Just-in-time (JIT) inventory management — learn what it is and why it’s important
Every commerce company needs a hardworking inventory control strategy. Without control, businesses overspend on materials or products that never get used or sold and waste resources on oversized warehouses or storage facilities for the inventory they don’t need to store. The sum of all those wasted resources, then, greatly affects overall costs.
A good inventory control system, on the other hand, can focus spending and reduce overall costs by cutting out the excesses. Just-in-time (JIT) inventory management is a great solution for many companies and situations in need of better inventory control.
What is JIT inventory management?
JIT inventory management is a strategy in which commerce companies receive the exact amount of inventory they need, right when they need it. The goal is for companies to retain little to no excess inventory at any given time.
This strategy solves the common commerce issue of overspending on materials that are not yet needed. It relies on constant communication between the commerce company and manufacturers, and it requires a dedicated, streamlined software in order to work smoothly.
Advantages of JIT inventory management
When JIT inventory management runs smoothly, costs go down and efficiency goes up. Below are a few specific advantages that JIT inventory management has to offer.
- Reduced warehousing. Companies don’t need large warehouses when they have less inventory to store, which dramatically reduces warehousing budgets.
- Improved efficiency. Less material overhead leads to less waste, and less waste helps companies save money.
- Easier pivoting. JIT inventory makes it easier and less costly for companies to pivot — to new lines, upgraded products, and so on — since there aren’t shelves of old products that need to be cleared.
Challenges of JIT inventory management
The benefits of JIT inventory management are clear, but there are also a few challenges to address. These challenges are minimal, but it’s important to be aware of them and have solutions ready.
Here are a few issues to look out for.
- Susceptible to supply chain disruptions. If there are supply chain delays on materials, orders will also be delayed, which can lead to unhappy customers and order cancellations. Using reputable suppliers and building a strong relationship with them will improve communication and reduce disruptions as much as possible.
- Difficult to rework orders. If a material or part arrives damaged from a supplier, replacements are not immediately accessible.
- Requires careful tracking. Since JIT relies on materials arriving “just in time,” careful tracking is crucial to ensure the process runs smoothly.
How JIT inventory works
The objective of JIT is to reduce overhead and gain efficiency of inventory management. Companies that operate JIT inventory management use commerce management software and order smaller quantities of the products they sell. They rent or build smaller warehouses and pay closer attention to their supply chains. JIT inventory allows the manufacturer to reduce the amount of products held onto, which lowers the risk of overspending.
For example, let’s say a computer manufacturer previously used historical data to estimate the amount of stock needed for a new quarter. Using traditional methods, they may overestimate the amount of materials needed and end up overspending. But with JIT inventory, materials are only ordered when they’re needed.
What kind of companies use JIT inventory?
JIT management is ideal for tech manufacturers, automobile manufacturers, clothing, jewelry, and shoe retailers, as well as many restaurants. Companies without much storage space and those with smaller margins are perfect for JIT inventory management, because upfront cost commitment is lower and large storage space isn’t needed.
The invention of JIT — a brief history
Just in time inventory management was invented by Taiichi Ohno of Toyota in the 1970s. Following World War II, Japanese companies were trying to recover their economy without spending too much, and JIT was born. Toyota still uses JIT today and is one of the most successful companies to implement the strategy.
Toyota’s success using JIT quickly spread to other manufacturing companies and, eventually, the strategy spilled over into other industries. Today, JIT inventory management is a common strategy for all kinds of ecommerce companies.
How does JIT inventory reduce costs?
JIT inventory reduces cost by eliminating overhead. Inventory is only purchased as it is needed, and warehousing needs are minimal.
How does JIT inventory management improve businesses?
Aside from cutting costs, JIT inventory management improves efficiency and allows for companies to pivot their brands and products as the needs of their customers change. It also requires an acute focus on the supply chain, which means managers are more likely to catch delays and problems quickly.
What are other common names for JIT inventory?
JIT inventory is also known as the Toyota Production System (TPS), since Toyota was the first company to implement this strategy.
Is JIT inventory a higher risk strategy?
The risk involved with JIT inventory management depends (to an extent) on the fluidity of your market. There is always the risk that a surge in demand for a particular product will clean out the shelves too fast and create delays. Consider how often your business experiences these spikes in demand, how quickly your suppliers could respond, and how much of a problem a shipping delay would cause your business.
How do I implement JIT inventory management?
If your business is a good fit for JIT inventory, there are a few crucial steps that will help make the change seamless.
- Make sure you have the right resources. You need a robust inventory management platform that can accurately monitor inventory and make smart predictions.
- Review your supply chain. Make sure you have good relationships with suppliers and manufacturers. Line up back-up suppliers if needed.
- Communicate with clients. If you have a good relationship with your core client base, communicate the change. Assure them that they should not notice any difference, but you will need extra lead time for unusually large orders.
Getting started with JIT inventory
JIT inventory management reduces costs, cuts down on waste, and makes it easier for businesses to pivot their product offerings.
If you have product gathering dust on warehouse shelves, if facilities management is eating up too much of your budget, or if you see opportunities to pivot in the future, JIT management might be a good solution for your company. Start by investigating your current warehousing processes, and decide how much product you really need on the shelves.
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