Just-in-Time delivery system has gained momentum after the surge of e-commerce and online retailers. It is a kind of inventory management model that is in sync with lean manufacturing. Though it was developed in 1970s, it is still relevant and is a thriving business model.
Just-in-Time delivery system, which is popularly known by its acronym JIT is an inventory management model that aims at reducing storage and carrying cost and increase efficiency and speed. JIT was developed by the automobile manufacturer Toyota in 1970s and it reached the other counties in 1980s. It is a lean manufacturing process that involves less stock and high degree of workmanship.
What is JIT?
JIT synchronizes the manufacturing cycle with the order schedule of raw materials. In this process, manufacturers issue purchase order only when they need those particular items. Hence, the suppliers must also remain aware of the quantity of products and the time of the delivery. They must deliver what the customers want when they need it. This method helps companies ramp up their efficiency and accuracy. The success of JIT depends a lot on reliable suppliers and steady production. Slight disruptions in one of the ambits of the supply chain, however, can create ripple effects leading to huge amount of losses.
Benefits of JIT
1. Control over Wastage: Since the consumers order goods just as they need it, the issues arising with piling stocks and ensuing wastage of resources is mitigated. In the cases of no sale or delayed delivery, shipments stay put in the warehouses and gain obsolescence. JIT, with its meticulous and timely delivery, rule out the scope of wastage.
2. Reduces Cost: JIT, if implemented properly, can yield massive gains to the business by reducing cost and expenses. As mentioned earlier, by delivering goods on as-needed basis, the cost of piled up inventory can be ruled out. Sometimes, these kinds of goods are sold on a cost that is lower than its initial value. This loss can be avoided with the help of JIT. Moreover, the warehouse storage cost is also eliminated as JIT follows zero inventory policy. Warehouse space is expensive and thus with inventory kept in the distribution centres for little to no time results in the reduction in the storage cost. With the mitigation of storage cost, the carrying cost of products can also be kept under check.
3. Improves Efficiency: With the scopes of storing and maintaining stock in the warehouses been mitigated, the supply chain can focus on manufacturing quality goods and distributing/replenishing them. The logistics industry can utilize their time in solidifying their operations as it is a necessity for a sturdy, error-free supply chain, which ultimately leads to productivity and profitability.
4. Improved Communications: Be it an internal order or external order, the parties involved in the supply chain must communicate with each other to create an agile and optimized ecosystem. Communication should be seen as a key to increase productivity and render a seamless transactional experience across the stakeholders.
5. Shorter Production Runs: JIT allows the companies to keep their production runs shorter. Because of this, companies can move to other works smoothly.
6. Free Cash Flow: Having the storage cost reduced, companies can invest in other types of enterprises and concentrate on other functions. This can free up the cash flow and the other resources so that all kinds of operations receive funding and logistical support.
7. Improves Demand Forecasts: It is a truth universally acknowledged that customer demands can be extremely unpredictable. JIT, having dealt with smaller orders and focusing more on multi-party communications, relies much on accurate demand forecasting. Since disruptions can lead to businesses incurring huge losses, accuracy in forecasting demand, curating data and making actionable insights through it become aspects of seminal importance.
Disadvantages of JIT
1. Risk of Disruption: Companies that applies the JIT method deals with smaller amount of products/raw materials and heavily depend upon the suppliers for timely operations. The phenomenon of keeping safety stock is eliminated mostly. Hence, if there is an unexpected disruption in any of the tiers of the supply chain, it can become detrimental for the entire ecosystem and lead to shutdowns and business failure.
2. Difficulty in Implementation: It can take years and decades for a company to optimize its supply chain and make it resilient. There is no room for mistakes in JIT and that can be a daunting task to achieve. Therefore the organisations that are going to apply JIT, must brace themselves for trial-and-error process until they have optimized their entire supply chain.
3. Stock-outs: Sometimes there are unexpected surge in the demand of particular products. If the companies do not adept themselves to these volatile situations through a proper demand forecasting and planning, they are up for stock-outs because JI allows them to keep only that amount of products handy that is needed.
The above discussion tries to highlight the merits and the demerits of just-in-time delivery system from an objective point-of-view. It is true that implementation of this technique is time-consuming and difficult and can lead to unexpected disruptions if all the stakeholders are not on the same page. At the same time, it can produce handsome returns if the alignment of the supply with production schedule is done accurately. High degree of professionalism and expertise are required in JIT. And it is exactly because of this expertise and business knowledge that many of the leading multi-national companies are capitalizing this process and are reaping the benefits of it.