Just in Time (JIT)Explained, Advantages & Disadvantages, and Examples

Patrick Louie

Date Published: November 16, 2021

Holding inventory can be costly.

You’ll have to account for the cost of maintaining a warehouse or storage facility.

That includes the salary and wages of warehouse personnel and overhead costs.

The more inventory you hold, the higher the cost of holding inventory becomes.

That’s why some businesses adopt inventory management methodologies that reduce inventory to very low levels, sometimes even zero.

One of these methodologies is the Just in Time or JIT inventory system (also known as the Toyota Production System or TPS).

JIT is a concept invented by Taiichi Ohno and was developed and perfected within the Toyota manufacturing plants, hence why it’s also known as the Toyota Production System.

It spread in the United States in the 1970s and 1980s.

In this article, we will be learning about JIT, its advantages and disadvantages, and whether you can apply it to your business.

Just in Time (JIT) – what is it?

JIT - Just in Time

Just in Time or JIT is an inventory management methodology that promotes the practice of ordering/receiving from suppliers only when needed.

By doing so, a business can reduce inventory holding costs as well as increase inventory turnover.

For example, a car manufacturer will only order the parts required for assembly if an order is confirmed.

This saves the car manufacturer storage costs as it does not have to store inventory.

JIT has the potential to improve the competitiveness of a business.

If properly applied, JIT eliminates the chances of having obsolete inventory and/or dead stocks.

It can also improve the efficiency of the production process as well the quality of the produced products.

An ideal JIT inventory system is one in which a business does not hold any inventory at all.

By doing so, it won’t have to worry about storage costs, as well as losses caused by inventory wastage.

However, for a business to have a successful JIT inventory system, it must have the following: a steady production, streamlined supply chain, suitable inventory management software, high-quality manufacturing practices, glitch-free plant machinery, and (probably the most important component) reliable suppliers.

Just in Time (JIT) – how does it work?

The main reason why a business chooses to implement a JIT inventory system is to reduce inventory cost as well as increase inventory turnover.

It does this by identifying and correcting the potential bottlenecks in the production process, as well as uncovering the hidden problems of inventory.

By identifying which parts of the production process are defective and consequently cause downtime, a business can make revisions to smoothen the whole operation.

This is why businesses that opted to implement a JIT inventory system invest in preventive maintenance to reduce the chance of having downtime.

If a piece of equipment or part of the production process breaks down, then the entire operation is compromised.

Since orders for the parts needed in production would only be made if there is a confirmed demand, it is essential to have a reliable supply chain.

A business that wants to implement a JIT inventory system must secure reliable suppliers first.

That goes without saying that supplier relations should be in great shape too.

In the event of any conflict or misunderstanding between the business and the supplier, the entire production process will be affected, and probably be temporarily shut down.

A successful JIT inventory system demands optimum synchronization between the production/manufacturing cycle and the delivery of materials.

This requires a thorough understanding of how the supply chain works.

The quantity, quality, and delivery of materials must be made clear to avoid inventory wastage and delays in the production process.

Proper communication and optimum synchronization are key to a successful JIT inventory system.

In JIT, all parts as well as the people involved in the production process or service system are interconnected.

Everyone involved is mutually dependent on each other to produce favorable outcomes for all the parties involved.

At the end of the day, the JIT philosophy seeks to continuously improve operations as well as those involved in the whole process – from the employees, assembly line workers, all the way to the CEO, and even external parties such as the suppliers.

A prime example of a business that implements a JIT inventory system is a car manufacturer such as Toyota (the birthplace of JIT).

Car manufacturers often operate with the utmost minimum level of inventory as they strongly rely on the supply chain to deliver the required parts when they start the production process.

They expect the parts to arrive not earlier nor later than needed, but exactly when needed. 

just in time inventory

Advantages of using Just in Time (JIT)

JIT has become widespread due to the many advantages it offers such as:

