Just-In-Time (JIT) Inventory: The Precision Playbook for Modern Supply Chains

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What if your inventory arrived exactly when you needed it - every time?

That is the promise of Just In Time (JIT), a concept that’s no longer just a lean production philosophy, but a precision-engineered strategy supercharged by technologies like AI. At its core, JIT is an inventory management method designed to synchronize production schedules and supply chains with real-time demand. 

Where efficiency is key in production, JIT helps companies stay lean and deliver exactly what’s needed, when it’s needed. But what makes this an ideal supply chain approach and how can it evolve further? Let’s dive in and find out!

How Does Just In Time Concept Work?

The JIT System Cycle 

The Just In Time system works under a cycle of continuous improvement, involving the following key steps:

Design: Reviewing product design, process design, personnel, and manufacturing planning and putting these plans into place to build a flexible system.

Manage: A Total Quality Management review is conducted to ensure that there’s continuous improvement throughout the process. 

Pull: Uses signaling methods like Kanban to educate the team on production and withdrawal methods. Also reviews lot size policies and reduces lot sizes.

Establish: Reviews vendor lists, picks out preferred suppliers, negotiates contracts, sets lead times and delivery expectations.

Fine-tune: Determines final inventory needs, controls, policies, and reduces inventory movements.

Build: Inform the production team about the skill sets needed to complete the work. Also focuses on team education and empowerment sessions. 

Refine: Focuses on refining, standardizing, and reviewing the entire production process to reduce the number of steps involved

Review: Defines and implements quality metrics and performs root cause analysis of any problems that may arise. 

Differences Between JIT Pull System and the Traditional Push System

The JIT Pull System differs from traditional push system in the following ways: 

So why is the JIT pull system far superior to the traditional push system? There are four pillars that help make this system a success, which we’ll explore ahead.

Key Elements of Just In Time System

To fully understand how JIT philosophy transforms inventory management, it’s essential to understand the fundamental components that make this system effective:

• Setup time: JIT systems require minimized setup times so manufacturers can swiftly react to customer orders, minimizing the need to hold large quantities of safety stocks. Reduced setup times also allow for quick changeovers between production runs and lower inventory costs. 
  
• Plant layout: Plant layouts in JIT streamline the flow of materials and work-in-progress, reducing unnecessary movement and handling. Unlike traditional layouts where machines are grouped, JIT creates and organizes “work cells,” keeping all necessary equipment for multiple production steps in place. 
  
• Flexible workforce: The success of JIT systems typically demand multi-skilled and adaptable workers that can successfully carry out many steps in the production process. They should be able to use every equipment, perform maintenance tasks, and quality inspections by themselves, seamlessly supporting continuous production flow. 
  
• Defect rates: Quality control is integrated in every stage of JIT systems, where workers are empowered to identify and address issues immediately. And especially in a tightly-controlled production system, JIT emphasizes low defect rates to prevent any disruptions in production or supply chain. In such cases, defects must be eliminated to ensure high-quality processes. 

Exploring Just In Time Challenges

No operational practice is without its challenges. Although Just In Time management may be the desirable method to keeping production, supply chain, and inventory in sync, there are a few hiccups to its implementation: 

Lack of commitment from top management & employees

The success of the Just In Time system requires full support and commitment from both top management and employees. Without that and strong leadership, operation teams might not take the process seriously, resulting in its failure. Even if employees are properly trained, issues like fear of job loss, lack of understanding, or job changes can also be a hindrance to embracing the model. 

Forecasting problems

The Just In Time approach heavily relies on accurate demand forecasting as inventory is kept minimal and ready only when they are ordered as needed. This is especially problematic in industries like high tech, energy, and commodity where demand patterns are volatile and unpredictable. Inaccurate forecasts can disrupt the entire production process, leading to stockouts and inability to meet customer demands. 

Sudden spikes in demand

Sudden demand spikes are not easy to predict. Likewise, Just In Time systems are not well-equipped to handle sudden spikes in customer demands and when unprepared, companies face production delays and miss out on sales opportunities. In this case, implementing the system can be a challenge as companies need more operational flexibility and quick coordination with suppliers is necessary. 

