Summary:

Traditionally, manufacturers have forecasted demand for their products into the future
and then matched such forecasted demand through smoothing out production. At the same
time, they have also attempted to keep everyone as busy as possible producing output so as to
maximize efficiency and reduce costs. Unfortunately, this approach has a number of major
drawbacks including large inventories, long production times, and higher costs. This led to the
introduction of a newer system within the Japanese auto industry, the Just-in-time inventory
system.
JIT system is a production and inventory control system in which materials are
purchased and units are produced only as needed to meet actual customer demand. In just in
time manufacturing system, the ultimate goal would be zero inventory.
JIT, as an inventory system has both advantages and disadvantages. Using JIT system,
the company may use the funds that were tied up in inventories to something else (investments,
payment of liabilities, etc.), areas previously used to store inventories can be used for other
more productive uses, throughput time is reduced, resulting in greater potential output and
quicker response to customers and defect rates are reduced, resulting in less waste and greater
customer satisfaction. On the other hand, employing JIT is subject to different drawbacks. It is
relatively complex, and opens the business to a number of risks notably associated with the
supply chain.

Reaction:

Application:
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Pros & Cons of the JIT Inventory System

Historically, businesses have attempted to match supply to anticipated demand and smooth out
the production cycle by stocking inventory. Managers kept the workforce busy pushing materials
and goods down the assembly line and off the docks, counting on the marketing department to
create more demand. This led to ever-growing inventories of unneeded and even obsolete
product, with manufacturers unable to shift production to meet changing tastes. A newer system
developed within the Japanese auto industry. Just-in-time (JIT) systems can eliminate waste for
over-consuming manufacturers left with production overruns and retailers with overstocked

backrooms. However, JIT requires high initial investment and long-term commitment from a
company determined to implement it, and it comes with some risks and few guarantees of
success.
Definition
JIT systems control work flow by bringing in materials and sending out goods on demand
ideally, just enough to provide what consumers want and no more. With JIT, the ultimate goal
would be zero inventory. Companies typically hold inventory in three locations: raw materials;
work-in-process inventory of partially worked materials or sub-assemblies for workstations to
complete; and finished goods to be shipped out to customers. However, a company ties up
resources in both materials and product that sits in multiple storage areas, not to mention the
utilities and space costs incurred in keeping the product from perishing.
Pros
By minimizing inventory, JIT frees up resources to employ elsewhere in the company. A retail
store using JIT can remodel the warehouse space into more retail sales floor space without
expanding the physical store. A manufacturer gets more space to produce goods. Both
companies free the workforce to focus on primary tasks, from making goods to interacting with
customers rather than stocking merchandise. Manufacturers can train employees to work at
different stages of the assembly line or at different workstations, to meet shifts in demand. A
better-trained, more flexible workforce focusing on quality production can mean faster set-up or
customization of workstations and lower defect rates, which lower costs and increase customer
satisfaction.
Cons

The primary disadvantage to JIT is its relative complexity. Management must rethink the entire
work flow of the company, from initial intake of raw materials to final output of finished product.
Supply-chain relationships require retooling that involves multiple suppliers, closer locations, or
companies that can supply materials with little advance notice. Companies ordering smaller
amounts of goods may encounter difficulty meeting minimum orders, requiring a different
contract or a way to break up a large order over time or among several smaller manufacturers.
All goods must meet quality requirements to avoid shutdown due to defects. Staff must
understand more of the entire process and shift to where they are needed as work flow ebbs
and surges to meet customer demand swings. This overhaul requires a sizable commitment of
time and money initially, plus a change in mindset and a commitment to stay the course in
implementing JIT, at the risk of the system's never gaining traction within the corporate culture.
Considerations
Japans auto industry meant JIT to operate within a culture of continuous improvement, as one
way to eliminate waste. JIT may be a good way to introduce continuous improvement or quality
management, but it is very difficult to implement as a stand-alone process. Managers in charge
of ordering or purchasing may need to familiarize themselves with alternative shipping methods
such as less-than-truckload (LTL) carriers who consolidate loads and routes to fill a trailer. This
may even require coordinating with other companies operating within the area, as in an
industrial park. Personnel managers need to communicate with staff, stressing the importance
of JIT to providing quality products and services and reducing costs, as well as convincing staff
of the benefits in rounding out skill sets by taking on different tasks.
Resolution

Conventional wisdom holds that inventory provides a buffer to ensure smooth operation against
supply chain disruptions, from delivery delays through individual workstation breakdowns to
unanticipated consumer demand. However, a carefully planned and systematically executed JIT
system can eliminate waste and encourage higher-quality output. Workers take ownership as
they comprehend that nothing goes to waste and that they control the processthere is no
cushion or margin of error to fall back on. All workers, tools and processes work with one
purpose: gaining and keeping customers. Anything or anyone not contributing to that purpose
can be whittled away