Just-In-Time (JIT) Inventory Management: A Business Guide
Tue | May 2022
If you are looking for better ways to manage your business inventory, you've likely come across Just-In-Time (JIT) inventory management, also known as Just-in-time manufacturing. But what is JIT? And how does it help businesses? With increased competition and pressure to increase profits, many companies have adopted this strategy to boost their bottom line — which can be problematic when supply chains halt.
In this article, we will go through everything you need to know so you can decide whether Just-in-time inventory is suitable for your business.
What is Just-in-Time (JIT) inventory management?
JIT is a type of lean management process. All manufacturing or service system components, particularly people, are interconnected in JIT. The Just-in-Time (JIT) inventory system allows businesses to control their upfront inventory costs more dynamically. With this system, you can schedule products and materials to arrive as they are needed to fulfill your orders. In other words, JIT inventory ensures enough stock to produce what is required when needed. The goal is to achieve high-volume production while reducing inventory, saving space and waste, and improving cash flow.
This system can be handy since you only order a few materials/items. Instead, it will be making frequent orders to limit your inventory to what you know you will sell. For this method to be successful, business owners must prepare to track and forecast consumer demand and navigate the supply chain swiftly.
How does Just-in-Time inventory work?
With JIT, you decrease inventory and increase efficiency by receiving materials as you need. This system reduces storage costs, saving on unwanted inventory issues since you only order what you need when you have received an order. For the JIT manufacturing system to succeed, companies must have steady production, a glitch-free work system, and reliable suppliers.
Benefits of JIT Inventory Management
For small businesses, the benefits include reducing waste, minimizing storage costs, freeing physical space, and creating available cash for other expenses. When you only get what you need as you need it, you're saving a lot of money and space to use for different areas of your business.
Additionally, you can adapt the system seasonally as you need since it creates a lot of flexibility. If you know you get a lot of orders around Christmas time, for example, you can prepare your inventory accordingly for the surge of customer demand during those dates.
Disadvantages of Just-in-Time Inventory
Your potential issues depend more on your business, but it's still important to consider them. The disadvantages include supply chain disruptions that are beyond your control. For example, a natural disaster or running out of inventory if you don't track sales accurately, and perhaps even higher spending on inventory sales if more minor, more frequent orders cost more.
An example of a successful JIT in action
Tesla is one of the world's most minor car manufacturers. Why is that? They take complete ownership of their supply chain and even reject the traditional dealer sales model from a franchise style.
Tesla follows a just-in-time manufacturing approach, ensuring that parts and components are delivered to the assembly line only when required. This minimizes the amount of capital and risk from excess inventory. Additionally, customers get a chance to ask for customization since they have to wait to get their vehicle anyways, a premium feature they might not have chosen if they could have gotten a car straight out of stock.
Tesla is a fantastic example of how keeping inventory low doesn't mean you get to be less successful.
What sort of businesses can benefit from JIT?
The JIT inventory system does work for everyone, small businesses and major corporations alike. This system enhances cash flow and reduces the capital you need to run your business. Examples of booming JIT inventory industries are retailers, restaurants, publishing, tech manufacturing, and automobile manufacturing.
As a small business owner, having regular sales and keeping an eye on cash flow are very important. If that sounds like your business, you are a good candidate for this strategy since it will help you lower the costs of daily operations and create a more streamlined process.
Is JIT Inventory Management for your business?
The Just-in-Time inventory management methodology requires you to be agile and handle a production cycle much shorter than you might be used to. Consider these questions to find out if it's the system for you:
Can I get my products out for sale in a brief period?
Do I have a trustworthy relationship with my suppliers? Are they efficient and reliable all the time?
Have I studied my business enough to understand customer demand, sales cycles, and seasonal fluctuations?
Do I have an efficient system to get orders to customers on time?
If you answer yes to all the above, you are in an ideal position to benefit from the JIT business model.
If you are unsure yet and need some financial help to get there (i.e., pay for better suppliers, get more staff to help study the business, or even get your products finished faster), One Park Financial is here for you! We can help your company streamline with the most accessible fund access in the business. Check if you pre-qualify for fast working capital with one of our affiliate funders in minutes, and get ready to improve your business production.
Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.