Just-in-Time Inventory: What It Is, and How to Implement It

Maintaining good control over inventory is crucial for the smooth operation of any business. In this article, we'll discuss the Just-in-Time (JIT) Inventory method. This method requires that managers are in tune with a company's operations and the nuances of its environment, including customer behavior. Such visibility into a company's operations for successful JIT inventory management often requires a technology investment.

In modern business models where physical stores are connected to online channels, such as the buy-online-pickup-in-store (BOPIS) fulfillment method, it is even more challenging to have accurate inventory visibility. When a retailer lacks full visibility into its inventory-related processes, relationships with suppliers can be strained, and the customer's purchase experience can be negatively impacted.

Most companies build and hold excess inventory as a way to ensure that orders can be fulfilled. Alternatively, Just-in-Time Inventory helps companies cut unnecessary costs and reduce waste by making sure that nothing is produced, transported, sold, or purchased any earlier than is absolutely necessary.

How Does Just-in-Time Inventory Work?

The Just-in-Time Inventory method involves creating, storing, and controlling only the inventory needed to meet the actual demand for the company's products. Just-in-time is a method that suits certain industries better than others. Let's take a detailed look at how it works and determine whether it's the right choice for your company.

Process timing Time

In a just-in-time system, each step of the production process must feed into the next at precisely the right time. Therefore, it is necessary to have complete control over the lead time, identifying opportunities for improvement in advance so that everything is produced as quickly as possible.

Labor

However, remember that it's not just about speed. You need to know that your team can maintain quality even in times of high demand. Applying just-in-time inventory requires a high level of responsiveness from your productive and administrative teams. Therefore, your company's workforce must be well-qualified, able to handle an on-demand operation.

Layout

Just in time depends not only on processes and employees but also on how your company thinks about its own spaces. The shop floor layout needs to facilitate an efficient workflow. This means that your factory must be rethought in all production scenarios, from how inputs are received when shipments arrive, all the way through to how merchandise is shipped from the warehouse.

Quality

Quality control plays a fundamental role in the success of the just-in-time inventory method, as agility is one of the key pillars of the strategy. It is necessary to know how to align speed with proper quality controls for effective process execution. The objective is that the quality remains the same (or improves) even when the operational demand increases.

Providers

Finally, all the orchestration of processes necessary for the success of just-in-time inventory management is based on your suppliers' capacity to fulfill your demand. If your company plans to implement JIT inventory management, it is important to have suppliers who are capable of quickly meeting your needs. If you haven't already, you will need to build a close trusting relationship with your suppliers, so that they understand your production methodology and can handle demand at all its stages, from production to logistics.

Just-in-Time Success

JIT is a model approach that helps to optimize processes and can be adapted to different business models. Today, many companies employ just-in-time production models in their operations.

One example is Apple. By reducing the amount of available inventory, Apple is less likely to overstock. This is something Apple CEO Tim Cook talks about. For the executive, the stock is a problem native to companies: "The inventory is fundamentally bad. You want to manage like you're in the dairy business. If you go past the updated date, you have a problem."

Another example is Tesla. With total control over its supply chain, Tesla can customize all of its production to operate on demand, keeping very little stock. Thus, it significantly reduces the costs associated with holding stock. Another factor that the company incorporates to "improve" the on-demand operation is the possibility of customization. Tesla offers customers exclusive extras to personalize the car. In this way, the company positions itself as an innovator in the segment and justifies its delivery deadlines.

Benefits of Implementing JIT Inventory

Great, so JIT Inventory Management worked for Apple & Tesla, but their successes don't offer a full picture of the method or how it might play out for other businesses. A few key advantages that just-in-time inventory management could bring to your company are:

• Optimized Inventory Management - The company's purchasing dynamics will align with demand, making it easier to manage the storage of goods and supplies.
• More Effective Processes - Your business will benefit from having all of your processes mapped and standardized, promoting efficient process execution while increasing product quality.
• Reduced Waste - Companies that use just-in-time inventory management are often able to reduce waste, prevent excess stock, and avoid devaluation of merchandise or unnecessary storage costs.
• Improved Allocation of Labor Hours - JIT Inventory improves your team's performance, by orienting labor allocation around prioritized projects with high production value.

