Just in Time Inventory Management: What You Should Know

24
May 2022

If you are looking for better ways to manage your inventory, it is likely you’ve come across Just-in-Time inventory. But, what is it exactly and what does it offer to businesses?

In this article we will go through everything you need to know as a small business owner, so you can make an informed decision of whether or not Just-in-time is right for you.

What Is Just-in-Time (JIT)?

The Just-in-Time (JIT) inventory system offers businesses a way to control their upfront inventory costs in a more dynamic way. With this system, you get to schedule products and materials to arrive as they are needed to fulfil your orders. This then reduces the amount of inventory you have, helping you reduce waste, save space, and improve cash flow.

This system can be really useful since you won’t be ordering a large volume of materials/items, and instead will be making more frequent orders to limit your inventory specifically to what you know you will sell. In order for this method to be successful, business owners need to be prepared 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, and you save 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 a steady production, glitch-free work system, and very reliable suppliers.

Advantages of JIT Inventory

For small businesses, the benefits include waste reduction, minimization of storage costs, freeing physical space, and creating available cash for other costs. When you only get what you need as you need it, you’re saving a lot of money and space to use for other 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 accordingly for your inventory to be ready for the surge of customer demand during those dates.

Disadvantages of JIT Inventory

The potential issues you can encounter really depend more so on your business, but it’s still important to consider them. The disadvantages include supply chain disruptions that are beyond your control (i.e. a natural disaster or the COVID-19 pandemic, to name examples), running out of inventory if you don’t track sales accurately, and perhaps even higher spending on inventory sales if smaller, more frequent order end up costing more.

An Example of a Successful JIT in Action

Believe it or not, Tesla is actually one of the smallest car manufacturers in the world. 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 the JIT system by keeping little inventory and producing on demand, therefore minimizing their amount of capital and risk that comes 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.

This is, then, a fantastic example of how keeping low inventory 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. Put simply, this system enhances cash flow and reduces the capital you need to run your business. A few examples of successful 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 is 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 You?

A woman business owner using Just in time inventory management for her small business

The Just-in-Time inventory management methodology requires you to be agile, and handle a production cycle that will be a lot 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 sales in a very short period of time?

  • 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 my customer demand, sales cycles and seasonal fluctuations?

  • Do I have an efficient system to get orders to customers in a timely manner?

If you answer yes to all the above, you are in an ideal position to benefit from the JIT business model.

If you are not sure yet, and are in need of some financial help to get there (i.e., pay for better suppliers, get more staff to help with studying the business, or even get your products finished faster) One Park Financial is here for you! We can help your company get streamlined in no time with the easiest 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.