Just In Time Inventory Management
Just-in-Time (JIT) inventory management is the process of ordering and receiving inventory for production and customer sales only as it is needed and not before. This means that the company does not hold safety stock and operates with low inventory levels. This strategy helps companies lower their inventory carrying costs.
Just-in-time inventory management is a cost-cutting inventory management strategy though it can lead to stock-outs. The goal of JIT is to improve return on investment by reducing non-essential costs.
Advantages & Disadvantages of Just-in-Time Inventory
by Neil Kokemuller, Demand Media
Companies turnover significant inventory control to suppliers with just-in-time inventory. Related Articles
* The Advantages of Just-in-Time Inventory Systems * Advantages & Disadvantages of Excess Inventory * Examples of Just-in-Time Inventory
* Just in Time Inventory Definition
* Advantages & Disadvantages of Matrix Organizational Structures in Business Organizations * The Disadvantages of Buy-Hold-Sell Inventory
Just-in-time (JIT) inventory refers to an inventory management system with objectives of having inventory readily available to meet demand, but not to a point of excess where you must stockpile extra products. Maintaining
inventory takes time and has costs, which is what motivates companies to implement JIT programs. Ads by Google
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Balancing the goals of avoiding stock outs while minimizing inventory costs is at the heart of just-in-time inventory. One of the main benefits of automated and efficient inventory replenishment systems is that you can quickly respond to reduced inventory levels. Companies are now equipped to pull back on stock in a given product category and ramp up inventory in another as customer needs and interests change. Inventory Costs
Minimization of inventory management costs is a primary driver and benefit of just-in-time practices. Inventory management has costs, and when you reduce the amount of holding space and staff required with JIT, the company can invest the savings in business growth and other opportunities, points out the Accounting for Management website. You also have less likelihood of throwing out product that gets old or expires, meaning reduced waste. Coordination
A disadvantage of managing a just-in-time inventory system is that it requires significant coordination between retailers and suppliers in the distribution channel. Retailers often put major trust in suppliers by syncing their computer systems with suppliers so they can more directly monitor inventory levels at stores or in distribution centers to initiate rapid response to low stock levels. This usually means build up of technology infrastructure, which is costly. This coordinated effort is more involving on the whole than less time intensive inventory management systems. Risks
Just-in-time inventory is not without risks. By nature of what it is, companies using JIT intend to walk a fine line between having too much and too little inventory. If company buyers fail to adjust quickly to increased demand or if suppliers have distribution problems, the business risks upsetting customers with stock outs. If buyers over compensate and buy extra inventory to avoid stock outs, the company could experience higher inventory costs and the potential for waste. Sponsored Links
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About the Author
Neil Kokemuller has been an active writer and content media website developer since 2007. He wrote regular feature articles for LiveCharts for three years and has been a college marketing professor since 2004. He has four years of additional professional experience in marketing, retail and small business, and he holds a Master of Business Administration from Iowa State University.
The Disadvantages of Inflating Inventory
by Cynthia Myers, Demand Media
Carrying a large inventory incurs certain costs.
* Disadvantages of Buying Inventory in December
* Advantages & Disadvantages to a Manual Inventory Control System * The Disadvantages of Buy-Hold-Sell Inventory
* Disadvantages of High Inventory Levels
* Advantages & Disadvantages of Excess Inventory * The Disadvantages of the Continuous Inventory System
Increasing inventory in times of rising costs allows you to take advantage of lower prices now, which can result in increased profits as you sell off the inventory. But inflating inventory also carries significant disadvantages. The right inventory strategy for you depends on the business you’re in, your profits and losses and your ability to comfortably carry an inflated inventory. Analyzing your individual situation will tell you if the disadvantages of inflated inventory apply to you. Ads by Google
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The costs of inventory go beyond the purchase price of the goods or materials in your inventory. You must pay for space in which to store your inventory. If the inventory is perishable, you’ll rack up utility bills to heat and cool the space. You may need additional personnel to handle the inventory. If you buy materials or goods at a steep enough discount, your savings may be enough to offset these additional costs, but in many cases the cost of adding to your inventory cancel out your savings. Increased Taxes
The Internal Revenue Service considers your inventory to be an asset, and you’re required to pay taxes on the inventory in stock at the end of the year. This is the reason you see many businesses hold Inventory Reduction Sales at year’s end. These businesses are looking to reduce their tax burden by selling off excess inventory. If, instead of selling off inventory, you’re focused on accumulating it, you could find yourself with a bigger tax bill. Before you build up your inventory, you should consider the possible tax implications of doing so. Spoilage Losses
Most goods have a shelf life — a period after which they begin to deteriorate and spoil. For perishables such as food this can be a relatively short period. Durable goods have a longer shelf life, but even these can lose value over time. Fashions or household goods go out of style, fabrics fade or are susceptible to damage from dust, insects or fire. If you build up too much inventory, you could be left with a quantity of useless goods on hand, resulting in a loss. Other Considerations
When you increase your inventory because you come across a good deal on goods or materials, or because you think the prices will increase in the future, you’re gambling that your predictions about the future will come true. If, for example, the price of the goods and materials falls, you’re left holding an inventory of items for which you paid more than the current market rate. If you decide to inflate your inventory, double and triple check the information that led you to believe doing so was a good idea, and consider all the implications to your bottom line. What Is the Purpose of Just-in-Time Inventory Systems?
by Luanne Kelchner, Demand Media
Just in Time reduces stored inventory.
* Inventory & Work Order Systems
* An Introduction to Inventory Management Systems
* The Advantages of Just-in-Time Inventory Systems * Examples of Just-in-Time Inventory
* Just in Time Inventory Definition
* Advantages & Disadvantages of Just-in-Time Inventory
Companies use a Just-in-Time manufacturing and inventory management system to improve the efficiency of the company and reduce costs. The system requires manufacturers to purchase only when customer orders create a demand. Companies must develop a relationship with vendors to ensure parts reach the facility in time to manufacture products for the customer request. Businesses only produce inventory when there is a customer order in place. The system does not allow the business to produce or store excess inventory. Just-in-Time systems work in large and small organizations and those that produce products or services. With adjustments, the principles of Just-in-Time inventory management and manufacturing can work in any
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Using a Just-in-Time inventory system reduces the amount of material on hand in the production facility. Companies can reduce the cost to store and maintain excess inventory and eliminate the risk of materials becoming obsolete while in storage. High inventory quantities tie up company funds, which could otherwise benefit other areas of the business such as the research and development of new products. With the reduction in inventory costs, companies can expand and grow their businesses. Lead Time Reduction
Just-in-Time manufacturing also uses a pull system to move materials through the production cycle. For example, in a manufacturing business, materials do not move to the next step on an assembly line until that step or station is ready. This reduces the stockpiling of unfinished product at any stage in the production process. When the company eliminates bottlenecks, production speed or lead-time is faster. Process engineers must determine the maximum quantity any station in the production process can have waiting. While workers may sit idle waiting to move production to the next step, the process is more efficient. Efficient Manufacturing Layout
Companies must create a layout on the production floor to move materials through the process efficiently. Some companies must move workstations closer together to eliminate steps in the work process. This leads to a more efficient manufacturing layout that can significantly reduce lead tIme. Building products efficiently is a primary focus for a company implementing a lean manufacturing system. Improve Customer Satisfaction
Companies implement a Just-in-Time system or lean manufacturing to satisfy the demands of customers. The voice of the customer is always present in a Just-in-Time manufacturing environment. Reductions in lead time and costs can help a company deliver a product to the customer faster and for a lower price.