Just in time inventory management system (JIT) is one of the most popular inventory management systems in the modern business world. With the increase in the use of supply chain management processes, the just in time inventory management system has become a strategy that aligns the orders of the raw material for the production process directly with the production schedules.
Business organizations use the just in time inventory management strategy to increase the efficiency of the production process and to reduce the waste level by receiving the raw material only when they are needed for the production process. This avoids the need of storing the raw materials for a long time and it helps the businesses to reduce the inventory costs. One of the main requirements of using this method is the need of forecasting the demand for the product accurately.
The Just in time inventory management system is introduced to minimize the cost of inventory and to increase the efficiency of the production process. When using the JIT inventory management system, the business receives the raw material and the parts as they need them for the production process. They do not get the raw material and keep those stored prior. This helps the business to cut the inventory cost and also the manufacturers are not left with unwanted inventory due to canceled orders or not fulfilled orders.
Advantages of Just In Time Inventory Management System
JIT inventory management system has many advantages compared to traditional inventory management systems.
01. Less space requirement – JIT inventory management system reduces the inventory storage requirements. Due to this reason, the organizations do not require storage facilities as the raw materials are brought at the start of the production process, and the finished products are immediately released to the market at the end of the production process.
02. Short production runs – Since there is no inventory holding in the company, the manufacturer can quickly move from one product to another. They do not have to wait until the stocks are over.
03. Waste Reduction – Since the production process is happening based on the estimated demand requirements, the waste of the raw material due to damages when storage, cancel of order, or unfulfilled orders are getting minimized. It saves money for the business from investing in unnecessary stocks.
04. Ideal for smaller investments – Just in time inventory management system is ideal for small businesses that do not have the financial capability to purchase large stocks and big storage spaces. Ordering stocks when necessary for the production process helps the business to maintain a smooth cash flow.
Disadvantages of Just In Time Inventory Management System
Even though the JIT inventory management is considered one of the most cost-effective inventory management systems, there are several disadvantages have been identified.
01. Risk of running out of stock – Since there is no stock maintenance under this system, there is a possibility of not having enough raw material for the production process or not having enough final products to fulfill customer demand. Delays in raw material supply and delays in the production process can cause serious damages to the brand name of the product.
02. Difficulty in meeting unexpected requirements – Since there is no additional stock maintained, it is difficult to provide for unexpected demands and requirements from the market.
03. Requirement of accurate planning and estimation – When implementing the JIT inventory management system, the business should plan the entire supply chain process most accurately as a mistake or a delay can cause huge damage to the supply chain as well as to the brand name of the business. Apart from that, the business should be able to accurately estimate the consumer demand for the product in order to maintain a smooth supply process to the market.