Just in Time (JIT)

The just-in-time (JIT) inventory system is a management strategy that aligns raw material orders from suppliers directly with production schedules. Companies use this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately.

The JIT inventory system contrasts with just-in-case strategies, wherein producers hold sufficient inventories to have enough product to absorb maximum market demand.

One example of a JIT inventory system is a car manufacturer that operates with low inventory levels relying on its supply chain to deliver the parts it needs to build cars. The manufacturer orders the parts required to assemble the cars only when an order is received.

JIT inventory systems have several advantages over traditional models. Production runs are short, which means that manufacturers can quickly move from one product to another. This method reduces costs by minimizing warehouse needs. Companies also spend less money on raw materials because they buy just enough resources to make the ordered products and no more.

The disadvantages of JIT inventory systems involve disruptions in the supply chain. If a raw materials supplier has a breakdown and cannot deliver the goods on time, that supplier can shut down the entire production process. A sudden unexpected order for goods may delay the delivery of finished products to clients.

Kanban (signboard or billboard in Japanese) is a scheduling system often used in conjunction with lean manufacturing and JIT. Taiichi Ohno, an industrial engineer at Toyota, developed kanban to improve manufacturing efficiency. The system highlights problem areas by measuring lead and cycle time across the production process. The process identifies upper limits for work in process inventory to avoid overcapacity.

Toyota is famous for its implementation of a JIT inventory system. Toyota orders parts only when it receives new orders from customers. The company started this method in the 1970s, and it took over 15 years to perfect. Several elements of JIT manufacturing need to occur for Toyota to succeed. The company must have steady production, high-quality workmanship, no machine breakdowns at the plant, reliable suppliers, and quick ways to assemble machines that assemble the vehicles.

Toyota's JIT inventory system almost came to a crashing halt in February 1997. A fire at Aisin, a Japanese-owned automotive parts supplier to Toyota, decimated its capacity to produce a P-valve for Toyota vehicles. The company was the sole supplier of the part, and the fact that the plant remained closed for weeks could have devastated Toyota's supply line.

The auto manufacturer ran out of P-valve parts after just one day. Production lines shut down for two days until a supplier of Aisin could manufacture the valves. Other suppliers for Toyota also had to shut down because the auto manufacturer did not need other parts to complete any cars on the assembly line. The fire cost Toyota 160 billion yen in revenue and 70,000 cars, according to a Japanese scholar quoting the Nikkei Weekly, but it could have been much worse.