Again, companies use the just-in-time method so that their production is directly aligned with the orders placed. This way, it is not necessary to manufacture additional products to meet the needs of any potential orders that may or may not be placed. When inventory is managed in this manner, costs are reduced by controlling excess and increasing profitability. By increasing inventory management efficiency, retailers can reduce waste by avoiding failures during peak sales periods.

Tips for Implementing Just-in-Time Inventory

To successfully implement JIT inventory, take steps that prepare your company for the changes, such as training employees, adapting to new technologies, and implementing a management system.

• Identify the Scope of Change: Some companies are well-positioned to implement JIT inventory, while others must slowly adapt their processes over a 5-10 year period. For other companies, JIT inventory simply isn't the right fit. How much would JIT inventory require your current business to change? Would the return on investment be enough to justify the change?
• Qualification: Adopting a new work methodology requires assimilation and training. Therefore, it is essential that all individuals involved receive proper training to prevent process failures and other operational bottlenecks.
• Communication: Be prepared to review and continually align the method with suppliers, employees, and customers. You will need to be ready to rely on concrete and reliable KPIs, and establish good communication across your organization when changes need to be made.

By considering topics like those addressed here, you can ensure your organization is prepared for change, and your transition to JIT inventory will proceed much more smoothly. More important than any of these tips for preparation, however, is having the right technology in place to handle the JIT inventory method.

Using Technology to Apply Just-in-Time

A good ERP system enables managers to monitor the entire production chain, including machines, deliveries, suppliers' communications, and more. By integrating with other company sectors, such as inventory management and sales, the entire production flow is enhanced.

Five Advantages of Investing in Management Software

Just-in-Time Inventory requires an organizational culture focused on agility in the execution of processes. Therefore, technology can be an excellent ally. Here are some of the advantages of implementing a high-quality inventory management technology when pursuing the JIT Inventory management method:

1. Production on Demand

Controlling business processes using outdated systems can lead to significant issues with Just-in-Time Inventory. Without real-time insights into customer orders and fulfillment progress, you won't be able to meet demand, and customer satisfaction will decrease.

Producing on demand is not a simple process — it especially requires extensive integration of information that facilitates communication across industries. However, by implementing effective business management technology, you can manage this entire process end-to-end in an efficient and effective manner.

2. Planning Process Steps

So, how does a business implement production planning? With software, managers can more easily identify potential problems or opportunities in each step of production operations. Process steps can then be revisited, refined, and planned out again in an improved fashion.

3. Inventory Optimization

Inventory optimization does not happen automatically in a company that employs just-in-time inventory management. Inventory must be closely monitored. Management software provides greater transparency to this process, enabling a comprehensive view of the items in stock and what will be produced, as well as what should be replaced.

4. Elimination of Manual Errors 

By having greater control over processes, employees can reduce the frequency of manual errors by employees. Management software enables the automation of various tasks. This not only eliminates human errors within those automated tasks but also frees up the time of individuals, who can now dedicate it to other value-added tasks that help improve the overall quality of outputs.

5. Constant Monitoring

The proper management software offers a high level of monitoring of the company's production and results. In this way, the manager has in-depth data on the performance of each area at hand, which allows for better and more efficient decision-making.

NetSuite ERP & JIT Inventory

NetSuite ERP is a complete business management solution that can revolutionize your business, from the back office to the factory floor. Automate repetitive tasks and free up your team so they can focus on value-added tasks. With NetSuite, you can implement innovative methodologies, such as Just-in-Time-Inventory. NetSuite ERP provides key decision-makers with complete visibility into real-time KPIs through role-specific dashboards, enabling informed decision-making based on accurate, company-wide data. NetSuite offers specialized modules for various areas of business management, including inventory management, warehouse management, demand planning, and more.

Your Trusted NetSuite Partner

Anchor Group is a team of certified NetSuite Consultants and Developers based in Wisconsin. As both a NetSuite Alliance Partner and A Commerce Partner, we are prepared to help your businesses tackle any NetSuite project from initial implementation to ongoing customizations. If you liked this content and want to learn more about how NetSuite can benefit your business, visit our website!