What Is Just-In-Time (JIT) Inventory Management?

Just-in-time (JIT) inventory management is a strategic system that directly aligns orders for raw materials from suppliers with production schedules and consumer demand. This is a strict approach to inventory that aims to maximize efficiency and minimize waste by only receiving goods at the moment they’re required in the production process.

While this method can have a positive impact, it also requires a great deal of planning and meticulous monitoring. We’ve put together this article to provide insights into how JIT works, what the benefits can be, what the risks are, and how companies can best apply it to modern supply chains.

Definition of Just-In-Time Inventory Management

So, what is JIT? It is a streamlined method of managing inventory that only acquires materials or goods when they’re needed for immediate production fulfilment or customer demand. Most other or more traditional inventory strategies tend to maintain a certain amount of surplus stock as a way to adjust to supply chain delays or spikes in consumer demand. The goal of JIT is to eliminate the wasteful excesses these other forms of inventory management tend to feature, focusing on operating with more precision rather than relying on buffers in production volume.

As a result, JIT is closely aligned to the philosophy of lean inventory. This is where every item a company keeps in stock serves a distinct and time-sensitive purpose. These lean systems rely on accurate metrics on supplies and carefully synchronized supply chains to reduce waste and boost productivity.

How Just-In-Time (JIT) Works in Practice

To understand how JIT works from a practical perspective, it can be helpful to examine the typical operational flow of the system.

• Step one – An operational workflow is developed between suppliers, production teams, and logistics providers, often supported by business advisory consultants.
• Step two – Orders are placed based on real-time production schedules or confirmed current consumer demand.
• Step three – Goods or materials arrive at the production facility immediately before they are needed for manufacturing.

So, for example, a manufacturer of electrical devices engages a JIT contract with a components supplier. They coordinate closely with the supplier, arranging small batch deliveries twice a week to match the current pace of assembly. Production managers will continually monitor productivity and demand, making real-time adjustments to orders, keeping supplies in sync with production as needs change.

Core Principles of JIT Inventory Systems

There are some core elements that distinguish JIT from more traditional models. Firstly, the supply chain operates precisely in alignment with actual demand. Inventory requests are made in direct response to customer orders or tight production schedules.

Additionally, companies maintain minimal—usually zero or near-zero—inventory holding. They order only what is necessary for operations. This is supported by the principle of frequent and smaller deliveries that, while they require tight coordination, also enable responsiveness to demand.

Furthermore, JIT places a strong emphasis on relationships with diverse suppliers built on quality and consistency. The need for carefully implemented production synchronicity means that suppliers who can’t reliably deliver on time or frequently produce errors or defects are unsuitable.

Finally, JIT involves continuous process improvement. Companies and their suppliers continuously review and refine workflows to eliminate inefficiencies.

Advantages of Just-In-Time Inventory Management

There are several key benefits of JIT inventory management, including:

• Lower holding costs – Zero or near-zero inventory holding means not only reduced per-item outlay, but also lower insurance and spoilage costs. 
• Reduced space requirements – Companies don’t need large warehouses to store excess inventory, minimizing rent and utility overhead.
• Lower stock obsolescence – By synchronizing production with demand, there is lower risk of businesses being stuck with outdated inventory when trends shift.
• Resilience to issues – Small batch sizes and vigilance over output means quality issues tend to be identified and resolved faster.
• Greater demand agility – By keeping inventory levels and costs low, alongside close monitoring of market fluctuations, companies using JIT can respond quickly to shifts in demand.

Limitations and Risks of JIT

Alongside the various advantages, there are also some challenges, including:

• Supplier dependency – Effective JIT inventory management is entirely dependent on finding reliable suppliers that can consistently meet company needs.
• Disruption susceptibility – Reliance on small volumes and strict timelines can mean any supply chain disruptions, such as transport delays or geopolitical events, can derail production.
• Lack of buffers – The lack of excess stock can mean that companies can struggle to take advantage of unexpected demand spikes or lack a safety net at times of disruption.
• Coordination costs – The high level of coordination required can be resource-intensive, requiring investment in logistics teams, real-time monitoring, and dedicated systems.
• Limited suitability – JIT is not suitable for all industries or regions, particularly those with less reliable infrastructure or limited supplier options.

