Question

How does JIT benefit a company? Does the type of company or amount of inventory used impact the benefits?

Answer 1

JIT aims at keeping the stock holding to bare minimum leading to much lower inventory cost and much lower storage and warehouse cost. Minimum inventory at all stages of supply chain means lesser expiry and lesser wastage for the organization. Lower inventory means lower investment for the same level of production.

In inventory management, the Just-In-Time or JIT system reduces wastage, improves efficiency and productivity, and contributes to smoother production flows. A shorter production cycle can decrease financial costs, inventory costs and labour costs. Below, we summarize the key features of the JIT approach.

Smooth production flow

One of the key features of the JIT system is a uniform production process. From the arrival of materials from suppliers to the delivery of goods to customers, the JIT system aims to prevent fluctuating production rates, which can result in delays and excess work-in- process inventories.

Pull-method

The pull-method contributes to this smooth production process, and it is a key feature of the JIT system. Under the pull-method, goods are produced in each stage only as they are needed at the next stage. This system eliminates work-in-process inventory between production steps, thereby reducing waiting times and associated non-value-added costs.The pull-method also prevents wastage due to the production of defective products, since the output at every stage of production is inspected before passing on to the next stage.

Reduction in storage and waiting time

Under the JIT system, materials are purchased and goods produced only as required, rather than to build up stocks for future use. This alleviates the need to make space for holding products and materials, and results in less time wasted waiting for large amounts of materials and products. Relatedly, the JIT system encourages faster setups of production machinery. Producing small lots of product only as required demands a faster set up of machinery, resulting in more efficiency and reduced costs. The result is higher quality raw materials and finished products.

Maintenance of equipment

The JIT system requires strict adherence to routine maintenance schedules. Effective, preventive maintenance of equipment will allow the company to avoid costly down time from machine breakdowns.

Employee satisfaction and stronger relationships

The JIT system also encourages multi-skilled workers, flexible facilities and an atmosphere of teamwork. These things improve the production system to help the company maintain a competitive edge by seeking ways to improve its products, achieve more efficient operations, and eliminate non-value-added costs. The JIT system also encourages stronger relationships between suppliers and producers. Under the JIT system, communication and information flow between the supplier and producer are open, supporting strong supply coordination. These relationships are enhanced by long-term contracts.

Automated purchasing

Under the JIT system, if materials are required, the supplier will receive an electronic message to deliver them. This improves efficiency and reduces time wastage. Automated purchasing also means that existing inventory levels and production levels are calculated automatically, making things easier and more efficient.

Reliable vendors

Under the JIT approach, suppliers are limited. This reduces the amount of time spent on vendor relations, and ensures that the firm is working with only reliable suppliers who can deliver high quality goods on time.

Long-term benefits of a JIT system

A long-term concentration on production growth and supply requirements, and synchronizing changes in raw materials specifications with suppliers, provide many long-term benefits to the business. The JIT system can produce long-term benefits like cost savings, lower production costs and better customer satisfaction.