What is JIT and How Does it Work?
Has your organization been considering a JIT system for its supply chain?
There are a lot of benefits that come with the “just in time” methodology if you can implement it correctly. It’s not the simplest to execute, though, and it’s not worth jumping into without knowing the facts. So in this blog post, we’ll take you through the specifics of what a JIT system is and how it works, so you can determine if it is the next best decision you make for your company.
Still not sure if JIT is the best fit for your operations after you read through this blog post? Reach out to us and let us help you find the next best platform to manage your manufacturing and inventory!
What is JIT?
Just in time (JIT) is a manufacturing and inventory system that helps to increase efficiency and decrease loss. This supply chain management strategy aims to align raw material deliverers directly with the production schedule and customer orders. This essentially ensures that materials are shipped “just in time” for when the factory is ready to produce the goods, and the goods are produced “just in time” to be shipped out to customers or distribution centers.
JIT moves materials to the right location at the right time, just before it’s needed. This increases efficiency by minimizing the space required to “hold” materials before they’re actually needed. It also decreases waste and loss by receiving the correct amount of goods for the production process. JIT keeps the process running smoothly and streamlined without a lot of extra stuff hanging around.
Example of JIT
The JIT system is sometimes referred to as the Toyota Production System (TPS), because the car manufacturer Toyota adopted this system, as one of its first and foremost leaders in the 1970s. Toyota still uses the JIT method, and it’s one of their primary keys to success.
Toyota installed the method in the 1970s, but it didn’t start working effectively for them for about 15 years. They persisted, though, and it’s become one of Toyota’s competitive differentiators.
Still, Toyota has seen some challenges with this model. In February 1997, a fire in a Japanese-owned automotive parts supplier (that produced P-valves for Toyota’s vehicles) caused a total shut down. It was the sole supplier of the part, so Toyota had to halt production for several days until they could get the parts in. This rippled outward and caused other suppliers to temporarily shut down since the JIT model doesn’t have the capacity to make up for this kind of lost time.
They got back on track, but production was dramatically slowed down and customer orders weren’t fulfilled on time. It’s still not an entirely foolproof system.
A lot of other car manufacturers have taken on a similar system. They operate with low inventory levels and heavily rely on the supply chain to deliver the parts for cars on an as-needed basis after an order is received. This works well for larger products that people are willing to wait for if they need to, like cars.
The Just In Time system reduces the amount of inventory that’s “sitting” along the supply chain. This reduces the need to store or ship excessive material, which in turn minimizes damages, losses, and costs. The parts of the supply chain are moving quickly, creating a more streamlined process.
This process cuts inventory costs since manufacturers don’t have to pay for storage costs. They’re also not left with unsold inventory, even if orders are canceled or unfulfilled.
The purpose of the JIT system is to turn the entire supply chain into a well-oiled machine that has seamless hand-offs between all partners and logistical markers.
Despite the benefits of JIT, it can be hard to manage in practice. The entire supply chain needs to be perfectly synchronized from A to B, which is understandably a challenge with so many moving pieces It requires producers to accurately forecast demand in advance, so they know exactly the goods to send and when. Forecasters need to know what customers want and when they want it, down to a science. If a company doesn’t know their market, audience, and timeline to a tee, the JIT methodology can lead to serious hold-ups.
Or, if one part of the puzzle breaks down as we saw with the Toyota example, the rest of the line also has to stop and wait. There’s not a lot of room for error.
How to Make JIT work
JIT models fail due to wrongly forecasted stock and/or when a production or quality issue arises. For example, when one supplier has a machinery breakdown or they aren’t holding up their side of production, every other partner has to wait—and the entire system has to shut down in the meantime.
This can result in unexpected time and cost losses that can have a dramatic impact on organizations. There can also often be expediting fees, hold-ups, and other hidden costs that can negatively influence business operations.
So to see success with a JIT model, organizations need:
- Steady, consistent production
- Reliable suppliers
- Quality machinery and workmanship without failures
- Top-notch forecasters, ideally driven by artificial intelligence
Some companies are using machine learning with artificial intelligence to forecast demand and predict potential issues ahead of time. Machine learning and network connectivity through the Internet of Things enable JIT to work more effectively than it ever has in the past. For example, cloud ERPs and blockchain technologies enable multiple divisions and partners to share and analyze data in real-time to make fast, efficient decisions. Supply chain partners can keep one another updated down to the second, so everyone knows exactly where orders are along the line and what’s going on.
Is a Just In Time System Worth it?
The primary goal of an organized supply chain is to provide for customers when and how they want their goods. A Just In Time system can get this done if executed effectively and efficiently. It can optimize and streamline the supply chain while reducing costs, bringing materials to market when they’re needed.
A JIT system is not right for every business though. A minor breakdown can cause a major setback. So it’s not worth uprooting your entire business for the model unless you’ve done the research, created a strong implementation team for your entire supply chain, looked into artificial intelligence forecasting, and partnered with a logistics company that knows how to get it done.
Work with Redwood Logistics to find the supply chain processes and systems that will work best for your business. We use technology and human services to customize solutions specific to your logistics needs, so costs are low and operations optimized.
We look forward to chatting with you for your free consultation to find the right supply chain process to meet your business needs.