Is a Just In Time Inventory Systems Right For Your Business

Just in Time inventory control has been mastered by major conglomerates including the infamous Toyota Motor Company and Dell. According to Wikipedia JIT is, " an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs." In lay mans terms, keeping exactly enough inventory on hand to meet demand, without tying up operational dollars in excess back stock. In theory the overall concept is genius, but in actuality the a JIT system does have its drawbacks.

Pros
In addition to an increase in company profits, a lean inventory system will also allow your company to decrease both the space of your warehouse and the costs associated with maintaining it. According to a company spokesman for Dell, "With our pull-to-order system, we've been able to eliminate warehouses in our factories and have improved factory output by double by adding production lines where warehouses used to be." A smaller warehouse will equate to a lower rent/mortgage payment,lower wage expenses as less staff will be required to maintain overstock merchandise, and possibly greater production output.

JIT has a tendency to generate additional profits for a business through the reduction in "clearance"/obsolete merchandise. Less overstock will allow a business to be better responsive to their customers needs. With less inventory on hand, a change in demand for a certain product or a change in technology, will have less of an impact. Remaining inventory should be minimal and easily replaced with new merchandise.

Cons
A Just in Time inventory system requires a company to have the right amount of material/product at the right time. Thus leaving the company vulnerable a drastic change in the demand or supply of a product. For example a tire company may only keep (8) tires of a specific brand in stock at a time to meet their forecasted demand. Unfortunately, three customers have entered the store on the same day requesting this specific brand of tire. The company does not have enough inventory on hand to meet the required demand and will loose the potential income from the third prospective customer. On the opposite end of the spectrum, a small soap making company uses a specific scent that it only purchase from certain manufacturers. The company must order enough of the scent to meet their anticipate demand, but due to a hiccup further down the supply chain, the scent is unavailable. This unforeseen problem also equates to a loss in potential income.

Environmental Concerns also pose an issue to the JIT concept. Keeping the right material on hand at the right time will require additional shipments from suppliers. Each shipment equates to additional fossil fuel and material usage. With the focus on "green" business practices. Environmentally conscious customers, employees and business owners may shy away from the concept.

As with any inventory system, Just in Time has many strengths and weaknesses. You the business owner must determine if the JIT concept is right for your business. Regardless of whether you choose to implement the JIT system you can implement lean inventory practices to increase your operating profit.

Wikipedia, Just in Time (business). 30 Apr. 2010. .

Just in Time Inventory Management Strategy and Lean Manufacturing. Academicmind.com. 1 May. 2010.