What Is Just-in-Time Inventory Management?

Strong inventory management practices are essential for a high-functioning supply chain. Supply chain managers must find new strategies to meet rapidly changing consumer demands and economic pressures. 

For instance, a current challenge facing United States supply chains is inflation. In November 2022, prices for goods in the United States had risen over 7% from November 2021. Inflation drives up prices for raw materials and labor, making it more costly to manufacture and distribute goods.

To combat these issues, supply chain officials need efficient and dependable inventory management strategies. One popular technique is just-in-time (JIT) inventory management.

Defining Just-in-Time Inventory Management

Just-in-time inventory management is a method that keeps as little inventory in stock as possible. Instead of maintaining a stockpile of safety inventory, you only order products or materials when you need them. As soon as a customer places an order, you reorder the exact amount you need. The ultimate goal is to keep the smallest inventory on hand possible while still fulfilling orders on time.

A JIT inventory system keeps inventory at a balanced level overall. You schedule new products to arrive exactly when you need them, avoiding excessive inventory or stock-outs. The strategy helps warehouses cut extraneous storage costs and ensure fresh inventory. It also improves efficiency throughout order fulfillment.

Who Uses Just-in-Time Inventory Management

A JIT inventory system can benefit many industries, especially those that manufacture products. Keeping minimum stock on hand helps streamline many inventory processes.

In particular, the just-in-time inventory strategy works well for companies with quick product turnaround, predictable customer demand, and solid vendor relationships. Here are a few examples of just-in-time inventory industry applications:

• On-demand publishing: The publishing industry often uses JIT inventory systems to reduce waste. In on-demand publishing, manufacturers only print and assemble books when they are sold. This strategy eliminates unnecessary stock and wasted materials. Many small presses and academic publishers use on-demand publishing to ensure they can stay within budget limits. Larger publishing companies also use this strategy in special cases such as limited re-releases or reprinting out-of-print volumes. Digital printing methods make on-demand publishing especially helpful and manageable.
• Manufacturing industry: JIT systems are beneficial for manufacturers that plan for raw materials to be delivered on specific production days. They use the materials as soon as they arrive, reducing time in the warehouse.
• Automotive industry: This industry is another significant example of the JIT system in use. The technique actually originated within the industry when Toyota Motor Company developed it in the 1970s. The JIT system helped Toyota remain competitive against other car manufacturing companies by reducing delays and costs. Car production requires many different parts and mechanisms. These components can be complicated and expensive to produce, making proper inventory regulation essential. Just-in-time system strategies help manufacturing companies improve warehouse capacities and limit waste.
• Construction industry: The construction industry relies on quickly moving materials to stock different locations and projects. Many projects require tailored or large pieces that are difficult to keep in inventory. In addition, sites might not need materials until they reach a certain date or milestone. Because of these challenges, many construction sites use just-in-time inventory to keep only the necessary stock on hand. JIT inventory frees more space in construction zones, allowing professionals to only focus on required materials.
• Fast-food franchises: Fast-food chains only make meals when customers place orders. With this method, they reduce waste and keep food fresh for customers. Restaurants typically order enough supplies for regular demand and not much more. Keeping minimal stock lowers food waste and allows restaurants to stay within budget. Overall, just-in-time inventory helps fast-food restaurants create the freshest food for consumers.
• Florists: Many florists use just-in-time inventory to maintain a fresh stock of flowers. Blooming flowers have a limited shelf life, making it essential to monitor inventory regularly. Florists can order specific quantities that relate to their typical demand and customer expectations. If a certain item goes out of stock and a customer requests it, florists can reorder the product. That way, they maintain the most accurate and freshest inventory possible.

Requirements for Just-in-Time Inventory Implementation

Just-in-time inventory strategies can bring many benefits to companies, but they require proper research and implementation techniques to succeed. Without this preparation, you face many risks.

For instance, JIT requires knowledge of formulas, such as the following:

• Forecast vs. demand: You must have a thorough knowledge of typical industry demands and cycles for JIT to succeed. Demand forecasting involves studying historical data and using predictive analytics to anticipate upcoming demand. You can use quantitative and qualitative data to determine these trends and maximize profitability. Accurate forecasting allows you to order correct quantities for JIT management.
• Supplier production times: Your company should also understand supplier lead times. These times often vary due to supply chain constraints or uncontrollable factors such as natural disasters. Your company should work closely with suppliers to understand typical production times and the external factors that impact them. For instance, suppliers may need access to raw materials to finalize production. Supply chain backups can prevent suppliers from accessing these tools, slowing production times.
• Supplier shipment times: JIT inventory management also relies on precise shipping times. Because you maintain a minimal stock, your organization needs to plan for upcoming shipments as accurately as possible. Delayed deliveries increase your order processing times and could even cause you to forfeit orders. Understand your supplier shipping timetables, and plan inventory orders around them.
• Supplier locations: Supplier locations can also affect overall production and shipment times. Longer distances result in longer transport times, increasing product damage chances. When planning for JIT implementation, you should note physical locations and consider how they could affect success. Many JIT users work with local suppliers to reduce shipment times and risk.

