Just in time (JIT)

Definition

“Just in time” (JIT) is a business and production strategy aimed at optimising efficiency and reducing waste in the production and delivery of goods or services.

What is just in time?

Just in time involves receiving goods or materials just as they are needed in the production process, minimising inventory levels, and eliminating excess holding costs. JIT is a key component of lean manufacturing and supply chain management.

Here’s an explanation of how “Just in time” is used in business and finance:

1. Inventory management:
   JIT is achieved by ordering and producing goods or materials only as they are needed for the production process. This reduces the costs associated with holding excess inventory.
2. Supply chain efficiency:
   JIT requires close coordination with suppliers to ensure that materials and components are delivered promptly and in the quantities required. This reduces the risk of stockouts or overstocking.
3. Cost reduction:
   By reducing inventory levels and associated holding costs, JIT can lead to significant cost savings for businesses.
4. Waste reduction:
   JIT aims to eliminate waste from the production process. This leads to a more streamlined and efficient operation.
5. Quality control:
   In JIT, quality control is paramount. High-quality production from the outset minimises costly rework or scrap due to defects.
6. Flexibility and responsiveness:
   JIT allows businesses to be more responsive to changes in customer demand and market conditions. Lower inventory enables swift adaptation to market shifts or supply chain disruptions.
7. Just in time in services:
   JIT principles can also be applied in service industries, where the focus is on delivering services precisely when they are needed, without unnecessary delays or over-servicing.

While JIT offers benefits in terms of efficiency and cost reduction, it also carries risks. For instance, disruptions in the supply chain or unexpected changes in demand can have a more immediate and significant impact on the production.

Example of just in time

Let’s consider a manufacturing company, ABC Electronics, that implements a just-in-time inventory system for its production process. ABC Electronics establishes close collaborations with its key suppliers. Rather than maintaining large inventories of raw materials, the company communicates closely with suppliers to ensure timely deliveries of materials in the quantities needed for immediate production.

The production process at ABC Electronics is triggered by customer demand. As soon as an order is received, the necessary components are ordered from suppliers, and production begins. This minimises the need for storing excess inventory.

By receiving materials just in time for production, ABC Electronics minimises the risk of obsolescence and wastage. Components are used promptly, and finished products are shipped to customers without unnecessary delays. The just-in-time system allows ABC Electronics to quickly adapt to changes in customer demand. The company can easily adjust production schedules and product mixes based on real-time market needs.

In this example, ABC Electronics successfully implements a just-in-time inventory system, emphasising efficient production, reduced storage costs, and responsiveness to customer demand.