Supply chain vulnerabilities

Just In Time management relies on receiving goods and materials exactly when needed, often in small quantities. This tight coordination means that any delays from suppliers can stop the entire production line. Managing multiple suppliers and logistics partners requires consistent communication and strong relationships for on-time deliveries. There’s also little to no buffer stock to absorb disruptions, making them highly vulnerable to external factors like transportation issues, labor strikes, and natural disasters. Hence, supply chain leaders would have to take appropriate risk management measures to streamline distribution processes. 

Increased IT and planning needs 

Just In Time processing demands complete visibility into inventory levels, production schedules, and supplier deliveries. For that, businesses are required to set up sophisticated IT systems for continuous data collection and streamlined inventory management. Heavy investments in IT infrastructure plus hiring of skilled personnel to handle these systems can be a challenge for companies looking to build an efficient JIT system. However, supply chain heads are embracing the need for a robust IT infrastructure, setting aside at least 5.8% of supply chain budgets for GenAI investments in 2024. Source

Integration challenges also may exist when companies use different software platforms for procurement, production, inventory, and logistics. Ensuring real-time and cohesive data flows between these disparate systems add to the complexities and costs of setting up IT structures. 

Additional training and planning requirements 

For stock checking, most SMEs use manual methods or use robust inventory management tools to expedite the process. While it may be easier to train new employees under those circumstances, it’s not the same when Just In Time is followed. The process is more complex and requires daily stock-checking as inventory should be kept ready as and when orders are received. Hence, it would take extensive planning and employee training to master this system, especially when sophisticated computer softwares and tools like barcode scanners are used.

Just In Time Crazy Benefits

Transitioning from Just In Time’s challenges, it’s equally important to highlight the remarkable benefits of this groundbreaking inventory management system for businesses. Let’s look at some of the benefits of Just In Time inventory management:

Reduction in inventory costs and wastes

Did you know that when a mid-sized manufacturer with $10 million in inventory reduces stock by 30% through JIT, they yield an annual savings of $450,000-$900,000 in carrying costs alone? Source The drastic reduction in inventory levels is a significant advantage of the Just In Time system. 

JIT’s lean approach ensures materials and components are used in the production process only as they are needed, minimizing the costs associated with storing and insuring excess inventory. It also reduces wastes caused by obsolete stock or overproduction, freeing up valuable warehouse space for businesses and reduction in capital tied up in inventory.

Improved efficiency and responsiveness to customer demand

The Just In Time approach significantly reduces costs of procuring, managing, and storing excess inventory and raw materials, resulting in higher inventory turnover. When a company has a higher inventory turnover ratio, preferably ranging from 5 to 10, it indicates shorter product cycles with low chances of obsolete inventory. Since materials arrive on time, production processes are smooth too, ensuring proper flow of goods to supply chains and customers based on current demand.

Increased profitability 

The more you save costs, the higher the potential for profitability. Just In Time systems contribute to that by reducing the need for capital investments in storage facilities and excess raw materials. Moreover, companies achieve higher sales and market competitiveness when efficiency and response times are more. Combine cost savings and higher sales, and the result is higher profits.

Enhanced production quality 

Customers deserve to receive products at the highest quality. Just In Time delivers on that promise since there’s fewer goods moving through the shop floor. As a result, management teams have the opportunity to focus on improving production processes that can churn out high-quality products. After all, that is key to customer satisfaction and reduced waste. 

Minimized investments

Smaller companies that don’t have the funds readily available for purchasing huge quantities of stock may find JIT a suitable inventory management method. Just In Time ordering ensures they order goods at the right quantities, significantly reducing inventory carrying costs like warehousing and insurance. And in supply chain management, JIT tightly integrates procurement with production schedules and actual customer demand, preventing overstocking and improving cash flow. 

With minimized investments from Just In Time stock control, small businesses can reinvest capital on other key processes, rather than having it locked in inventory management. 

Stronger supplier relationships 

Since the Just In Time production system relies on suppliers delivering materials precisely when needed, stronger relationships with them can make all the difference. When companies and suppliers closely collaborate and communicate effectively, there’s higher mutual trust and transparency throughout the entire supply chain.

