Which inventory method eliminates waste by using smaller quantities of materials that arrive when needed in the transformation process?

What is Just-in-Time?

Just-in-time (JIT) is an inventory management strategy that reduces waste and increases efficiency by receiving inventory only as they are needed for production, not ahead of time. This significantly reduces the 8 wastes in lean manufacturing.

• Transport
• Inventory
• Motion
• Waiting
• Overproduction
• Over processing
• Defects
• Unutilized Talents

However, in order to seamlessly practice Just-in-Time, producers must forecast future demands accurately and in a timely manner.

When you have achieved a truly Lean Manufacturing organization that optimum will be JIT.

Just-in-Time Toyota

As with many other lean manufacturing practices, Just-in-Time originates from Japan. It began with Toyota between the 1960s and 1970s. It is also known as the Toyota Production System (TPS).

It took Toyota more than 15 years to perfect this method. They placed orders for production parts only when a new order came in.

This method was born out of limited resources post-war. The lack of cash, inventory space, and natural resources forced Japan to seek lean methods of production. This practice is now the legacy of one of Japan’s biggest manufacturers, Toyota.

Just-in-Time Delivery

Just-in-Time requires all the stages of manufacturing to run without hiccups. The steady rate of production under JIT involves no machine breakdowns, no human errors, and a highly reliable supplier that can deliver parts on demand.

Advantages of Just-in-Time

Just-in-Time is a great way to minimize inventory costs and space while improving responsiveness and flexibility. Since parts are only ordered when needed, this reduces long-term costs on raw materials, as well as allowing the producer to make changes to their product without being held back by dead stocks. This means:

• Reduced Operating Costs
• Lower Labor Costs in Maintaining Inventories
• Lower Rates of Defects
• Improved Quality in Products
• Shorter Throughput Time
• Reduced Production Hours
• Faster Times to Market
• Improved Cash Flow

A comprehensive plan coupled with informed people can bring powerful results to the Just-in-Time method.

Risks of Just-in-Time

Since JIT requires all stages of the manufacturing process to be ready-to-go at any moment, a disruption to a single supply chain source can throw off the entire production schedule. Therefore, all stages have to be held accountable at all times. There is very little room for error. This means:

• Suppliers have to be ready to deliver upon order
• Machines have to be monitored regularly to prevent downtime
• Organization and discipline on the shop floor
• Ability to move on a tight production schedule
• Visibility throughout the shop floor for easy and quick communication

In order to secure the supplier side, manufacturers may seek to partner with suppliers that are close by or can supply even at short notice.

Just-in-Time Inventory

The Theoretical Basis

To understand the theory behind JIT, we must first understand the concept of Economic Order Quantity. The EOQ is driven by Order Costs and Carrying Costs.

Without Just-in-Time

• High Unit Order Costs
  • Initial impact of setup costs
  • Setup cost is marginalized as the quantity of units increases
  • As a result, the unit order cost curve flattens
• Linear Carrying Costs
  • The number of units produced in a lot determines how long they will be in inventory while consumption catches up with production

Given the two cost curves, it is possible to calculate the EOQ and the point of Lowest Average Unit Cost (LAUC). From this information, we can generate an Inventory Model.

In order to achieve JIT, the setup component of the Order Cost curve would have to be completely flat.

With Just-in-Time

The above chart represents the first cycle of improvement. Both the Lowest Average Unit Cost and the Economic Order Quantity have declined.

It is important to note that failure to adjust order sizes after a shift in the cost curves would result in higher average unit costs. This fact is fundamental to the reasoning behind JIT.

Movement toward JIT is not in spite of EOQ, movement toward JIT is because of EOQ.

The changes have equally dramatic effects on the Inventory Model.

A smaller EOQ results in a decline in inventory levels and hence the capital tied up in those inventories. Reductions in setup and run times automatically reduce lead times. The response time to customer orders is reduced and the new smaller lots are therefore easier to schedule.

Some Examples of Just In Time

Electric Car Manufacturer

One electric car company keeps a very small inventory due to being one of the smallest auto manufacturers in the world. Since they don’t have the ability to produce at the same economies of scale as other auto giants, they produce on demand. This additionally allows their customers to customize, which usually comes at a hefty price.

Fast Food Chain

A popular food chain company uses JIT to serve their customers. They have all of the ingredients and materials needed for cooking, but they don’t start until their customer has placed an order. This also improves the quality of their products since made-to-order provides a consistent experience for their customers.

For more on the pros and cons of Just-in-Time and how it compares to Just-in-Case, check out this blog post.

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