Just-in-time Inventory Systems

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Meaning and definition of Just-in-Time Inventory

Just-in-time inventory strategy can be referred as a production strategy which is employed to increase the level of efficiency and reduce waste by receiving goods only in the form they are required in the production process, thus reducing the inventory costs. This method calls for the producers to be capable of forecasting demand accurately.

As explained by Investopedia, this inventory supply system indicates a shift away from the conventional “just in case” strategy which involves the producers to carry large inventories in case higher demand had to be congregated.

Investopedia illustrates the just-in-time inventory strategy through the following example. If a car manufacturer operates with a very low level of inventory, depending upon the supply chain to deliver the parts which are required for manufacturing cars. The parts required for manufacturing the cars do not arrive before or after they are required, but just at the time they are required.

Benefits of Just-in-time Inventory systems

The main benefits associated with the just in time inventory strategy include:

  • Reduced set up time

Reducing the setup time enables the company to lessen or eliminate inventory for “changeover” time. The tool involved herein is SMED (single-minute exchange of dies).

  • Improvement in the flow of goods from warehouse to shelves

Individual or small lot sizes lessen the lot delay inventories, thus simplifying inventory flow and management.

  • Efficient use of employees with multiple skills

Featuring employees skilled to work on distinctive parts of the process enable companies to move workers where they are required.

  • Synchronization of demand with production scheduling and work hour consistency

If there is no demand for a product or service at a time, it is not produced. This saves the money of the company, either by not having to pay overtime to the workers or by having them concentrate on their work or participate in training.

  • Higher emphasis on supplier relationships

A firm without inventory does not want to have a supply system problem which creates a part shortage. This makes supplier relationships highly important.

  • Coming in of supplies at regular intervals all through the production day

Supply is coordinated with the demand and the optimal amount of inventory held at any time. When parts move directly from the truck to the assembly point, the need for storage facility is reduced.   

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