It is unknown exactly when Japanese manufacturers started adopting Just-In-Time manufacturing techniques, but it is sure that they were triggered by the economic climate of the post-World War II era. Following the war, Japan lacked the cash to finance big-batch, large inventory production processes used by other advanced countries. They also had high unemployment and a shortage of large natural resources.
In that situation, they had to “lean out” their processes to survive. They made smaller factories, which concentrated on quickly converting small amounts of raw materials into small amounts of physical products. Processing smaller batches allowed the manufacturers to decrease financial risk while slowly developing sustainable levels of working capital.
The method that they operated came to be known as just-in-time manufacturing and was popularized in Western media as the Toyota Production System.
What you are going to learn?
Just-in-time (JIT) is an inventory management approach in which goods are received from suppliers only as they are required. The main purpose of this strategy is to decrease inventory holding costs and increase inventory turnover.
The just-in-time, or JIT, inventory system is a management technique that minimizes inventory and improves efficiency.
The Just-In-Time or JIT concept is a manufacturing workflow process aimed at reducing flow times and costs within production systems and the distribution of materials.
Here I’ll explain step by step how just-in-time works;
- Customer place an order
- Manufacturer receives the order
- Manufacturer orders the required materials from the supplier to fulfill the order
- Supplier receives the order
- Supplier delivers the required materials to the manufacturer
- Materials are received by the manufacturer
- Manufacturer converts the materials into product ordered
- Manufacturer fulfills the order
- Customer receives the product.
Benefits of Just-In-Time (JIT)
Here are some benefits of just-in-time;
1. Reduce Inventory Waste
A just-in-time method eliminates overproduction, which occurs when the supply of an item in the market overreaches to the demand and leads to an accumulation of unsalable inventories. In a just-in-time method, you order only what you require, so there’s no risk of accumulating useless inventory.
2. Decrease Warehouse Cost
In a just-in-time method, the warehouse holding costs are minimized. Because you order only when your customer places an order, your item is already marketed before it reaches you, so there is no need to keep your items for long.
3. Gives the Manufacturer More Control
In JIT, the manufacturer has entire control over the manufacturing process, which performs on a demand-pull basis. They can respond to customers’ requirements by quickly boosting the production for an in-demand product and decreasing the production for slow-moving items. This makes the just-in-time model flexible and able to cater to ever-changing market conditions.
4. Local Sourcing
Since just-in-time needs you to start manufacturing only when an order is placed, you must source your raw materials locally as they will be provided to your unit much faster. Furthermore, local sourcing decreases the transportation time and cost which is involved.
5. Smaller Investments
In a JIT approach, only essential stocks are purchased and therefore less working capital is required for finance procurement. Therefore, because of the smaller amount of stock held in the inventory, the organization’s ROI (Return on investment) would be high.
The Just-in-time method uses the “right first time” concept whose purpose is to carry out the activities right the first time when it’s done, thereby decreasing inspection and rework costs. This needs less amount of investment for the organization, less money reinvested for fixing errors, and more profit generated out of selling an item.
Disadvantages of Just-In-Time
Now let’s discuss about some drawbacks;
1. Risk of Running Out of Stock
With Just-In-Time manufacturing, you do not have as much stock. This is because you base your stock-off on demand projections, and if those are inaccurate, then you will not have the proper amount of stock readily available for your consumers. This is one of the most common drawbacks with manufacturing that use procedures such as JIT and lean.
2. Lack of Control Over Time Frame
Having to depend on the punctuality of suppliers for each order puts you at risk of delaying your customers’ receipt of goods. If you don’t satisfy your customers’ expectations, they could shift their business elsewhere, which would have a massive impact on your business if this happens often.
3. Lack of Planning
With Just-In-Time (JIT) inventory management, it’s crucial that companies understand their sales trends and clashes in close detail. Most businesses have seasonal sales periods, meaning a number of products will need a higher stock level at certain times of the year due to more increased demand. Accordingly, you need to factor that into planning for inventory levels, securing suppliers are able to meet different volume needs at different times.
4. Dependency on Suppliers
Having to depend on the timelessness of suppliers for each order puts you at risk of delaying your customers’ receipt of goods. If you are unable to meet consumer expectations, then they could take their business elsewhere. This is why it is important to choose reliable suppliers and have a strong relationship with them so that you can make sure that you have the materials you need to meet your customer demands.
Example of Disruption in Just-In-Time (JIT)
In 1997 a fire outbreak that took place at a brake parts plant owned by the company Aisin destroyed its ability to produce a P-valve part for Toyota vehicles. Aisin was the only supplier of this element for Toyota, and the company had to shut down production for many weeks. Because of Toyota’s Just-In-Time inventory levels, it ran out of P-valve parts after just one day.
This crisis could have crushed Toyota’s supply line. Fortunately, one of Aisin’s suppliers was able to retool and begin manufacturing the required P-valves after just two days.
However, the fire cost Toyota about 16 billion yen in lost revenue and 70,000 cars.
The crisis trickled through to other suppliers for Toyota, as well. Some suppliers were caused to shut down because the car manufacturer didn’t require their parts to complete any cars on the assembly line.