Businesses that work with fewer, more reliable suppliers to maintain high-quality deliveries tend to have stronger supplier partnerships,  improving operational flexibility and reducing lead times. In a tightly-knit production process, healthy collaborations between suppliers and businesses can enhance the effectiveness of JIT systems. 

How Will Just In Time Concept Evolve In The Future?

Just In Time is a sophisticated approach to inventory management and it’s expected to keep evolving with an increased focus on data, interconnectivity, and sustainability. Given that the market for global AI in supply chains is set to grow at a 39% CAGR from 2025 to 2034, adoption rates of AI and other advanced technologies in JIT will continue to grow. Source 

1] How Blockchain enhances JIT

• It can trigger automatic payments or reorder processes when inventory reaches the minimum threshold, speeding up procurement.
• When a product is defective, blockchain can identify its origin and supplier, improving traceability.

2] Internet of Things 

• IoT sensors can track various parameters like inventory levels and environmental conditions in real time, allowing better control over production processes.
• They can also identify product defects in real-time and reject them, ensuring only high-quality products reach customers. 

3] Nearshoring and regionalizing 

• In 2025, companies are set to prioritize nearshore providers that integrate cutting-edge solutions like advanced analytics, cloud infrastructures, and DevOps automation. Primary objectives for this shift are to reduce downtimes, improve collaboration, and enhance scalability. 
• We are bound to see more businesses move production closer to demand centers so lead times are reduced and risks associated with global disruptions are mitigated. According to Deloitte, 59% of companies are turning to nearshore software development tools as a way of cutting costs, including travel and communication expenses. Source

4] Hybrid JIT models 

• Companies may adopt a hybrid JIT approach that combines JIT’s lean efficiency with Just In Case’s ability to provide a safety net against disruptions.
• Future hybrid JIT models may support multiple programming languages, with cross-language optimizations that provide flexibility and ensure higher responsiveness.

5] Circular economy

• With JIT’s lean approach, integration of a circular economy with this model offers scope for a more sustainable supply chain through reuse and recycling of materials. 
• Digital twins may also be used to simulate production processes in a virtual environment, enabling users to analyze potential flaws and rectify them before starting production. This would be in alignment with JIT’s principle of minimizing wastes.

Final Thoughts 

In essence, Just In Time is a transformative approach towards streamlining operations, cutting down wastes, and ensuring delivery of materials and final goods exactly when they’re needed. By adopting this system, it’s easier to adapt to market changes and foster stronger supplier relationships. As modern supply chains are unpredictable and continue to evolve, mastering JIT principles can give you the competitive edge needed to thrive in the market. 

If you’re looking to build resilience in inventory management and supply chains, Tredence offers the tools and expertise you’ll need. For higher process visibility, our cloud-based supply chain control tower offers persona-based insights that help you achieve planning efficiencies. And through the control tower’s self-service capabilities, your supply chain executives become problem-solvers, taking ownership of key processes.

Get in touch with us today to know more about our supply chain capabilities!

FAQs

1] How do companies balance JIT with having some buffer stock for emergencies?

Companies balance JIT inventory with buffer stock by maintaining minimal safety stock as a strategic reserve to protect against supply chain disruptions and demand spikes. For this, they use data-driven forecasting and inventory management systems to optimize trade-off between cost efficiency and operational resilience.

2] Can a business partially adopt JIT, or is it an all-or-nothing approach?

Yes, a business can be "partially" JIT by adopting a hybrid inventory approach that combines just-in-time replenishment for regular demand with maintaining some buffer or safety stock to handle demand fluctuations.

3] How do supplier relationships need to change to support JIT?

Supplier relationships must evolve into collaborative partnerships characterized by trust, open communication, and mutual dependency. These relationships need to ensure timely and accurate deliveries, as JIT relies heavily on the precise arrival of materials when needed.

4] Is JIT applicable only to the manufacturing sector?

While originating and playing major roles in manufacturing, JIT principles benefit even the retail sector as well, optimizing stocks for FMCG goods and proactively responding to demand changes too. 

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Editorial Team
Tredence