Just-in-time inventory (JIT) is the antithesis of just-in-case inventory and can be a valuable method of reducing waste and streamlining the supply chain. The benefits of JIT inventory are numerous, although they can only be realised with hard work to set up an intricate system involving many synchronised components.
In this article, we will consider some real-world case studies which may help to demonstrate JIT in action in the real world of inventory management and lend insight to the pros and cons of implementing JIT in your workplace.
Toyota is often considered to be the guru on lean manufacturing as they were one of the first notable names to adopt the Japanese philosophy of Kaizen in their business model. Kaizen first came about after World War Two and directly translated, it means improvement. In business, it is widely used to denote continuous improvement with lean manufacturing and waste reduction as two of its core processes
Toyota championed this structure of lean manufacturing using JIT and as a result, many companies have experienced success since. A real-world example Toyota experienced in 1997 goes like this:
Toyota had streamlined their JIT business model since its first adoption in the 1970s and after 15 years, it was truly optimised in every sense. However, in February 1997, a manufacturer they used for brake valves experienced a devastating fire which eradicated all stock and rendered them unable to supply Toyota. The manufacturing giant had to scramble to find an alternative supplier in the two days after, however shutting down supply for two days cost them $15 billion and 70,000 cars. Though this sounds horrific, it could have been significantly worse.
Dell has used JIT inventory to establish themselves as a computing business which carries minimal stock and instead uses short lead times to manufacture or assemble components as and when required. The way they have achieved this is by building strong, dependable relationships with their own suppliers where they have negotiated for them to carry the stock rather than Dell. This means lead times can remain short and they have relinquished the responsibility and associated risks of carrying stock that does not have a purpose.
In the food and beverage industry, it makes sense to implement a JIT inventory system as finished products for human consumption have a lifespan beyond which they are worthless. McDonald’s show us what this system looks like in the real world where they have components onsite for the immediate future, although nothing is assembled or made until a customer places an order. This ensures that when a customer places an order, the product is assembled in exactly the same way every time with exactly the same experienced being offered.
This tech giant has made giant-sized steps in the direction of lean manufacturing and JIT inventory. Their motivation was not just reducing waste and associated costs but also to reduce energy consumption, ensure the energy they did consume was absolutely necessary while being renewable, and with the notion of improving their green production by partnering with the WWF and other supply chain leaders who are instrumental in China’s green transformation. So how did they do it? They established reliable and trustworthy relationships with their suppliers so that they could indeed order stock with far shorter lead times with the assurance orders would be met. They also recognised the value of dropshipping where products are shipped directly from the manufacturer to the customer, cutting out ‘middlemen’ and thereby reducing shipping and storage costs.
To fill Apple’s very large shoes, it requires a hard look at what you are doing and your current inventory management status. Apple recognised that their products generally have approximately a year’s lifespan, depreciating in value by 1-2% every week. Therefore, there really was no point in retaining excess raw components which, although not consumable, have a notable short life span. So, they made massive ground in tidying up their supply chain to match these constraints, were able to shut 10 of their 19 warehouses in the US and as a result, boast a days-to-inventory value of 3.2 days. Impressive indeed!
So, given these examples, what would be your next steps in instigating a JIT approach to your inventory management? To know where to reduce wastage and make informed decisions around ordering to meet demand, you need to have accurate data in front of you, both in real-time and from which you can make predictions. For this, inventory management software such as Unleashed is priceless. To make headway without this insight is the blind leading the blind and will certainly create problems later on.
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.