When items are ready just in time, they are not sitting idle, taking up space. This means that they aren't costing the business owner anything nor are they becoming obsolete or deteriorating. However, without the buffer of having items in stock, you must tightly control your manufacturing process so that inventory is ready when needed. By taking a JIT approach to inventory and product handling, companies can often cut costs significantly. Inventory costs contribute heavily to the company expenses, especially in manufacturing organizations. By minimizing the amount of inventory you hold, you save space, free up cash resources, and reduce the waste that comes from obsolescence.
JIT is intended to spread throughout the organization so it can have an impact on many areas through improvements in processes. When the emphasis is on lean production, systems tend to be made simpler and more predictable. From how a product moves through the building to ways to increase worker involvement in system design, JIT improves efficiency. Before implementing the JIT system one must evaluate the pros and cons to make an informed decision.
Pros of JIT
There are a lot of strengths in incorporating JIT inventory in a company. JIT makes production operations more efficient, cost effective and customer responsive. JIT allows manufacturers to purchase and receive components just before they're needed on the assembly line, thus relieving manufacturers of the cost and burden of housing and managing unused parts. The benefit of carrying smaller amounts of inbound, in-process, and finished goods inventory exists regardless of the firm's operating context.
Just in Time appeals to many companies because it helps prevent the organization from being trapped with inventory that may become obsolete. JIT was initially developed and justified based on cost reduction and quality improvement dimensions. Companies now view JIT as providing an approach to achieving excellence in the elimination of waste as well as making the company more responsive to short-term customer demand patterns.
JIT inventory can be a real money-saver for a company. Companies are not only more responsive to their customers, but they also have less capital tied up in raw materials and finished goods inventory, allowing companies to optimize operations.
Cons of JIT
Just as JIT has many strong points there are weaknesses as well. In just-in-time, all is very interdependent. Everyone relies on everybody else. Because of this strong interdependence with JIT, a weakness in the supply chain caused by a JIT weakness can be very costly to all linked. JIT processes can be risky to certain businesses and vulnerable to the supply chain in situations such as labor strikes, interrupted supply lines, market demand fluctuations, stock outs, and lack of communication upstream and downstream in the supply chain and unforeseen production interruptions. Adhering to the just-in-time concept can be expensive in times of emergency. This lack of inventory makes it risky because there will not be enough buffer inventories to react and keep the supply chains moving. Communication is critical in a JIT rich supply chain. There is a risk involved with JIT when there is a communication breakdown and the company cannot get the right amount of supplies needed to keep the just-in-time system running smoothly. Technology is playing a big role in JIT number; however, the reliance on technology can lead to breakdowns in the IT systems that can be costly to work around. Weaknesses in JIT systems are very important to recognize.
Conclusion
Just in Time is a way of managing operations so that they run leanly and efficiently. JIT requires giving up your "Just in Case" safety net, and controlling supplies and inventory to levels that just support production. The main emphasis of JIT is on cost reduction and minimal waste. The process of implementation requires you to take a very close look at every stage of your production and inventory carrying points. This alone is a useful exercise that will highlight some areas for improvement. Ultimately, the more efficient you are and the higher quality product you provide, the more appealing you will be to customers and clients.
Key Points
Pros:
- Low month to month holding costs.
- Low impact of the daily cost of money (your money is not tied up in inventory so you can use it elsewhere in your business)
- Eliminate the problem of obsolete and outdated inventory.
- Eliminate the problem of damage to inventory from holding it month to month.
Cons:
- It requires a committed work force always correcting mistakes
- Any delays are extremely costly – late deliveries are killers to JIT
- Higher possibility of stock outs – if you get defective product from a supplier, and have no other inventory to back it up, what do you do then?
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