes with avendor’s flow of goods can halt production.

JIT Inventory Methodology

The JIT inventory methodology uses a variety of techniques to smooth operations. The leanmethod focuses on optimizing organization, paying attention to detail, having small lotsizes, increasing transparency, fostering cell manufacturing and using a pull (rather thanpush) approach.

Techniques Involved in JIT Inventory Methodology

• Order: Maintain a high level of physical and organizational discipline.
• Better Quality: Eliminate defects through attention to detail andcontinuous improvements.
• Reduced Setup Time: Create flexible changeover approaches when setupsneed to adjust to meet customer demand.
• Small Lot Size: In JIT, one is the ideal lot size. The small sizereduces in-process inventory, carrying costs, storage space, and makes for easierinspection and rework.
• Load Uniformity: Leveling is a control mechanism that achieves astable, level daily schedule.
• Flow Balance: Flow scheduling organizes throughput for evendistribution of energy and labor.
• Diversified Skills: Cross-trained workers can be deployed to differentareas to keep production moving.
• Visibility for Control: Using communication tools, like those found inKanban, keeps the entire team informed of inventory levels.
• Ongoing Maintenance: Ongoing oversight and focus on detail, includingthe machinery and tools the business uses every day, helps maintain a low defect, lowproblem environment.
• Use Fitness: JIT spaces designed to fit each process speeds upproduction. One workstation pulls output from the one before it, as needed, based on amaster schedule or customer demand.
• Logical Plant Layout: Product-oriented design makes assembly easier andmore efficient.
• Strong Supplier Network: Strong relationships with vendors make JITinventory most effective.
• Worker Immersion: Every team member should be dedicated to the processand colleagues to achieve JIT goals.
• Cell Manufacturing: Create an environment where groups can work asquickly as possible to make as many products as they can and limit the waste theycreate.
• Pull System: The process of only replacing products once they’vebeen used in production.

Why Is Kanban a Critical Element for the JIT Inventory System?

Kanban is the “nervous system” of lean JIT production, controllingwork-in-progress production and inventory movement. Kanban is crucial when it comes toeliminating manufacturing waste due to overproduction.

More traditional mass production methods use push inventory strategies based on the estimatednumber of expected sales. Kanban’s pull system creates more flexibility on theproduction floor because a company only produces goods based on actual orders. Kanban usescards (paper or digital) to track the progress of production on a factory floor. Asinventory moves through the manufacturing process, Kanban cards reflect that progress andcan signal when it’s time to order more stock.

Typical Kanban Board in JIT Inventory Management

Who Uses Just-in-Time Inventory Management?

Commonly associated with manufacturing, various businesses — from automakers to healthcare —use JIT inventory management.

Verticals that Use JIT Inventory Management

• Apparel: JIT is an ideal way to lower the high cost of inventory in theclothing business. Stocking apparel is costly and risky because more inventory needs tobe carried to meet the variety of styles, sizes and colors needed to meet customerdemand.
• Aerospace: The risk of delay and cost overruns is higher in thisvertical than in many other industries. JIT mitigates those issues and saves valuablespace in plants.
• Automotive: JIT was born in the automotive space to improve capacityand be more competitive. The practice is still in use today by car companies worldwide.
• Big Box Retailers: Stores like Walmart and Target schedule the arrivalof merchandise — like back to school, seasonal weather and Christmas goods —as demandrises for specific items based on forecasting and past experience. They clear shelves tomake room for the next season’s goods when interest wanes.
• Construction: In construction, waste is waiting, storing inventory andmoving materials frequently. Proponents of the lean methodology have adapted JIT tomitigate these issues.
• Fast Food: Franchises need to keep a substantial inventory ofingredients on hand. However, food is only made when there’s an order. JITprocedures eliminate waste and using fresh ingredients gives chains a marketingadvantage.
• Florists: A florist(opens in a newtab) can use JIT by ordering flowers only basedon customer demand. When florists shop the flower market, they know the amount andspecific items to buy.
• Healthcare: Many health care organizations turn to JIT inventorymanagement to keep supplies lean andexpenses low. The industry faces tighter profit margins tied to care costs and rate cutsfor reimbursements.
• Manufacturers: In manufacturing, speed to market and production costscan make or break a company. JIT helps reduceflow times withinproduction systems andimprove response times from suppliers and customers.
• On-Demand Publishing: On-demand publishing is the epitome of JITinventory management. Book manuscripts are printed and assembled only when sold. JITreduces wasteful destruction of books and returns of unsold inventory.
• Publishing: Independent publishers and self-publishers use just-in-timedelivery to print and assemble books on an as-needed basis to reduce costs due to unsoldinventory.
• Retail: JIT focuses on having enough stock to satisfy demand —andnothing more. In the past, retailers carried a surplus so they wouldn’t run out ofdesired items and lose out on potential sales. However, this isn’t an option forstores operating on a tight budget. With a JIT model, the goal is to physically stockzero inventory until a customer places an order. Learn how to reduce inventory in retailoperations.

