Which of the following is a result of using just in time inventory systems?

What is Just-in-Time Inventory?

A just-in-time inventory system keeps inventory levels low by only producing for specific customer orders. The result is a large reduction in the inventory investment and scrap costs, though a high level of coordination is required. This approach differs from the more common alternative of producing to a forecast of what customer orders might be. By using just-in-time concepts, there is a greatly reduced need for raw materials and work-in-process, while finished goods inventories should be close to non-existent.

Advantages of Just-in-Time Inventory

The use of just-in-time inventory has the following advantages:

• There should be minimal amounts of inventory obsolescence, since the high rate of inventory turnover keeps any items from remaining in stock and becoming obsolete.

• Since production runs are very short, it is easier to halt production of one product type and switch to a different product to meet changes in customer demand.

• The very low inventory levels mean that inventory holding costs (such as warehouse space) are minimized.

• The company is investing far less cash in its inventory, since less inventory is needed.

• Less inventory can be damaged within the company, since it is not held long enough for storage-related accidents to arise. Also, having less inventory gives materials handlers more room to maneuver, so they are less likely to run into any stored inventory and cause damage.

• Production mistakes can be spotted more quickly and corrected, which results in fewer products being produced that contain defects.

Disadvantages of Just-in-Time Inventory

Despite the magnitude of the preceding advantages, there are also some disadvantages associated with just-in-time inventory, which are:

• A supplier that does not deliver goods to the company exactly on time and in the correct amounts could seriously impact the production process.

• A natural disaster could interfere with the flow of goods to the company from suppliers, which could halt production almost at once.

• An investment should be made in information technology to link the computer systems of the company and its suppliers, so that they can coordinate the delivery of parts and materials.

• A company may not be able to immediately meet the requirements of a massive and unexpected order, since it has few or no stocks of finished goods.

Just-in-time also known as JIT is an inventory management method whereby labour, material and goods (to be used in manufacturing) are re-filled or scheduled to arrive exactly when needed in the manufacturing process.

JIT approach has the capacity, when adequately applied to the organisation, to improve the competitiveness of the organisation in the market significantly by minimizing wastes and improving production efficiency and product quality.

JIT – Background and History

JIT is a manufacturing management process. It was first developed and applied in the Toyota manufacturing plants in order to meet consumer demands with minimum delays.

Taiichi Ohno of Japan is referred to as the father of Just In Time. Toyota met the increasing challenges for survival through a management approach that was entirely focused on people, systems and plants.

Toyota realised the Just In Time approach would only be successful if every person within the Toyota was committed and involved in it, and if plant and processes were properly arranged for maximum efficiency and output, and if the quality of the goods produced and production programs were scheduled to meet demands exactly.

Significance of JIT Concept

The main focus of JIT is to identify and correct the obstacles in the production process. It shows the hidden problems of inventory. The prime objective of JIT is to increase the inventory turnover and reduce the holding and all connected cost.

Just In Time method prevents a company from using excessive inventory and smoothens production operations if a specific task takes longer than expected or a defective part is discovered in the system. This is also one of the main reason why the companies (which are opted for JIT) invest in preventive maintenance; when a part/equipment breaks down, the entire production process stops.

This concept was made applicable again by the Japanese firms, placing an order for the material, the same day of the production of the product. The Just In Time approach eliminates the requirement to carry voluminous inventories and incur heavy carrying other related costs to the manufacturer.

In order to avail the benefits of JIT system, there should be an optimum synchronization between the manufacturing cycle and delivery of material. Just In Times requires a good understanding of the supplier and the manufacturer in terms of the quantity and delivery of the material. In the event of any misunderstanding between the manufacturer and supplier of the material, the entire production process may come to a halt.

One example of a JIT system is a car manufacturer, a manufacturer of cars operates with bare minimum inventory levels, as there is a strong reliance on the supply chain to deliver the parts required to manufacture cars. The parts required in the manufacturing of cars do not arrive before or after they are needed; rather, they arrive only when they are needed.

Successful JIT implementation wholly depends on how the manufacturer manages its suppliers. A lot of pressure is exerted on them, as the supplier of the materials have to be ready with ample quality material, as the need arises.

Elements involved in JIT

Continuous improvement:

• Attacking fundamental problems and anything that does not add value to the product.
• Devising systems to identify production and allied problems.
• Simplicity:  Simple systems are simple & easy to understand, easily manageable and the chances of going wrong are very low.
• A product-oriented layout for less time spent on materials and parts movement.
• Quality control at source to ensure every worker is solely responsible for the quality of their own produced output.

Eliminating waste: 

There are seven types of waste:

• Waste from product defects.
• Waste of time.
• Transportation waste.
• Inventory waste.
• Waste from overproduction.
• Processing waste.

Waste minimization is one of the primary objectives of the Just In Time system. This needs effective inventory management throughout the whole supply chain.

Initially, a manufacturing entity will seek to reduce inventory and enhance operations within its own organization. In an attempt to reduce waste attributed to ineffective inventory management, SIX principles in relation to JIT have been stated by Schniededans and they are:

• Reduce buffer inventory.
• Try for zero inventory
• Search for reliable suppliers.
• Reduce lot size and increase the frequency of orders.
• Reduce purchasing cost.
• Improve material handling.

Advantages and Disadvantages of Just-In-Time Systems

Advantages of Adopting Just-In-Time include:

• Just-in-time approach keeps stock holding costs to a minimum level. The released capacity results in better utilization of space and bears a favourable impact on the insurance premiums and rent that would otherwise be needed to be made.
• The just-in-time approach helps to eliminate waste. Chances of expired or out of date products; do not arise at all.
• As under this management method, only essential stocks which are required for to manufacturing are obtained, thus less working capital is required.
• Under this approach, a minimum re-ordering level is set, and only when that level is reached, order for fresh stocks are made and thus this becomes a boon to inventory management too.
• Due to the abovementioned low level of stocks held, the ROI (Return On Investment) of the organizations be high in general.
• As this approach works on a demand-pull basis, all goods produced would be sold, and thus it includes changes in demand with unanticipated ease. This makes JIT appealing today, where the market demand is fickle and somewhat volatile.
• JIT emphasizes the ‘right-first-time’ concept, so that rework costs and the cost of inspection is minimized.
• By following JIT greater efficiency and High-quality products can be derived.
• Better relationships are fostered along the production chain under a JIT system.
• Higher customer satisfaction due to continuous communication with the customer.
• Just In Time adoption result in the elimination of overproduction.

Disadvantages of Adopting JIT Systems

• JIT approach states ZERO tolerance for mistakes, making re-work difficult in practice, as inventory is kept to a minimum level.
• A successful application of JIT requires a high reliance on suppliers, whose performance is outside the purview of the manufacturer.
• Due to no buffers in JIT, production line idling and downtime can occur which would have an unfavourable effect on the production process and also on the finances.
• Chances are quite high of not meeting an unexpected increase in orders as there will be no excess inventory of finished goods.
• Transaction costs would be comparatively high depending upon the frequency of transactions.
• JIT may have certain negative effects on the environment due to the frequent deliveries as the same would result in higher use and cost of transportation, which in turn would consume more fossil fuels.

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