One of the most popular methods for inventory management is just-in-time (JIT) manufacturing. JIT refers to a system of manufacturing that lets business owners produce products once a customer has requested and paid for it, rather than having already assembled products on the shelves waiting for purchase.
Many business owners use this inventory method to increase efficiency and decrease waste by only receiving goods as they need them for the production process (hence just-in-time), which reduces inventory stock costs. This method, therefore, requires manufacturers to forecast demand accurately to be effective.
Examples of this method are found in many industries, but mainly in those that make use of a production line or require keeping an inventory of raw materials. Some successful companies practising JIT systems include Toyota, Apple and McDonald’s.
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Toyota was the first to implement JIT effectively in 1970 and is still one of the most successful companies practising JIT systems. Their method, also known as the Toyota production strategy, sees that raw materials are not brought to the production floor until the order is received from the customer and the product is ready to be built. During the production process, no parts are included in the next node or station unless they are required to. This keeps the amount of inventory to a minimum which as a result, lowers costs. This also allows Toyota to adapt quickly to customer’s demands, significantly reducing the risk of having excessive inventory at its disposal.
Important factors to Toyota’s success
- Small quantities of raw material are kept at each station of production, assuring that there is always enough inventory stock to start production of any product. This is also replenished once used.
- Accurate forecasting to stock raw materials at the correct levels
Tech giant Apple has also leveraged JIT principles to make its manufacturing process a success. Apple’s approach to JIT is different in that they leverage their suppliers to achieve JIT goals.
Apple has only one central warehouse in the US and about 150 key suppliers worldwide; they developed strong and strategic relationships with their vendors. This outsourcing of production made Apple leaner and resulted in slashing costs and reducing overstock.
With only one central warehouse in the US, most of their inventory is at their retail stores. Adding further to the JIT mix, Apple began to take advantage of dropshipping. As a result, this reduces shipping costs, wastage, and storage costs.
Important factors to Apple’s success
- A willingness of suppliers to keep inventory on hand allowing Apple to be free of this responsibility
- Holding inventory at their retail stores
- Dropshipping arrangements for online purchases
Fast-food chains such as McDonald’s use JIT inventory to serve their customers on a daily basis. These fast food restaurants usually have everything they need on hand but for example, don’t start assembling and making their hamburgers and sundaes until the order has been taken, (except for a few finished products at peak times). This standardises the process, so that every time a customer receives an order, they are getting the same consistent experience.
Important factors to Mcdonald’s success
- Standardised procedures ensuring consistency
- JIT method increases customers satisfaction as items are made more freshly
JIT helps business owners save money and reduce wastage, while still providing their customers with the products they want and need in a timely manner. As excess inventory is vastly decreased by ordering inventory stock on a “just when you need” basis, business owners will not need to keep large quantities of inventory stock parts reducing all the costs associated with this.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.