What Companies Use JIT Inventory Management?

A number of the most successful companies in the world, including Amazon and Apple, use JITinventory management and build strong supplier relationships to maintain their competitiveposition.

Just-in-Time Inventory Examples

JIT is uniquely suited to drive value in manufacturing environments and service businessesthat must match output with customer demand. For many companies, this emphasis on timinghelps them keep and increase their market presence.

Major corporations in every industry take advantage of JIT inventory management, including:

• Amazon.com: The ecommerce retail giant uses a variation of JIT: settingup dedicated space inside key suppliers’ warehouses. Amazon has a small fenced offarea within Proctor & Gamble’s (P&G) Pennsylvania warehouse, for example.P&G loads products onto pallets and simply moves them to the Amazon area. Amazonemployees then package, label and ship products directly to consumers who ordered them.The Pennsylvania location is five miles from P&G’s largest manufacturingplants and near major cities in the Northeast and Canada. Amazon can meet the critical24-hour delivery window with P&G personal care products.
• Apple: With one central warehouse in the U.S. and about 150 criticalglobal suppliers, Apple has strategic and robust vendor relationships. Productionoutsourcing has made Apple leaner, resulting in stocking most inventory in retail storesand less overstock. This approach has helped make the technology company one of theworld’s most profitable businesses.
• The Boeing Company: Beginning in the mid-1990s, Boeing applied JITacross the enterprise to work more closely with suppliers and remove redundancies,reduce costs and improve product quality. Boeing continues to transform itself into anintegrator of large parts and systems and implements lean manufacturing principles. Thecompany relies heavily on its supply base to meet customer demand.
• Dell Technologies: Dell adopted Lean/JIT operations in the 1980s withdirect-to-consumer sales. The company would order parts when it made a sale to acustomer. Rather than stock a warehouse full of pre-assembled computers, Dell reducedcosts and lead times with JIT. The company eventually became a well-known computerbrand.
• Grayton: The high-end watchmaker was the first to adopt leanmanufacturing strategies in the watch industry. As a result, Grayton increased its cashflow by 70% in one year. The company created a streamlined, cost-efficient, fast fashionmanufacturing model — a challenging feat in the traditionally entrenched watchindustry.
• Harley-Davidson USA: The motorcycle manufacturer curtailed its largeinventory habits by using the JIT method to solve inefficiency. Harley-Davidson reducedits inventory by 75%, eliminating extra warehousing costs. The company is responsive tocustomer orders with minimal lead time, increasing its productivity along the way.
• Kellogg Company: Kellogg’s is a large-scale food manufacturerthat stores only enough inventory to meet customer orders. The company uses JIT foroperations, production, inventory and distribution. It optimizes production andinventory costs and budgets with JIT. Kellogg obtains its raw food materials fromprimary suppliers worldwide to produce 40 different types of cereals and snacks.
• Motorola: The company uses a “zero-latency” status view toshows inventory levels in real time. As a result, Motorola reduced needs by 20% andreduced the average time to resolution from weeks to sometimes just hours.
• Nike: In 2012, Nike implemented JIT to improve its disconnectedproduction facilities across Southeast Asia. Since then, the company cut lead times by40%, increased productivity by 20% and can introduce new models 30% faster.
• Tesla: DespiteTesla’s growth, the company cannotindependently enjoy the same economies of scale as large auto manufacturers. Tesla takesownership of its supply chain, keeps minimal inventory and essentially manufactures ondemand. This practice helps Tesla have more capital available because it isn’ttied up with surplus inventory.
• Toyota Motor Corporation: Toyota is one of the most well-known examplesof companies using the JIT method. When a client places an order, Toyota only receivesraw materials in the factory when it is ready to start building the automobile. Thisprocess minimizes inventory holding costs.
• Zara SA: Operating under the motto inventory = death, the fastfashion leader owns its supply chain and brings goods to market extraordinarily quickly.Zara locks in 50-60% of its line by the start of the season. That means the companydesigns and manufactures up to 50% of its clothes in the middle of the season. When aparticular style or design suddenly comes into vogue, Zara reacts by creating newproducts and getting them into stores while the trend is still cresting.