In addition to these concepts, your company should consider other crucial factors, including:

• External influences affect JIT: Global events significantly impact just-in-time inventory management success. Large-scale events such as the COVID-19 pandemic and geopolitical tensions can strain the supply chain and make it more challenging to achieve a JIT model. It’s important to consider this risk when deciding whether to integrate a JIT model into your company.
• All factors impact one another: In addition, all contributing elements rely on each other and must work properly for JIT to succeed. Everything from order processing to shipment times must proceed as scheduled, or you can face severe consequences. For instance, supply chain bottlenecks could delay raw materials, which prevents suppliers from meeting production deadlines. By then, you could run out of stock and temporarily halt orders.

Benefits of Just-in-Time Inventory Management

When you implement the correct architecture and planning, a just-in-time inventory strategy can bring significant value to your company. These are examples of JIT’s benefits:

Reduced Waste

One of the most significant advantages of just-in-time inventory is decreased waste. The strategy reduces overordering and overstocking. The supply chain faces many issues with excess waste, with over $160 billion of inventory thrown away each year. 

Unsold and unused products take up extra space in warehousing, causing storage costs to rise. In addition, excessive trash can contribute to growing environmental and climate change concerns. Supply chain officials should seek strategies that limit waste and assist with efficiency.

A just-in-time inventory system can lower waste throughout your production and distribution process. You only produce and process an item when a customer requests it, so you know all products are desired and less likely to be unused. In addition, order limitation also reduces the use of packaging materials.

Higher Efficiency

JIT systems streamline production and order distribution by only processing requested products. In turn, employees have less inventory to sort, process, and manage. With fewer items in stock, it becomes easier to retrieve items for order fulfillment. Regular inventory management becomes much smoother with a limited and well-coordinated stock.

In addition, many companies partner with locally-sourced suppliers while using JIT strategies. A local supplier can deliver products rapidly and ensure a fresh stock. Having a nearby supplier also reduces the need for safety inventory. You can safely rely on your local partner to resupply your stores, making excess inventory unnecessary.

Improved Quality

With just-in-time methods, you can focus more on product condition and reduce the number of defective items reaching customers. Smaller production numbers allow employees to dedicate more attention to each item. They’re more likely to notice defects, missing pieces, expired items, or other product issues.

The JIT system’s faster production times also help workers notice problems more quickly. If employees identify malfunctions, they can remove products from order fulfillment and reorder necessary quantities. 

JIT increases the chances that customers will receive high-quality items, boosting overall satisfaction for your brand. In turn, customers can associate your brand with top-quality products and feel more encouraged to recommend you to others. 

Is JIT Right for My Business?

Just-in-time inventory management may have its perks, but it isn’t always the right option. Before committing to just-in-time inventory, consider these business factors:

• Product turnaround times: JIT systems work best with short turnaround times. That way, you can rapidly move the item from production to distribution. If your products take longer to produce, it can be more challenging to keep up with a JIT system’s fast pace.
• Sales forecast accuracy: Companies that use JIT systems need solid sales forecasts to order upcoming stock correctly. Consider if fluctuations are common in your industry or whether you have a strong grasp of typical buying behaviors.
• Ability for flexibility: Just-in-time methods also require adaptability, as they can easily be disrupted by supplier failers, natural disasters, and other supply chain issues. Your company should have plans for disruptions and be able to respond creatively to problems.
• Supplier dependability: Because supplier failures can throw a JIT strategy off track, you should evaluate your supplier relationships. Consider how reliably your vendor partners can deliver products and how common defects are among them.
• Technology capabilities: Without real-time visibility into materials and product movements, maintaining a JIT inventory management strategy is a challenge. To succeed, you’ll need supply chain technology integrations that can allow you to respond quickly to orders and market changes.

Implement a JIT System Today

A just-in-time inventory management system can bring significant value to your existing inventory procedures. By keeping just enough stock in storage, you reduce costs, lower waste, and boost productivity throughout the entire supply chain. A high-quality inventory software solution can support just-in-time strategies and increase their effectiveness.

TrueCommerce offers a wide range of supply chain solutions and integrations. We can help you build a supply chain management just-in-time inventory system that matches your needs and preferences. Learn more about the benefits of JIT systems on our blog. Or get started with TrueCommerce, contact us today.