Just In Time
Just In Time (JIT) is an inventory strategy that is designed to improve the profitability of a business by reducing inventory costs and its associated costs. The process is driven by a series of signals that tell production processes to make the next part. When implemented properly, JIT can result in dramatic savings for a company.
JIT is a real space saver since a company will be able to function with less warehouse space for inventory storage. However, it gets tricky. The operators must be constantly aware of seasonal changes of demand for the product. As well, a sudden unexpected surge in demand for the product could potentially result in a shortage, which translates into issues of not being able to satisfy the customer. To be safe, to meet a 95% service rate, a company must carry about 2 standard deviations of demand in safety stock. Re-order levels should be reviewed regularly and charted historically to better assist in forecasting realistic future levels.
The Ford Motor Company was the first to use JIT. Today, many companies have adopted this effective and efficient inventory management method, resulting in billions of dollars in savings. Again, it is a tricky and delicate philosophy that requires careful and constant montitoring. Without that, it is doomed to failure. In short, the JIT inventory system is all about having “the right material, at the right time, at the right place, and in the exact amount.”
So if you feel your company would benefit from the many advantages of a JIT inventory system, have at it. Just make sure you think it through very carefully, making sure to include the smallest of details. You may hit a few bumps along the road at first, but after some strategic tweaking, you will have a refined and sophisticated system that will streamline your business, improve your bottom line and make your shareholders very, very happy.
December 15th, 2006 at 4:56 pm
Two keynote examples of JIT systems are:
1) The Toyota Production Systems
2) Dell
Both realized that inventory held anywhere in the supply chain was nothing but a waste of money due to constant changes in technology and market demands. Thus, toalleviate this problem they implemented “pull” systems which effectually and effectively eliminated waste. Rather than suppliers dumping (pushing) products on them (Dell and Toyota) forcing them to use those parts in production so as to avoid heavy (sunk) losses associated with the high levels of inventory; these companies reorganized their supply chain so that the demand stemming from customers would stimulate production and pull inventory from the suppliers. This helped achieve another goal which was to level out workloads so that more constant flow of products was being produced because now the companied only made products to demand, they did not make products to use excess parts as was the prior situation.
December 15th, 2006 at 5:07 pm
Exactly. Efficiency is the key, and developing a proprietary plan that caters to actual demand will certainly reign supreme over any generic business plan that overpopulates a company with unused inventory.
Vito