The JIT inventory management strategy is one that is based on the idea that a business can order exactly the right amount of inventory necessary to fulfill their upcoming orders and not a single piece more. This reduces the cost of warehouse space, transportation costs, and other costs that can be reduced by this form of lean manufacturing.
The philosophy associated with this theory is that inventory is considered to be waste, and the lean process of JIT will eliminate that waste. By exposing the hidden causes of inventory, a set or series of signals can be developed that define what the company can use to measure and regulate the inventory necessary to meet the demand needs.
Identifying the signals that guide the inventory demand and calculating, harnessing, and predicting the same signals is at the core of the JIT system. Couple this with today’s modern day next day shipping capabilities, and you have a very capable JIT system. The signals necessary to make a JIT system successful are able to be generated with the modern UPC and online tracking systems. By tracking sales and the patterns that follow a business can plot the demand necessary, manufacture the products, and send them out next-day shipping. This model made famous by quite a few companies, but mostly by Dell computers, can greatly increase the quality as well as efficiency of a business.
A second aspect of JIT manufacturing is in the setup of the manufacturing plant. The workers, as well as the machines in the plant are oftentimes multifunctional, allowing flexibility in the plant’s ability to manufacture parts as necessary, independent of equipment or personnel status. With small lot sizes, this is the perfect setup for a dynamic, demand-driven supply chain.
As can be seen in Figure (1), in a JIT system, customer orders are generated in a variety of ways. But each one of those ways generates a signal that is processed by the sales department, represented by the lightening bolts in the diagram. Many times, the sales department is nothing more than a remote server that is capable of taking and distributing orders in a JIT system. The necessary components and raw materials are calculated, and the signal is sent to the suppliers and the fabrication assembly to start manufacturing the product. As you can see, because each order generates a new signal, no inventory is incurred.
Dell computers is a perfect example of JIT manufacturing. By getting started in the business by manufacturing computers out of his dorm room, Michael Dell quickly learned that he could not spend all of his money on stockpiled parts and equipment. He decided that his computers would be designed exactly to the specifications to the customer, and his selling point would be along the same lines.
Without realizing it, his business was the perfect example of JIT manufacturing. His company was founded on the idea that any average person can log on to the internet, and with a little bit of assistance, can identify the parts necessary to build a computer from scratch. When the customer ordered the computer, Michael, in trying to come up with a solution for his dilemma of hot having any money or location to house all of the pieces needed to assemble a computer, stored a few few parts he would need to get the job done, then buy and manufacture new parts, jus as soon as the customer orders them. The raw materials are re-odered, sometimes automatically, and the end user gets a computer that they build online within 15 minutes!
Sometimes the end result effects are not always as perfect as planned. When Toytoa decided to shift to a JIT manufacturing process, they hit quite a few bumps in their process capability. The problem that Toyota found is one that will plague all JIT systems that do not make contingency plans for a quickly generated, unannounced increase in demand.
Since the entire supply chain system is built around the flexibility and speed of a company to respond to a demand, they do not have the ability to meet large quantity orders quickly. Normally, this is fine, since the large quantities can be forecasted by the signals generated and production increased to meet the demand.
However, sometimes demand rapidly increases without any significant explanation. Sometimes it is due to unplanned media coverage, and sometimes it is just due to the viral success of the product. Whatever the reason, the entire supply chain has to be redesigned and pushed to its capacity when one of these unexpected increases in demand shows.
JIT manufacturing was the wave of the future a few years ago, and while it has actually worked for some companies, most have unsuccessfully tried to implement it into their systems. In order to success, JIT manufacturing requires the perfect combination of speed, management, and product… something not many companies have. However, those that do find themselves on the receiving end of severe quality increases and cost decreases.