Just-in-time inventory practices can be described as a type of inventory plan that a company uses to increase efficiency. The goal is to fulfill the demand of a product at a specific time. In doing so a manufacturer will reduce inventory costs and inventory waste without a negative impact on the supply to consumers. This type of inventory practice can also lead to improved quality resulting in increased customer satisfaction. When a company has no inventory safety net caution will be taken to prevent errors during the manufacturing process.
Just-in-time (JIT) manufacturing is a Japanese management philosophy that was developed between the mid-1940s and the early 1970s. It was first developed and implemented within Toyota Production Systems by Taiichi Ohno (IfM, 2018). The development of the JIT method of inventory practices can be traced back to the period of time between World War I and II and the lack of cash flow, the lack of space for large factories and inventory stores, and the lack of natural resources in Japan (Peavler, 2018). Where Japan was lacking, Taiichi Ohno stepped in with a plan. Ohno was able to slim down the traditional production processes and create a lean manufacturing process, also known as JIT.
The JIT method was the fundamental basis of the Toyota Production System (TPS) by eliminating inefficiency and waste. When Americans saw exceptional results because of this system, there was a draw to learn the practices of TPS. Henry Ford and Ernest Kanzler began using elements from the Toyota Production System here in the United States during the early 1980s (Shmula, 2014). These elements include muda, jidoka, and kanban. After translation muda means waste. According to TPS there are seven types of muda: overproduction, waiting, conveyance, processing, inventory, motion, and correction. Jidoka is the ability to stop man or machine production lines in the event of a problem such as equipment malfunction, quality issues, or late work. Jikoda helps in preventing defective workmanship, identifying problems, and allows a quality product to be built beginning during the production process.
Finally, kanban is a small sign that is the key control for JIT production. This key serves as the instruction for production, visual control tool to check for over production and to detect irregular processing speeds, and as a tool to perform kaizen (Toyota, 2018). Toyotar’s motto Moving Forward sums up the terminology found within TPS. The goal of Taiichi Ohno and Toyota is to continuously improve while reducing waste. In 2012 Toyotar’s tagline was changed to Letr’s Go Places to reflect the companyr’s continued commitment to more exciting products and a promise to invite customers to take part in shaping the future of Toyota (AdAge, 2012).
Just-in-time inventory practices are in place to increase efficiency. The amount of time it takes for a supplier to provide necessary products to its customers is the most important factor of a supply chain. When a supplier is well located with strategically placed plants, warehouses, and stores in regards to customers, orders can be filled more quickly. When a company is able to calculate the lead-time for inventory they are able to successfully reduce the unnecessary inventory stock that would be considered a safety net. JIT is able to improve productivity by making only what is needed, when it is needed, and in the amount needed (TPS, 2018).
Toyota Production System has the ability to produce quality product by eliminating waste, inconsistencies, and unreasonable requirements on the production line. A vehicle is efficiently built within the shortest achievable period of time by observing the following process (TPS, 2018):
This type of process completely eliminates the need to have a large quantity of all parts in a storage warehouse. TPS sets out the necessary parts for assembly line operators to choose from, just like you would see at a grocery store meat department. The meat counter should be kept stocked, but not overstocked leading to waste if the product doesnt sell. In this way production is being controlled by down line demand, rather than being driven by the production rate from higher up the line.
In any business today time is money. When using JIT a business will have to know their suppliers lead-time. If the lead-time is one month, the business will need to sustain a stock equal to one monthr’s orders to be able to begin work without having to wait for the materials needed. A higher lead-time means a higher inventory stock. With a high inventory stock comes storage costs. In order to eliminate those excess costs a business will research supplier lead-times and choose the supplier with the least lead-time.
In order for a JIT system to work successfully an accurate sales forecast is crucial. When a sales forecast is made a company is determining the market demand for a specific product. This demand is determined based the customers a company is marketing to and the geographical location. Snowshoes arent going to be a big ticket item to those living in Hawaii, but will most likely be a highly sought after item in Colorado. Educated sales guesses can be made if a company researches the number of customers available in the area, the time period the sales will take place, and the economic environment. Even though these educated guesses can be made a company has to remember that it doesnt hold 100 percent of the market (Johnston, 2017).
Advantages to Just-in-time inventory management are plenty. A manufacturer can keep production runs short allowing the assembly line to switch to new product quickly. There isnt a need to purchase, rent, or maintain warehouse storage space to keep large quantities of inventory. A company is also able to free up cash flow by only purchasing exactly what is needed. In freeing up cash flow a company has the ability to pay day-to-day expenses or emergency expenses. There isnt a need to purchase a large quantity to receive better pricing because according to JIT essentially less is more. Since consumer demand shifts, products discontinue, and stock can deteriorate while in storage, buying what is needed for the present time helps a company to produce products more accurately based on demand (Gartestein, 2018).
As with any type of management system there are also disadvantages to JIT. The biggest disadvantage to JIT is the possibility of shortages. Low JIT inventory levels make it even more likely that any problem in the supplier pipeline will lead to a shortage that will stop production (Accounting Tools, 2018). Inventory levels must be watched continuously to be sure levels dont become too depleted. If levels are low, but a delivery truck will be to the company for a two day delivery that is great, but what if that truck breaks down pushing back delivery one more day. With a JIT inventory system it means that all production would come to a screeching halt until that truck arrives. Loss of sales is another disadvantage of JIT. A company may not be able to take advantage of an unexpected opportunity because there isnt enough stock on hand to produce the product and it will take to long for it to arrive. Snowshoeing in Colorado is a popular winter activity. If it were snow in early October a snowshoe manufacturer wont have enough materials on hand to produce a large run of snowshoes to meet the demand of consumers. If it takes six days to get the necessary materials it will be too late. Consumers will have taken their business elsewhere causing this specific manufacturer to miss out on a large number of sales. Although there are disadvantages to JIT there is a way around them with careful planning, solid relationships with suppliers, and accurate running inventory records to ensure restock orders are made on time.
Just-in-time management has primarily resulted in manufacturer type scenarios during research. In more searching JIT management can also be seen in restaurant and even hospital settings. Healthcare facilities today face smaller profit margins causing them to turn to JIT inventory management and keeping supplies lean. Businesses take financial risks everyday including healthcare facilities, but it is an immense risk to put a patient at risk because of the potential lack of products needed to provide care. It is difficult to forecast demand in healthcare because demand is based on the daily patient census without any stable pattern (Li, 2015).
Since demand cannot be forecasted relationships with a small set of suppliers will improve supply efficiency and lower inventory costs. Looking at the healthcare facilities patient population can help determine what quantity of supplies to have on hand. For example a pediatric floor will want to have pediatric related items, and wont have use for geriatric items. Of course there will be some cross over in use of items in inventory, but an employee could easily call a department and ask for the item needed. Hospitals must have certain items on hand at all time, but staff should know what those specific items are and if a larger inventory stock is needed in case of an emergency situation. Lisa Schatz of McKesson Pharmaceutical states that studies and data can help in improving JIT in healthcare. As standard procedures are studied, an understanding can be reached in determining what products should be used, how many, what sequence, and how many procedures are seems in a monthr’s time (Green, 2015).
JIT is a modern inventory management system, which can lead to an organizations success with an ever-changing forecast demand. An organization is continuously improving while reducing waste and defects, and increasing customer satisfaction. Product shortages are the biggest risk and disadvantage of JIT, but with proper inventory management systems a shortage can be for the most part avoided. JIT has many benefits to an organization in reducing inventory stores and freeing up cash flow. In continuously using a JIT system an organization can develop an optimal process that identifies and responds to customer demands.
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