Imagine that you own a bicycle shop, but you just started the business with very little money to carry a lot of inventory such as spare parts like extra wheels, chains, sprockets, inner tubes, among other necessary items used to assemble or repair bicycles. Luckily, there is a spare parts store just down the road where you can buy all the necessary parts you need for any bicycle.
Your business is able to thrive because you rely on the parts store as your supply chain to deliver the parts you need when it is necessary to assemble or repair a bicycle. The needed parts do not arrive before or after they are needed; instead, all you have to do is have your repairman run down to the store and get the parts at the exact moment when they are needed. This is a very simplified example of Just in Time (JIT).
What is Just in Time?
If you are a fan of lean manufacturing but have yet to learn what JIT means, there is no need to worry since JIT and lean manufacturing are one in the same. It also goes by several other alternative names such as continuous flow manufacturing, demand flow manufacturing, short-cycle manufacturing, cycle time management, quick response manufacturing, time-based competition, pool base production systems, and flow.
JIT is also known as the Toyota Production System (TPS) as well as Just-In-Time production. With so many names, it may seem that it is confusing to understand what JIT is, but all you have to remember is that JIT is an older name and a synonym for what is now currently known as lean manufacturing.
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The History of Just in Time
JIT is a methodology that primarily focuses on reducing flow times within a production system. It is also aimed at reducing response times from suppliers and to customers. Its origins and development began at the British Motor Corporation in Sydney Australia in the mid-1950s and was later adopted in Japan, particularly by Toyota in the 1960s and 70s. The concept moved to the West especially during the 1980s where it was extensively adopted by companies such as Motorola, Hewlett-Packard, General Electric, Westinghouse Electric, Black & Decker, and Deere.
The Strategy of JIT
The strategy of JIT during a production process is to increase efficiency and decrease waste by receiving goods only when they are needed. It can also be considered an inventory management system with the objective to have inventory that is readily available to meet demand in order to reduce inventory costs.
Using this methodology, you will never reach a point of excess where inventory must be stockpiled and stored because it is not needed right now. If you think back to the bicycle store example, there is no need for the store to keep inventory since the parts store down the street keeps all the inventory that is readily available when needed.
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JIT eliminates waste and improves quality. In the process of doing so, it also improves organizational efficiency on a major scale which can be broken down into five ways:
- 1. JIT entails sourcing items and raw materials for processing on demand. In addition, work is scheduled based on order or demand for the product. With this synchronization of supply with production as well as production with demand, the flow of goods is improved and there is a reduced need for storage facilities.
- 2. Traditional manufacturing processes call for production in batches or the manufacturing of a particular model or component in a lot before moving on to another lot or batch. With JIT, even single pieces or components can be manufactured without any delays.
- 3. Since JIT focuses on eliminating waste from the production process, it also leads to a redesign of the workspace. It helps to ensure a smoother workflow during manufacturing processes or the production of goods. Redundant tasks are eliminated and transportation of the product is minimized across the workspace.
- 4. JIT uses a system of specific instructions, also known as “kanban”, so that each worker knows exactly what to do on the work floor and room for mistakes are eliminated.
- 5. There is a relentless effort to achieve zero defects and eliminate waste which improves product quality, cuts down manufacturing time, and improves productivity.
In addition to organizational efficiency, another major benefit of the JIT system is the elimination of inventory, raw material, and production storage costs. Here are a few reasons that explain how implementing JIT translates into cost savings:
- Instead of viewing the traditional notion that inventory and raw materials of finished goods is an asset, JIT considers this stock as waste or a dead investment that incurs opportunity costs
- Substantial savings result from not storing raw materials or piling up finished goods since they are sourced closer to the manufacturing time and shipped out to the customer immediately without the need for storage
- There are considerable savings in terms of reduced damaged goods and human resources costs since JIT focuses on the elimination of waste from the production process and improved product quality.
More Reasons for JIT
Other reasons to employ JIT include improved supplier relationships, facilitated customization, customer satisfaction, workforce flexibility, and a highly skilled and committed workforce. JIT encourages more effective communication with the supplier which specifies the exact product and quantity required within a specific period of time for delivery. This eliminates the need for inspection of received goods as well as all scope of miscommunication or misunderstandings.
