JIT is a Japanese management philosophy which has been
functional in practice since the early 1970s in many Japanese
manufacturing organizations. It was first developed and perfected
within the Toyota manufacturing plants by Taiichi Ohno as a means
of meeting consumer demands with minimum delays. Taiichi Ohno is
frequently referred to as the father of JIT.
Just in time (JIT) is defined as an inventory management system
which is used to manage the stock that is kept in storage. It
involves getting goods from suppliers as and when they are
required, in place of carrying a large inventory at once.
Just-in-time production requires intricate planning in terms of
procurement policies and the manufacturing process if its
implementation is to be a success.
Many organizations like to use JIT as it is seen as a more cost
efficient method of holding stock. Its purpose is to minimize the
amount of goods you hold at any one time, and this has numerous
advantages.
Advantages of just in time Manufacturing is:
- Less space required: With a faster turnaround
of stock, storage space to store goods or warehouse in not needed
as much. This reduces the amount of storage an organization needs
to rent or buy.
- Waste decline: Goods are prevented from being
damaged or getting obsolete while sitting in storage with a faster
turnaround of stock. This reduces waste which in turn saves money
by preventing investment in unnecessary stock, and reducing the
need to replace previous stock.
- Lesser investments: Ordering stock as per the
need helps to maintain a healthy cash flow. JIT manufacturing is
ideal for smaller companies that don’t have the funds on hand to
purchase vast amounts of stock at once.
- ROI would be higher: Due to the low level of
stocks held, the organizations return on investment (referred to as
ROI) would generally be high.
JIT has a number of impending
disadvantages as well, which can lead to a significant impact on
the company if they arise.
Following are the disadvantages
of just in time Manufacturing:
- Threat of getting out of supply: By not
carrying much stock, it is crucial to have the correct procedures
in place to ensure stock can become readily available. To do this,
one need to have a good relationship with the supplier that
specifies supplying goods within a certain time frame. JIT means
that you become extremely dependent on the regularity of your
supply chain. There can be a situation if the regular supplier does
not have your requirements, or has stopped doing business. In such
a case can the product be available quickly from somewhere
else?
- Lack of control over time frame: The
customers’ receipt of goods is at risk as the company is relying on
the timeliness of suppliers for each order. If the customers’
expectation is not met they can take away the business from the
company leading to huge impact on business.
- Added preparation is vital: Companies are
required to closely get in detail with the sales trend while
adopting JIT inventory management. The companies that have seasonal
demand need to do inventory planning to be able to meet different
volume requirements at different times.
- Higher transaction costs: Transaction costs
would be relatively high as frequent transactions would be
made.
If conducted efficiently, JIT manufacturing is amongst the best
ways of manufacturing. Though the risks prevail, it has
considerable rewards too. It is best for those who are capable to
plan vigilantly in advance, and build strong relationships with
suppliers.