Just-In-Time (JIT) is an inventory management strategy used by manufacturers. Goods are received only as they are needed in the production process, reducing waste and increasing efficiency.
The benefits of JIT include lower inventory costs, greater speed, and flexibility in responding to customer demand, and higher quality standards.
JIT management principles and practices (ordering products or services only when you need them and in just the right quantities) can be applied in other contexts outside manufacturing and can be useful and beneficial to small, medium-sized and large businesses alike.
Small business owners who decide to implement the JIT philosophy should bear in mind its implications for relationships with suppliers. Small business owners will likely have fewer suppliers but will view these suppliers as strategic partners, collaborating closely with them to resolve production and supply issues.
Supplier contracts will tend to be a long term to create a stable environment which enables both parties to plan with some degree of certainty. Small business owners will have to be methodical and precise in their forecasting of demand, as JIT requires an ability to fairly accurately predict how much will be required when.
This information will then have to be shared timeously with suppliers, and systems put in place on the supply side such as supplier scheduled. One of the major risks of JIT (vulnerability to unforeseen disruptions) was demonstrated by the Japanese earthquakes in 2011. Manufacturers in the automotive, airline, electronics and other industries reliant on Japanese suppliers experienced delays and shortages as damage to Japanese factories and infrastructure (electricity, transport, and telecommunications) disrupted supplies.
To mitigate this and other potential risks, small business owners can take the following steps:
- Keep safety stock to cushion the business from disruptions – depending on the nature of the industry and past experience, small business owners can decide how many days’ or weeks’ worth of safety stock is necessary.
- Switch to suitable substitutes for key components to ensure continuity in production
- Explore (temporary) changes to product design to accommodate input shortages
- Have back up suppliers you can contact when your regular supplier cannot deliver