Increased customer satisfaction and facilitated customization are achieved since JIT adjusts production to demand without the need to fulfill customer orders with extra time or effort. It also encourages employees to broaden skill sets and encourages more effective usage of employees with multiple skills which leads to increased motivation and better productivity.
Main Benefits of JIT
The good news is that if you are a business owner or have an item to produce, you do not need a lot of space or huge piles of inventory to successfully run your operation thanks to JIT. Just like the bicycle shop example mentioned above, the chief benefit of JIT is that it allows businesses to ensure that there will always be a buyer for every item that is produced even while keeping inventories low. This business strategy also means that each item is manufactured as it is ordered. Production stops when there are no customers who want to purchase an item.
Another huge benefit with the JIT method is that companies can be more competitive and efficient in the way supply chains are handled in addition to how they use parts to assemble products for customers. Lower costs throughout the manufacturing process result when there is a more efficient supply chain and companies are able to pass on these lower costs to the customer by making products more affordable. This factor helps companies gain a competitive advantage and a larger market share.
With JIT, customers are served faster and more efficiently since companies have a greater level of control throughout the manufacturing process and they are able to respond quickly when customers require a change. Companies also save huge amounts of money on waste since traditional batching methods sometimes leave companies ending up with pallets of unsold items that are sold at cost or simply thrown away. When unsold inventory is eliminated as waste, the perceived value of the company’s other products are often reduced. Another major benefit of JIT is that it helps companies respond more quickly to customer needs with less waste.
Disadvantages and Potential Risks
With any great strategy comes disadvantages and potential risks and JIT is no different. One of the biggest disadvantages with JIT inventories is when there is a disruption in the supply chain. Let’s go back to the example of the bicycle store because it is easier to understand. If the bicycle parts supplier down the street decides to close and go on a two-week vacation and all of a sudden you have a customer who orders 20 bicycles but you do not have all the required parts necessary to assemble them, a breakdown in the supply chain has just occurred.
One of the biggest potential risks with JIT is that having only one supplier to rely on can shut down the entire production process. The consequences of this happening can be enormous to include loss of sales as well as loyal customers who will probably seek a producer who is more reliable. In the case of the bicycle store, the customer who ordered the 20 bikes will probably place an order somewhere else and possibly mention to friends and other potential customers how your bicycle company cannot be relied on because of a lack of inventory.
Other risks include poor quality control and the stress JIT manufacturing places on equipment. With traditional manufacturing methods, regular control procedures are usually in place during production. However, JIT may not allow time for these control procedures since orders tend to be large or come with rush production schedules. Traditional manufacturing also allows for mechanics and operators to perform routine checks and repairs on equipment. With JIT manufacturing, there is not always an opportunity for routine equipment checks which can cause serious damage or lead to an increase in equipment malfunctions since it is impossible to predict the smount of items that must be produced or when the orders will be demanded.
How JIT is More Efficient
In terms of efficiency, JIT involves the production processes that focus only on customer demand. Instead of traditional manufacturing methods where goods are produced, assembled, and stored based on a company estimation of market demand, JIT production begins at the time an order is received.
Increased efficiency also means reduced inventory costs because it relieves the financial burden on companies to stock inventory for future use. It also reduces the need for expansive storage facilities in the risk of maintaining stock that becomes outdated or expired.
Companies also prefer the efficiency of JIT over traditional inventory methods because it allows them to utilize cash for other operating expenses. This better use of cash flow not only increases efficiency but also reduces capital expenditures and helps the business secure a competitive advantage.
The Strength of JIT
JIT is more than a business strategy; it is a movement and an idea that has gained wide acceptance in all sectors of business. Especially during tough economic times, companies are forced to find innovative ways to compete and cut costs. Although it is now referred to more commonly as lean manufacturing, JIT is used in conjunction with other lean methods when it is necessary to reduce inventory to the lowest possible working levels to reduce waste and increase value.
The strength in JIT is that it makes production operations more efficient, customer responsive, and cost-effective without having capital tied up in raw materials and finished goods inventory. Whether you are the owner of the bicycle shop or an executive in a major manufacturing firm, JIT remains one of the strongest and most efficient lean strategies to implement in any industry.