Just-in-time (JIT) inventory systems greatly reduce inventories. The philosophy of a JIT system is that materials should arrive exactly as they are needed in the production process. Many large companies use this type of inventory system as opposed to warehousing large amounts of inventory at all times. The system requires careful planning and scheduling, and extensive cooperation between suppliers and manufacturers is needed throughout the production process.
Advantages:Just-In Time frees up resources and space that can be used elsewhere since you are not investing in a large amount of inventory. JIT requires an integrated plan for the entire firm. By careful planning and scheduling, JIT practically eliminates buffer stocks. The integrated operation environment of JIT can produce substantial savings. Of course, if a high degree of coordination and planning is impractical for a business, JIT does not work.
Disadvantages:Implementation and set up costs could be substantial as you will have to move from one inventory system to the JIT system –Investment in training would be required to bring employees up to speed. The manufacturing process is redesigned to allow as much flexibility as possible by reducing the length of production runs. Reducing setup costs will allow the firm to use much smaller production runs and achieve more flexibility.Supplier relations and potential delays could be detrimental while using JIT inventory.
The firm must work closely with its suppliers for JIT to work; the supplier depends on the manufacturer, the manufacturer depends on the supplier and the customers depend on both. Delivery schedules, quantities, quality, and instantaneous communication are all part of the system. The system requires frequent deliveries of the exact amounts needed and in the order required. Careful marking-often bar coding is necessary.
Therefore, there must be good relationship.Since suppliers are asked to improve quality, provide more frequent deliveries, sequence and barcode items in the shipment, and other such things. Suppliers’ additional handling costs increase the price they charge.