Questions to Ask If You Are Considering JIT Inventory Management

Before converting to JIT inventory management, assess if the entire organization is ready.Consider these six factors: turnarounds, forecasting, flexibility, vendors, workforce andtechnology.

6 Questions to Ask Before Converting to JIT Inventory Management

1. Turnarounds: Can my products be manufactured or supplied quickly?
2. Forecasting: Do I have enough confidence in my sales forecast toaccurately depict fluctuating consumer demand, including seasonality?
3. Flexibility: Do I have enough flexibility in my supply chain andmanufacturing to adapt to disruptions like supplier disruptions or natural disasters?
4. Vendors: Are my suppliers reliable enough to deliver on time, everytime? Is my order fulfillmentsystem efficient enough to get orders through on time even when they have to compensatefor supply chain delays?
5. Workforce: Implementing a JIT system requires total support andunderstanding from every operational division, especially employees. JIT relies onmulti-functional, cross-trained employees to perform several duties so team members canfill in when and where needed in the production line cell. Is my workforce committed andup to the task?
6. Technology: Does my inventorymanagement software support JIT inventory management?

Shifting to JIT or any new system requires preparation, research and buy-in. Find out how toincrease profits and streamline productivity by reading the guide to inventoryplanning.

History of Just-in-Time Inventory Management

The just-in-time philosophy was initially known as the “Toyota Production System” (TPS) orjust-in-time manufacturing. The approach was developed in post-World War II Japan, when carmanufacturing faced shortages and had to minimize resource consumption to survive and remaincompetitive. Eiji Toyoda and Taiichi Ohno, Japanese industrial engineers, created the systemwhen Toyota Motor Company (TMC) recognized that U.S. carmakers of that era were outpacingtheir Japanese counterparts. After some testing, they established the Toyota productionsystem and closed the gap between 1945 and 1970. JIT has continued to grow as a practiceworldwide. This system’s basic underlying idea is to minimize the consumption of resourcesthat add no value to a product.

Improve or Grow Your Business With a JIT Inventory Management System

Insight into your stock at any given moment is critical to success, which is why avalue-focused inventory management strategy can make or break a business. Inventorymanagement systems that can support JIT give decision-makers the right tools to manage theirinventory in an optimal way that generates higher profits.

Learn how to improve efficiency and boost profits with a leading inventorymanagement system.

JIT inventory has the potential to generate tremendous benefits for many companies. Thisapproach has caught on since Toyota invented it because it can lower costs and increaseprofitability in a big way. To evaluate whether it’s a fit for your business, youshould consider the pros and cons with your industry and business model in mind and whetherthe organization could support the processes required to make this work.

JIT Inventory Management FAQs

While JIT aims to create simplicity, understanding how to implement it, associated terms andrelated methodologies takes some effort. This FAQ answers common questions about JITinventory management.

What is a just-in-time inventory system?

The JIT inventory system aligns production schedules with the delivery of supplies. Thesesystems increase efficiency and decrease waste by receiving goods on an as-needed basis.

What is the just-in-time method of inventory control?

The JIT method of inventory control involves creating, storing and tracking enough orders tosupply demand. JIT differs from other inventory strategies in that businesses don’tmake and hold excess inventory in anticipation of future orders.

What’s the difference between JIT inventory and JIT manufacturing?

JIT inventory and manufacturing have a similar principle: produce or receive a product onlywhen needed. They operate at different points in the supply chain but can work together or independently.

What is the difference between just-in-time vs. just-in-case (JIC) manufacturing?

JIT aims to reduce waste by only taking in inventory as needed for production. JICprioritizes stocking surplus goods and outpacing the current demand to fulfill orders ontime.

What is the difference between just-in-time inventory vs. Economic Order Quantity (EOQ)?

JIT ensures there is the right quality and quantity of inventory using minimum resources,time and material waste. EOQ is a formula used to identify stock replenishment levels toavoid shortages and extra costs.

The EOQ regulates the most favorable inventory to produce or buy to minimize order andstorage costs. The EOQ formula is usefulfor companies that have consistent demand, order and holding costs over time.

What is an example of just-in-time delivery?

Supermarkets take advantage of just-in-time delivery by only restocking a product oncecustomers have bought nearly all available items. The demand for any item directly affectssupply, meaning the market replenishes some goods on a regular basis and othersinfrequently.

How does the Theory of Constraints (TOC) apply to JIT inventory management?

TOC is a continuous improvement principle and process that identifies systemic weakness orvariables. In JIT, the TOC pinpoints the weakest part or person that may constrain systemthroughputs.