Just in Time Inventory Management; Pros and Cons

JIT, or "Just in Time" inventory management is not for everyone. Consumer sales fluctuate and most customers don't like waiting for their product to be assembled after they have purchased it. Without reading into this strange type of inventory system, it would seem that no one would want to have to deal with a manufacturer operating under this system. But the practice is gaining efficiency, and the idea is becoming more and more widespread.

If a manufacturing company produces products that are then purchased by another manufacturing company, then JIT may be the right fit. If demand is predictable, than you can regulate supply and implement a JIT system.

JIT was developed to reduce inventory. No one likes to have residual inventory laying around that no one wants to buy (take the Carland's example of Chrysler before Iaccoca). With increased automation, companies are learning how to sync production scheduling with demand to eliminate unwanted, un-purchased parts and assemblies. The downside to the JIT system is perhaps a longer wait time, but the upsides are less inventory and increased profit margin.

In order to implement a JIT system, a manufacturer needs dependable source or supply (the firms from which the raw parts come from) and punctual lead times (shipping, transportation of supply sources). A manufacturer will aslo need a detailed bill of materials to streamline production schedules and lead times. For large manufacturers, these interlacing schedules can be extremely difficult to handle and a computer program (expensive) will have to be implemented. Small businesses may consider shying away from JIT due to the inherent cost of the system.

Another downside of the system is the fragility of it all. What if a truck full of supplies encounters a winter storm? Will the entire production line be slowed down or even halted? Time and money will have to be set aside for contracting with multiple redundant suppliers so that the line is not stalled by faulty source of supply and delayed lead times.

With any efficient, automated system, the return on investment is normally pretty high and costs can be lowered in the long run. But it is a complicated business and a great deal of planning must go into the JIT system to ensure that your purchasers are kept happy and employees are kept busy.