Why your organization should implement JIT

Just-in-Time or JIT is an inventory management system that focuses on maintaining near zero levels of stock at all times. While JIT is popularly attributed to Toyota, some experts argue that JIT first originated on the shipyards of Japan.

Post WWII was a difficult time for Japan with industries struggling to pick themselves up. It was during this time that shipbuilders with tight inventory space and little money could only purchase raw materials that were used immediately.

This meant that manufacturers could only order what needed to be used immediately which inadvertently reduced storage and purchase costs. This “lean” method of working would eventually be adopted by Toyota and formalized into the Just-in-Time method.

JIT works in synergy with lean practices as it places an emphasis on efficiency and wastage reduction. Besides that, JIT is also extremely beneficial for smaller enterprises dealing with storage and cash flow constraints.

Hence with all of that in mind, we take a look at why you should consider making JIT a standard in your organization.

1. Eliminate the need for storage

Inventory management is a crucial part of running a successful business. Goods purchased need to be stored in a large space or warehouse prior to being consumed. All of this incurs additional costs in the form of security or rental and leasing fees. For any fledgling business, these costs can make the difference between profit and loss. 

With JIT however, a business only needs to purchase stock that is to be used immediately for sale or manufacture. This is a more efficient method of inventory management that eliminates the need for additional storage space thus saving cost and freeing up funds.

2. Lesser wastages

Waste is the result of inefficient business processes and non-essential activities. It eats into a business’s profit margin as wastage incurs additional costs.

For example, a fine foods trader purchases a large quantity of imported cheese from France in anticipation of a busy year. However, given the limited shelf life of the products, a sudden drop in sales and damages, nearly 30 percent of the consignment cannot be sold.

This is a clear example of waste and how it can have a detrimental effect on one’s business. Maintaining high levels of stock allows a business to capitalize on any new opportunities, but also means higher levels of waste.

This is why businesses that utilize JIT work closely with their business partners to ensure that stock is available within a short period of time. Hence reducing the need to hold excess stock and reducing waste.

3. Freed up capital

While there are benefits to holding excess amounts of inventory, more often than not, overinvesting in inventory can severely affect a business’s cash flow. Besides paying for the storage and insurance, you’ll also be paying for the cost of goods itself which can be disastrous for businesses with tight margins.

Overinvesting in inventory can also affect business decisions as the enterprise may not have sufficient cash reserves on hand. With JIT, inventory management focuses on forecasting what the customer needs ahead of time and keeping only what is needed on hand.

Through this, much needed capital is freed up and used to leverage on any new opportunities. Imagine it as a football team reducing the number of players, to focus on the necessary. If a team has a roster of athletes that goes over the salary budget, they will be in trouble and are in risk of bankruptcy. Sometimes less is more and if you are a betting enthusiast on football you know that.

Whilst implementing JIT can be challenging, the benefits are innumerable. From reducing costs to strengthening cash flow, the possibilities are nearly endless.