How to implement just-in-time (JIT) inventory management
You need inventory, but many inventory practices focus more on avoiding stock outs than optimizing ROI. This leads to excess inventories and higher capital costs, as well as the need for frequent discounting and fire sales — lowering margins and ROI.
Many inventory managers are turning to a just-in-time (JIT) inventory solution. JIT means that inventory arrives exactly when you need it. This management strategy can lower expenses without letting customers down.
This post will help you get started with just-in-time inventory by discussing:
How to implement JIT
An effective JIT program enables a business to serve customers with significantly reduced inventories, and running a good JIT inventory starts with a thoughtful implementation.
- Understand your audience. JIT inventory management starts with a thorough understanding of your buyers. Review sales data to make sure you know what their most important needs are and what kinds of seasonal shopping trends they exhibit. This will set a baseline for your inventory needs.
- Choose suppliers carefully. You need agility in the form of suppliers who can deliver smaller batches of stock on short notice over frequent intervals. You’ll also want suppliers who are open to continuous improvement, innovation, and sharing data. The right suppliers are collaborative, understanding, and willing to work with you on your JIT vision.
- Establish predictive processes. Develop demand-sensing and forecasting processes that are closely linked to inventory levels. JIT will enable you to gain tight control of your supply chain, warehouses, and fulfillment processes, but continued success is about using that data to project forward.
- Check your tech stack. The right technology serves as an interface and communications hub between you, your customers, your logistics and fulfillment teams, and your suppliers. Inventory management software driven by artificial intelligence (AI) will optimize your JIT processes.
Coordinating so many moving parts can be daunting. Some companies look for a knowledgeable and experienced JIT consultant to help them launch well by unveiling best practices, providing objectivity, and accelerating progress.
How to manage JIT
The success of any JIT program is contingent on managing a handful of critical factors well. Every company develops their own best practices over time, but there are some standards to start with.
Monitor your inventory
JIT management calls for smaller inventory levels, which need careful monitoring. In contrast to simply tracking batches of inventory, you need to be able to pinpoint exact quantities, sizes, colors, and individual SKUs. Your website and sales team should have live updates on goods available and guaranteed delivery dates.
For a forward-focusing JIT system to be successful, you will also need a clear understanding of inventory history. You can categorize three general types of historical demand:
- Reliable. Certain categories of goods will tend to move in consistent patterns.
- Unreliable. Demand for other items may be more volatile or move less frequently.
- Untested. The sales velocity of other items and new products might be unknown.
Overall, monitor inventory over time to develop processes that can provide clear visibility into your warehouse needs.
Automate basic warehousing processes
Tight inventory control can be challenging. Manual processes are subject to lapses such as miscounting, particularly in the receiving or fulfillment phases. But JIT is benefiting dramatically in the era of digital transformation.
One of the keys to controlling inventory is making use of today’s well-established and evolving technologies. Warehousing and shipping sites can use scanners, bar codes, or even internet of things (IoT) sensors to reduce errors and improve accuracy.
Toward today’s leading edge, there are even collaborative robots, or “cobots,” that can work alongside humans to help warehouse teams more accurately and efficiently receive, pick, and pack inventories. Cobots are typically leased on a flexible basis, with options to scale up or down on demand.
In an even more advanced application of JIT, there’s the practice of vendor managed inventory (VMI). In a VMI arrangement, the retailer, automaker, or business owner offloads responsibility for inventory levels to their suppliers. Suppliers track demand for their own goods based on their customers’ demand signals. In a vendor managed inventory system, the business owner must still monitor inventory management, but inventories themselves become the responsibility of the supplier.
Layer in office technologies
Your own inventory and sales data and processes are no task for emails, voicemails, and spreadsheets. For a JIT program to succeed, your warehouse, logistics, procurement, and sales teams need technology that helps tear down departmental silos. Today’s enterprise resource planning software can help coordinate across functions and work with customers and suppliers.
JIT installations can also incorporate advanced analytics and decision making. Advances in AI are making such systems more accessible to businesses of all sizes. AI and machine learning can help your teams improve predictions, identify opportunities, and reduce risks.
No matter which technologies you use, collaboration is key. Engage multifunctional teams in software selection and development. The tools chosen must be interoperable, working from the same datasets enabling team members full visibility, coordination, and confidence up and down the value chain.
Engage consulting expertise
For some companies the journey to JIT is simply a matter of deciding to change direction. For others, a consultant can be a valuable ally in planning the transformation.
A consultant will be able to assess the similarities and differences between the supply chain, production, procurement, and fulfillment processes of your business and others. They can aid development of appropriate supplier and customer strategies and help you choose and install the right technologies to achieve your objectives.
Your best approach to JIT inventory management may be a mix of standardized and custom processes, and a consultant can help you figure that out.
Vendor and customer relationship management
For JIT to succeed, you need strong relationships with suppliers and customers. In both instances, clear and ongoing communication, establishing and updating expectations, and building trust become essential.
Vendor relationships
You need a strong relationship with vendors for JIT inventory management to work. There will be times when you need to place a last minute order or make adjustments to an existing order, and you need confidence in your seller.
- Communicate well. You need a vendor who communicates efficiently, so make sure your team does the same. Answer their emails quickly and pick up the phone when they call. Establish preferred lines of communication early and stick to them.
- Be a good customer. Work with your vendor’s systems and processes as much as possible and pay your invoices on time.
- Set and manage expectations. Setting expectations at the beginning of a vendor relationship is important, but be sure to manage those expectations as needs and processes change. Don’t assume that your vendor will recognize a new process and adapt, be clear and realign as necessary.
Customer relationships
Customer communications are essential. Make certain your most valuable customers understand what your JIT processes might mean for them.
- Communicate proactively. As you launch or make changes to your JIT inventory management process, reach out to your customers and let them know. You might want to provide a lot of details or just give them a heads up that something is changing, but be sure to explain why and how it will benefit them.
- Apologize quickly. A shift to JIT may lead to a temporary stock out or delay. If this happens, provide the very best customer service to help make it right. At the same time, reiterate why the change in your inventory management is important and how it will help the customer in the long run.
When done well, a JIT inventory management system will require and enable a closer, more trusting relationship with vendors and customers.
Getting started with JIT inventory management
JIT inventory management is agile, scalable, resilient, and cost effective. When well conceived and executed, the shift toward JIT injects vitality and innovation into any business while driving margins and profitability.
A good place to start is in discussions with a key supplier or two. Chances are, your suppliers might be as interested in upgrading efficiency, embracing technology, and reducing costs as you are. You might even consider looking into new sources of supply, as you may be overlooking a digitally sophisticated competitor.
Adobe Commerce powers real-time product inventory availability and visibility to meet your customers' expectations across all channels. From order and fulfillment to smart product recommendations and inventory reporting, Commerce uses AI to optimize your inventory management from beginning to end.
Watch an overview video or take a product tour to learn how Commerce can help make your JIT inventory management successful.