Just-In-Time: Meaning, How It Works, Pros and Cons

What’s it: Just-in-time (JIT) is a system for reducing production times and response times from suppliers and customers. Toyota introduced this system for the first time in Japan in the 1960s and 1970s.

Why just-in-time matters

Just-in-time aims to achieve quality, reduce costs, and achieve the most efficient delivery time possible. Companies eliminate all waste during the production process. So, they can deliver their products on time according to demand.

To do this, companies produce only the quantity demanded by consumers and when needed. They minimize the inventory of raw materials, work in progress, and finished goods. That way, they can reduce maintenance costs and damage due to stockpiling.

How just-in-time works

Just-in-time systems are typically for repetitive manufacturing processes. In this case, companies use the same components and produce a relatively high volume. They draw up a detailed production plan to ensure all production system requirements are in place.

After setting up the production system, companies ensure a continuous and even flow throughout the production facility. They connect each workstation like an assembly line. Its purpose is to eliminate queues and to achieve the ideal lot size per unit of production.

Then, the just-in-time system attempts to keep a small amount of inventory in the warehouse. To support it, companies ensure the continuous delivery of suppliers.

As demand rises, production runs. Inputs arrive at the factory from the supplier on time and on-demand. Then, companies put them into the manufacturing process.

Companies process raw materials to become products along the production line. They arrive at the next workstation just in time and move through the entire system at a blazing speed.

Just-in-time also empowers underutilized capacity to build a small inventory of products or components (buffer stock). It aims to ensure that if a problem occurs, the production process still continues.

Although buffer stocks are expensive to store, they can help companies anticipate input shortages due to supply disruptions. Also, it helps companies to respond quickly to increased demand.

Companies and suppliers may exchange information about demand conditions through Electronic Data Interchange (EDI). It improves the supplier’s delivery performance to immediately deliver inputs to the production line according to demand conditions.

Just-in-time advantages and disadvantages

Just-in-time systems rely on the delivery of raw materials and components to arrive precisely when they are needed. Instead of the occasional large shipment to the warehouse, inputs arrive in multiple shipments and exactly when demanded. The company then took them directly to the factory facility.

For inventory control to be timely and effective, companies must synergize with their suppliers regarding delivery schedules. 

Companies should also pay attention to the benefits of reduced warehouse costs with increased costs due to more frequent deliveries and lower economies of scale for purchases (purchase discounts are lost).

Just-in-time advantage

The just-in-time system offers several advantages.

First, companies reduce inventory costs. They save storage space, thereby reducing warehousing rental and insurance costs.

Companies adjust warehouse inventory to demand. With computers’ help, they ensure raw materials are available before use, without too much or too little inventory. That gives them the leeway to achieve quality, speed, dependability, and flexibility while lowering costs.

Second, working capital turnover is higher. Companies keep inventory only when it matches the production line’s needs and demands. As a result, less working capital is tied up in inventory.

Third, the setting time is reduced. Efficient plant layout eliminates transit times. Companies standardize product design. They regularly maintain the production facility instead of making repairs when problems arise. They also integrate suppliers with production schedules and train their workforce to be more flexible and innovative.

Fourth, production waste is reduced. Companies ensure items at each stage of production will become the final product. They buy inputs and process them according to the number of requests. That way, they produce in the right amount and at the right time.

Fifth, companies avoid the build-up of unsold finished products. They produce goods according to demand. Thus, they will send each final output to the customer. Also, by minimizing inventory, they reduce the risk of damage, obsolescence, or outdated products.

Sixth, the just-in-time system reduces production costs. The low-cost structure supports competitive advantage and high profitability.

Just-in-time disadvantages

Just-in-time system has several downsides, including:

First, companies are highly dependent on supply chain performance. Delays in receiving input from suppliers can cause production to stop. Therefore, they must ensure reliable suppliers.

Second, costs for non-warehousing elements are relatively high. Companies tend to order inputs more often according to demand conditions. As a result, they cannot optimize for discounts and lose economies of scale from bulk orders. Also, because orders are more frequent, it adds to the administration and shipping costs.

Third, the production system is vulnerable to unexpected changes in demand. That can result in lost sales or bottlenecks at the production facility. Therefore, companies must be able to predict actual demand accurately.

Fourth, more frequent stock deliveries increase carbon emissions. It has the potential to damage the company’s image because it is not environmentally friendly.