  • Lower inventory cost. In some businesses, inventory and storage costs might even be zero.
  • More working capital becomes available for other investments. By having minimal inventory, the money you spend on them becomes less. This opens up more of your business’s money to other investment opportunities.
  • The business won’t have to worry about unwanted inventory. Minimal to no inventory at all stages of the supply chain virtually eliminates the chance of inventory expiry and wastage.
  • Since a JIT inventory system is designed to only order/produce if there is demand, it means that everything that is produced by the business will be reliably sold. The business won’t have to worry about inventory obsolescence because of this.
  • Since every product is produced/manufactured on demand, this allows for the business to adapt to any changes in product specifications without having to worry about wasted inventory. This also allows the business to offer customization of a product to customers which could provide a competitive edge.
  • Prevent overproduction or underproduction. Since JIT promotes the ordering or production of a product only when there is a confirmed demand, the business won’t have to worry about going over or under production.
  • Having good relations with suppliers is one of the essential components of a successful JIT inventory system. If JIT is successfully implemented, a business will have a pool of reliable suppliers.
  • JIT promotes importance in the quality of the final product. This means that businesses using the JIT inventory system will have “first time right” manufacturing practices. This results in having minimal to no wastage of inventory.

Disadvantages of using Just in Time (JIT)

While implementing a JIT inventory system comes with advantages, it isn’t perfect.

Some businesses even consider it to be risky, and with good reason.

Here are some of the disadvantages of JIT:

  • The JIT inventory system leaves little to no room for mistakes. This means that if even one of the employees involved in the manufacturing process isn’t on the same page, then it will cost the business. As such, a business that wants to implement a JIT inventory system must ensure that everyone involved in the supply chain is on the same page
  • There is no buffer stock. This means that if one of your suppliers is unable to provide you with what you need, then the whole production process will experience downtime, which leads to losses. This can be somewhat remedied by having a backup supplier, but that could be risky if there is a difference in the quality of their products
  • A business that implements a JIT inventory system more than likely won’t be able to accommodate a sudden upsurge in the quantity of demand from the marker. A low level of inventory and a sudden increase in demand just don’t match that well.
  • In order for a JIT inventory system to be successful, everyone involved in the process must be committed to it. This makes it hard for a new business that is just starting to a build reputation.
  • There is no guarantee that you’d always have the best price for materials. Since orders are on an on-demand basis, you have no choice but to settle for the price of the materials at that the time they are ordered.
  • Preparations for unforeseen events such as natural disasters or global pandemics are non-existent. This is due to a lack of finished goods inventory

 “Kanban” and why it is important for JIT

Kanban is a Japanese scheduling system that controls work-in-progress (WIP) production and inventory movement.

It is often used in conjunction with lean manufacturing methodologies such as JIT.

It was developed by Taiichi Ohno (considered the father of JIT) as he was finding ways to improve manufacturing efficiency.

Kanban is a crucial element for eliminating manufacturing waste due to overproduction.

It highlights the problem areas by measuring lead and cycle times across the entire production process.

This in turn helps prevent overcapacity as well as overproduction.

As opposed to traditional manufacturing practices that use push inventory strategies to accommodate forecasted sales, Kanban uses a pull system.

This means that instead of stocking up in anticipation of demand, the pull system only produces a product when there is a confirmed demand.

To track the progress of production, Kanban uses cards (paper or digital).

As inventory moves through the production process, the cards are moved to reflect progress.

This can also signal the production team when it’s time to order new stocks.

Just in time

Who should use Just in Time (JIT)?

There is no strict rule as to who can use the JIT inventory system.

Anyone can use it.

However,  implementing a successful JIT inventory system is a different matter.

As already repeatedly mentioned, it’s important that everyone involved in the entire process is on the same page.

For example, a newly formed business that does not have yet an established pool of reliable suppliers may find it hard to implement a successful JIT inventory system.

If you’re looking to reduce inventory costs, then JIT is recommended for you.

However, if you want it to be successfully implemented, you must have the essential elements to make it successful: reliable suppliers; competent employees (especially assembly line workers); a reliable supply chain; high-quality manufacturing practices; glitch-free plant machinery; and the drive to continuously improve.

Example of a JIT inventory system

A car manufacturer that is known for its notable growth, Tesla is implementing a JIT inventory system.

It takes a step even further by taking ownership of its supply chain.

That’s on top of the usual JIT practices such as having minimal inventory.

Tesla also only manufactures when there is a confirmed demand.

Tesla tends to have more working capital because of the lack of surplus inventory.

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  1. Norwich University "Understanding the Just-In-Time Inventory System" Page 1 . November 16, 2021

  2. Kettering Global "Lean Manufacturing vs Just in Time" Page 1 . November 16, 2021

  3. Harvard.edu "JIT: A Strategic Tool of Inventory Management " Page 1 . November 16, 2021