Question

Discuss 2 major impacts JIT has had on inventory management give 2 examples

Answer 1

“JIT (Just in time) is an inventory management strategy employed by the organization, to increase efficiency, reduce inventory carrying costs, and reduce waste by getting raw material only when required. It is possible only if demand and product forecasts are planned with precision and accuracy.”

The JIT was invented in 1970’s and used in Japan especially by a large automobile giant. It was initiated by the lack of natural resources, lack of space for the inventory, and lack of cash after the war. The two good examples are automobile giants like Toyota who have successfully implemented JIT inventory management concept in their manufacturing facilities, second is fast food QSR (Quick service restaurants) Like Burger King who have all necessary ingredient like meat, condiments, bun ready but prepare it only on customer demand and orders, unlike places which serve readymade sandwiches.

The two major impacts are as follows:

• Reduced inventory carrying cost by reducing waste and increasing efficiency
• Improve in return on investment and a cost-cutting strategy

1. Reduced inventory carrying cost by reducing waste and increasing efficiency: There is reduction in inventory carrying cost as the raw material is not kept in stock and zero buffer is maintained, the raw material is directly delivered to the production line for example in case of an automobile giant pre-specified, standardized components are received directly at the assembly line and the vehicle is assembled in a couple of minutes.

The only disadvantage is that in case of a stock delay the entire line will come to a stop. This system required excellent logistics and production planning. Toyota only places orders on suppliers when they have orders for cars from customers.

1. Improve in return on investment and a cost-cutting strategy: The manufacturer does not maintain any stock of raw material or finished goods, all are manufactured exactly as per customers orders and market demand. The company can shift from one model to another according to customer requirements. They don’t need a warehouse to the stock raw material or finished goods which are supplied immediately from the production line, quality checked and dispatched to the customer. This reduces the cost of maintaining buffers in raw material and stock up finished goods I anticipation of future demand which can lead to obsolete and excess stocks. The organization needs no warehousing space and also eliminates the need to invest in the raw material. The return on investment improves and overall costs reduced. It took 15 years for Toyota to implement JIT inventory management system at their manufacturing facilities from 1970 to 1985.

The success of JIT depends on the following factors:

• Excellent workmanship
• Continuous production
• Reliable and steady suppliers
• Fine-tuned production line.

Disadvantages are as follows:

• The plant shut down if supplier production is delayed.
• Huge losses as the there are no inventories so production line will stop.
• Above two can delay deliveries and customer orders.