Question

What is the main objective of taday’s’Just in Time’ Inventory management Systems and cite 2 potential risks associated with ‘JIT’ Systems.

Answer 1

Just in Time (JIT)- It is the inventory strategy that reduces wastage of goods and also saves warehouse cost by keeping less inventory. In JIT, order of inventory is placed only when it is needed. Inventory is not kept for so long. Goods are brought whenever they are needed and the shelf is getting empty.

Objective of JIT- Are as following;

Reducing wastage- JIT inventory system eliminates the wastage of goods, some goods are perishable in nature and if they do not get sold quickly, they get stale and of no use, this leads to wastage of goods, to check this wastage, JIT is implemented and order is placed whenever the goods are needed.

Reducing warehouse cost- JIT reduces warehouse cost by keeping zero inventory or very less inventory. Godown cost is decreased by JIT.

Liquidity- Inventory requires heavy cash and until it sold, cash is stuck in the inventory so as to increase the liquidity and utilization of cash, JIT is implemented and that cash can be invested somewhere else.

Risk associated with ‘JIT’ Systems-

1. If supplier is not able to deliver the goods on time because of some or the other reasons then further production will and sales will stop.
2. If company gets heavy or bulk order, it cannot fulfil the requirement as it does not have that much inventory in the warehouse and it is not possible to get all the goods on short notice.