There is an inventory strategy that allows companies to increase their efficiency and decrease overall waste. This is possible by receiving goods only as they are necessary in the production process. This is called Just In Time inventory.
Just In Time inventory keeps general inventory costs down, but it does come with its own share of risk. Today we will be discussing:
- What exactly the Just In Time inventory method is;
- Who can benefit from it the most;
- How much is usually spent on the process;
- Ways to keep these costs at a minimum.
What Is Just In Time Inventory?
This inventory control method is a shift away from the older just in case method. There, where larger inventories were kept on hand in case there was a higher demand for them. With Just In Time inventory, the necessary supplies do not arrive before or after they need to. Instead they are sent to the supplier of the good just as they are necessary.
A great example to examine is Toyota, who implemented Just In Time as a part of its business model in the 1970s. Toyota dealerships do not stock their inventory with every part. So customers have to order a lot of parts as they come in and need them. These parts may come from a production plant, other dealerships, or from other local car part stores.
Who Needs Just In Time Inventory the most?
There are plenty of businesses that can benefit from this type of inventory method. Toyota was mentioned earlier. But this is because, simply, the cost would be exorbitant to keep all parts and accessories people may need for their cars on hand. They keep their parts with the most demand in stock and specially order other parts when necessary.
Another example of a business that would benefit from this is any business that supplies fresh goods. They cannot and should not store to much, as it may go bad before it is even sold. So, keeping what is needed on hand and restocking as needed is the way to go.
How Much Is Usually Spent on Just In Time Inventory?
Even though this is called Just In Time inventory, it is not uncommon for suppliers to want to have a few weeks worth of their commonly sold goods available. This is just due to demand. You can’t order everything as needed, some things do need to be kept on hand.
A good example of this is how car dealerships and part stores need to keep the most commonly bought parts and maintenance supplies on hand for customers. Specialty, larger larger parts, and less commonly purchased parts don’t necessarily need to be kept in the normal inventory. This is because they take up space and funds to store and keep around. It will reduce the costs of storing goods due to not having as much to store in general.
4 Ways in Which You Can Reduce Just In Time Inventory Spending
- Just in Time inventory already lessens costs, but how do we streamline this even more? The first step to keep these costs in line even more, is to stay on top of the inventory you have to keep on hand. Don’t let your business run out of the goods it sells on a daily basis.
- The second thing that will really help to consolidate the cost of Just In Time inventory is effective maintenance of equipment. If goods are being made as needed, manufacturers cannot afford a significant delay in production. A delay may result in the loss of potential profit and possibly customers. By sticking to maintenance schedules or communicating and making sure manufacturers are on top of their maintenance, businesses can be sure to keep this under control.
- The third thing to streamline costs can expand on the previous one, as it is to ensure that the setup of production machinery is quick and inexpensive. In order to get small batches of goods sent out in time, the manufacturer has to ensure their production runs quickly.
- The last of the ways to reduce costs overall after implementing this method are ensuring you have everything it takes. You must use high quality levels of materials and finished products, and a good team-based work environment with your multi-skilled workers.
3 Potential Risks of Just In Time Inventory
- One big issue here is delivery time. You, as the supplier, have no control over the delivery time after placing your order This can be problematic and lead to further complications if the product goes missing or the customer is not satisfied.
- Products may also get damaged on the transport. Quality needs to be consistent to prevent having to reorder the product and keeping the customer waiting even longer. Again, after you place the order it is out of your hands and you have to deal with what product you are sent.
- The last thing that can really impact businesses negatively when Just In Time inventory is being implemented is factory delay in part manufacturing. Manufacturers can run into their own problems with producing products on time. Consequently, this directly impacts your business and when you can supply the products.
We have gone over what Just In Time inventory is and the benefits of it. We also took a quick look at the costs and how to streamline these costs even more. Just In Time inventory allows businesses to reduce their overall inventory costs significantly despite the risks.
Do you feel like your business could benefit from this inventory method? Do you have experience with this inventory method? Lets us know!