Just-in-Time (JIT)

Just-in-time, or JIT, is an inventory management method in which goods are received from
suppliers only as they are needed. The main objective of this method is to reduce inventory
holding costs and increase inventory turnover.
Importance of just-in-time
Just in time requires carefully planning the entire supply chain and usage of superior software
in order to carry out the entire process till delivery, which increases efficiency and eliminates
the scope for error as each process is monitored. Some of the important effects of a just-in-
time inventory management system:
Reduces inventory waste
A just-in-time strategy eliminates overproduction, which happens when the supply of
an item in the market exceeds the demand and leads to an accumulation of unsalable
inventories. These unsalable products turn into inventory dead stock, which increases
waste and consumes inventory space. In a just-in-time system you order only what
you need, so there’s no risk of accumulating unusable inventory.
Decreases warehouse holding cost
Warehousing is expensive, and excess inventory can double your holding costs. In a
just-in-time system, the warehouse holding costs are kept to a minimum. Because you
order only when your customer places an order, your item is already sold before it
reaches you, so there is no need to store your items for long. Companies that follow
the just-in-time inventory model will be able to reduce the number of items in their
warehouses or eliminate warehouses altogether.
Gives the manufacturer more control
In a JIT model, the manufacturer has complete control over the manufacturing
process, which works on a demand-pull basis. They can respond to customers’ needs
by quickly increasing the production for an in-demand product and reducing the
production for slow-moving items. This makes the JIT model flexible and able to
cater to ever-changing market needs. For example, Toyota doesn’t purchase raw
materials until an order is received. This has allowed the company to keep minimal
inventory, thereby reducing its costs and enabling it to quickly adapt to changes in
demand without having to worry existing inventory.
Local Sourcing
Since just-in-time requires you to start manufacturing only when an order is placed,
you need to source your raw materials locally as it will be delivered to your unit much
earlier. Also, local sourcing reduces the transportation time and cost which is
involved. This in turn provides the need for many complementary businesses to run in
parallel thereby improving the employment rates in that particular demographic.
 Smaller investments
In a JIT model, only essential stocks are obtained and therefore less working capital is
needed for finance procurement. Therefore, because of the less amount of stock held
in the inventory, the organization’s return on investment would be high. The Just-in-
time models uses the “right first time” concept whose meaning is to carry out the
activities right the first time when it’s done, thereby reducing inspection and rework
costs. This requires less amount of investment for the company, less money reinvested
for rectifying errors and more profit generated out of selling an item.
How does just-in-time work?

 
First, a customer places an order with the manufacturer. When the manufacturer receives the
order, they place an order with their suppliers. The suppliers receive the order and then
supply the manufacturer with the materials needed to meet the customer’s order. The raw
materials are then received by the manufacturer, assembled, and sold to the customer.
Drawbacks of just-in-time
Even though the just-in-time model saves a lot of costs for businesses that use it, it also has a
few drawbacks:
 1. Just-in-time makes it very difficult to rework orders, as the inventory is kept to a bare
minimum and only based on the customers’ original orders.
2. The model is dependent on suppliers’ performance and timeliness, which are hard to
ensure. Additionally, the manufacturer needs to be able to cover any sudden increases in the
price of raw materials, since they cannot wait to order during better pricing.
3. Since the JIT model requires a lot of shipping back and forth between the supplier,
manufacturer, and customer, it can have detrimental effects on the environment due to over
consumption of fossil fuels and packaging.
4. In case of disruptions, a JIT model can have a major impact on the business. Since there is
no excess stock to fall back on, sales may come to a halt.
5.  A just-in-time system needs to be carefully tracked and organized, which will be hard if
you are doing it manually. Software should be adopted as it makes the whole process more
manageable. Even though a good software helps you it can be a bit tricky and/or expensive to
adopt a new software system and train your personnel accordingly to use the same.
Material Requirements Planning (MRP)
Material Requirements Planning (MRP) is a computer-based production planning and inventory
control system. MRP is concerned with both production scheduling and inventory control. It is a
material control system that attempts to keep adequate inventory levels to assure that required
materials are available when needed. MRP is applicable in situations of multiple items with complex
bills of materials. MRP is not useful for job shops or for continuous processes that are tightly linked.
The major objectives of an MRP system are to simultaneously:
1. Ensure the availability of materials, components, and products for planned production and for
customer delivery,
2. Maintain the lowest possible level of inventory,
3. Plan manufacturing activities, delivery schedules, and purchasing activities.
MRP is especially suited to manufacturing settings where the demand of many of the
components and subassemblies depend on the demands of items that face external demands.
Demand for end items are independent. In contrast, demand for components used to manufacture
end items depend on the demands for the end items. The distinctions between independent and
dependent demands are important in classifying inventory items and in developing systems to
manage items within each demand classification. MRP systems were developed to cope better with
dependent demand items.
The three major inputs of an MRP system are the master production schedule, the product
structure records, and the inventory status records. Without these basic inputs the MRP system
cannot function.
The demand for end items is scheduled over a number of time periods and recorded on a
master production schedule (MPS). The master production schedule expresses how much of
each item is wanted and when it is wanted. The MPS is developed from forecasts and firm customer
orders for end items, safety stock requirements, and internal orders. MRP takes the master
schedule for end items and translates it into individual time-phased component requirements.
The product structure records, also known as bill of material records (BOM), contain
information on every item or assembly required to produce end items. Information on each item,
such as part number, description, quantity per assembly, next higher assembly, lead times, and
quantity per end item, must be available.
The inventory status records contain the status of all items in inventory, including on hand
inventory and scheduled receipts. These records must be kept up to date, with each receipt,
disbursement, or withdrawal documented to maintain record integrity.
MRP will determine from the master production schedule and the product structure records the
gross component requirements; the gross component requirements will be reduced by the available
inventory as indicated in the inventory status records.