Just-in-time (JIT) involves ordering raw materials and assembling each product as and when an order comes in - hence, it’s produced ‘just-in-time’ for fulfillment. This method can result in holding much less ‘on-hand’ inventory, but requires seamless management of the manufacturing process and a highly reliable supply chain.
Why has Just-in-time become the prominent method for company's inventory strategy:
- Fast, low-cost international shipping means fewer consequences for getting it wrong — if a business underestimates how many parts or supplies it needs, it’s relatively trivial to order more.
- Increasingly reliable customer-demand forecasting means companies can make sales projections with more accuracy and so rarely have to overproduce inventory to avoid losing sales.
- Globalization has made it easier to find a replacement or backup supplier if a current vendor fails to fulfill requirements.
What are some benefits of Just-in-time?
- Inventory held in a warehouse may become obsolete or damaged. Holding less stock for shorter amounts of time mitigates these risks (reduced dead stock).
- Holding less inventory delivers savings to your business in the form of reduced carrying costs (lower storage costs and space requirements, etc.)
- Parts and raw materials are a considerable expense for your business. The smaller quantities involved with just-in-case inventory management translate to improved cash flow.