Industries That Commonly Use JIT Inventory

There are some industries that can mesh well with the JIT model. The automotive manufacturing industry was an early adopter, with Toyota being the first to implement a lean production system in the 1970s. Electronics and consumer goods sectors commonly use JIT, too, to align production with trends and technological developments. 

The apparel and fashion industry also leverages JIT to mitigate unsold items and maintain good responsiveness to seasonal shifts in demand. Additionally, food and beverage processing find JIT most impactful as it aligns well with freshness needs and the short shelf life of products.

Finally, e-commerce and direct-to-consumer brands that maintain steady or predictable demand levels can effectively leverage the efficiency through synchronization that JIT provides.

JIT vs. Other Inventory Models

A common alternative to JIT is the just-in-case (JIC) model of inventory management. This approach involves ordering and retaining additional stock or materials to safeguard against potential disruptions or uncertainties. In this way, JIC certainly provides an added level of security, though this has to be weighed against the additional costs involved with purchasing and storing these items, alongside the risks of keeping an unnecessary amount of stock on site. This is in stark contrast to the precise and lean operational approach JIT focuses on, resulting in potential for efficiencies JIC doesn’t offer. That said, JIT requires vigilance and tight supply chain controls that are not as essential in JIC.

Some companies choose a hybrid model that features elements of both approaches. This involves largely utilizing JIT principals to reduce wastage, while also maintaining a modest amount of safety stock to promote agility.

Technology’s Role in JIT Execution

JIT systems today are increasingly supported by advanced technology. Enterprise resource planning (ERP) software is central to effectively managing tight production schedules, monitoring inventory levels, and tracking current procurement timelines. In many cases, this technology is integrated with supply partners’ systems through Application Programming Interfaces (APIs), enabling greater synchronization. Like how business process automation enhances scalability, technology can support JIT with automated ordering adjustments when minimum inventory levels are reached.

Accurate data is also essential for effective JIT, so shared inventory dashboards that track data in-real time alongside demand forecasting tools enable greater responsiveness to changing needs. This is also supported by the implementation of radiofrequency identification (RFID) chips and tracking devices in the Internet of Things (IoT), which provide accurate insights into item locations, inventory levels, production quality, and progress.

When to Consider JIT Inventory for Your Business

Given that JIT is not suitable for all businesses, what could suggest alignment? Firstly, companies should assess their size, production volume, and supply chain maturity, as these elements can impact how manageable JIT systems are likely to be. Companies that have stable and reliable supplier networks are likely to find JIT more viable than those whose supply chains are newer or relationships are less communicative.

Furthermore, it’s important to establish whether demand is predictable or seasonal. Those with relatively set demand patterns tend to be strong candidates for JIT, as production volumes may be suitable for small, frequent orders and quick turnarounds.

Finally, companies must carefully evaluate their internal readiness for significant coordination with suppliers. There must be clear communication across departments, and firms should have technology in place to track relevant data.

FAQs

What is just-in-time inventory management?

JIT is a system scheduling inventory deliveries to only arrive as needed in production or sales processes.

What is the goal of just-in-time JIT inventory management?

To Minimize waste and inventory costs while improving efficiency and responsiveness. 

How does just-in-time inventory reduce costs?

It eliminates excess stock and the related holding overhead like storage, insurance, and spoilage.

Is JIT inventory management risky?

Yes, it is vulnerable to supply chain disruptions and requires tight supplier coordination.

Can small businesses use just-in-time systems?

Yes, although they need dependable suppliers and predictable customer demand.

References

Collins, G. (2021, December 1). Timeline: The history of just-in-time manufacturing. Manufacturing Digital. https://manufacturingdigital.com/lean-manufacturing/timeline-history-just-time-manufacturing

Erkayman, B. (2018, September). Transition to a JIT production system through ERP implementation: a case from the automotive industry. International Journal of Production Research. https://www.researchgate.net/publication/327948130_Transition_to_a_JIT_production_system_through_ERP_implementation_a_case_from_the_automotive_industry 

Munjala, M, et al. (2023, November). Implementing Just-In-Time Healthcare Supply Chain Through IoT and Modern Cloud Data Platforms. International Journal For Multidisciplinary Research. https://www.researchgate.net/publication/379332387_Implementing_Just-In-Time_Healthcare_Supply_Chain_Through_IoT_and_Modern_Cloud_Data_Platforms