What Is Just In Time Inventory (JIT)? (2024)

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JIT is an inventory management method that focuses on keeping as little inventory on hand as possible. Instead of stockpiling products and raw materials, you order small shipments to replace inventory as you forecast and fulfill orders. JIT is designed to reduce costs from the production process while ensuring the highest quality products.

With JIT, you don’t have to worry about unwanted inventory in the event an order gets canceled or is not fulfilled for any other reason. Grocery stores are a good example of businesses that implement JIT. When an item runs low, these stores order more. This allows them to keep optimal levels of stock and eliminate excess inventory that would lead to waste.

JIT ensures that inventory arrives as it’s needed to meet consumer demand. Since it revolves around delivering quality at the best possible prices, it relies on establishing long-term contracts with reputable suppliers. While the JIT process can vary a bit by business, it usually involves these steps:

• A customer places an order
• The business receives the order and orders the product from the supplier
• Once the supplier receives the order, they deliver it to the business
• The business fulfills the order and the customer receives the product

While other inventory management systems are “push” systems, JIT is a “pull” system. Push inventory systems create inventory in advance so that it’s all set to meet customer demand. A pull system, such as JIT does the opposite as inventory is ordered to meet actual demand.

Your business can reap many benefits by implementing JIT, but there are also drawbacks that mean it’s not right for everyone. Here are a few examples.

Benefits of JIT

• Reduce waste. With JIT inventory, you can eliminate excess inventory and overstocking, which can be expensive and take up a lot of space. You’ll also be able to reduce the losses that come from defective products by identifying and resolving them easily as a result of low production volumes.
• Increase productivity. The JIT inventory technique reduces the time and resources needed for manufacturing, thereby boosting productivity. The more productive your business is, the more products you’ll be able to sell and the more profitable you’ll become.
• Improve quality. JIT inventory management means you have fewer items in stock. This will make it easier for you to sell the highest quality products that are free of defects and meet (or even exceed) customer expectations.
• Create flexibility. Ordering fewer products more frequently will allow you to be more flexible with your inventory. You’ll be able to address customer behavior and shopping trends, putting yourself ahead of your competition.

Drawbacks of JIT

• Higher inventory costs. It’s more expensive to make smaller, more frequent orders than bulk orders every so often. Therefore, JIT inventory can reduce your profit from each sale.
• Supply chain disruption. If a product goes on back order or a natural disaster strikes, you may experience disruptions in your supply chain. These disruptions can hinder your operations and cost you money.
• Risk of running out of inventory. To succeed with JIT, you must accurately track sales and predict customer demand. Failure to do so can cause you to sell products faster than you can replenish them.
• Staffing issues. Since JIT is a fairly new concept and your employees might not be used to it, it may hinder their productivity. This can prevent your business from reaching its full potential.

If you’re interested in using JIT to improve the way you operate, JIT inventory management software is worth considering. It can automate your processes and make it easier to take advantage of this strategy. While there are many JIT software options on the market, some of the best include Netsuite ERP, ShipBob, Zoho Inventory and Sortly.

Bottom Line

JIT inventory can be a great way to save money and improve efficiency, especially if you implement it correctly. You’ll have fewer products on hand and reduce the risk of purchasing products you can’t sell. Make sure it makes sense for your unique business model.