Just in time (JIT) inventory systems comprise various business philosophies which allow company to cut costs, improve their efficiency and reduce wastes. This principle is most visible in the retail and fast moving consumer goods (FMGC) industries, but it is applicable in any field.
What Is the Philosophy Behind Just In Time Inventory Management?
The number one expense manufacturers and distributors face is in the area of overheads. This type of expense includes:
- Keeping large amounts of money blocked in stock items;
- Paying salaries to employees whose job is to manage stock items;
- Hiring warehouse space;
- Recognizing obsolescence of stock items in the accounting balance.
The age of keeping shelves stocked with supplies, raw materials and finished products “just in case” was replaced with having them ready to deliver orders “just in time”.
Key Principles of Just In Time and Their Benefits for Your Company
1.Coordinate Stocks with Manufacturing Demands
Managing huge inventories is one of the most laborious tasks for purchasing departments. Finding the warehouses to keep all these products is one of the top challenges for logistics managers. These two key deterrents to productivity and smooth business operations are solved by applying just in time principles.
The supplying with parts, raw materials, packages and other items is strictly coordinated with the quantity of products ordered by customers. In this way, your funds will never end tied up in supplies and in leases for warehousing space. And your inventory keeping will always be simple, efficient and accurate.
2. Define Faster, More Efficient Supply Chains
Just in time inventory systems cover every aspect of manufacturing, storing and shipping your products to customers. The chain of operations always runs smoothly because you are dealing with interconnected operations, which are easy to supervise and automate. Whenever a new order is placed, every employee, from every department, knows exactly what they have to do and possess all the information needed to contact suppliers and transportation companies to place firm orders.
3. Eliminate Obsolete Items from Your Inventory
Obsolete inventory costs your company far more than their actual value in money. Time spent on the shelf in a warehouse costs you money. Writing off the items in accountancy has its cost. Disposing of the items (by recycling or elimination) also costs money.
When you apply just in time principle, parts or finished products will never linger on shelves longer than the actual time needed to prepare and ship the order. You will use clear FIFO principles, and learn how to store and label your inventory items so that they are used within the shortest possible time after entering in your possession.
4. Build Stronger Relationships with Suppliers
In order to apply just in time inventory systems successfully, your company needs to have solid collaborations with suppliers, based on open communication. When your suppliers know the regular flow of products you need, they can also plan their own operations to be able to serve you just as promptly as you serve your customers.
Thus, just in time principles tend to propagate from company to company, creating a more efficient world of business operations
5. Minimize the Quantity of Wastes Generated by Your Company
Accumulating stocks leads inevitably to large quantities of wastes – be it packaging materials, expired and obsolete items, or manufacturing wastes. These wastes add up to the pollution footprint which your company leaves on the environment.
By switching to the just in time philosophy, your company will significantly reduce the quantity of wastes it produces. This is not just good for the public image of your business, but it also means fewer costs with waste management.
Thus, just in time inventory systems are paving the road for a brand new business philosophy at global level, leading to better use of resources, less pollution and increased profitability, without compromising quality of products and services.