How does JIT system work?
Just-in-time (JIT) method
There are many different methods of optimization, which are part of lean management. Read on to learn about one of them.
What is the Just-in-Time Method?
The Just in Time (JIT) style of inventory management – also sometimes referred to as the Toyota Production System (TPS) – is a strategy of managing inventory and/or production that links the ordering of raw materials to production scheduling.
Kiichirō Toyoda is considered to be the “father” of this concept, which was firstly implemented in Toyota from the 1950s to 1962. JIT method has roots in Japanese culture – geographic location of the country is determined by about 4 000 islands constituting the archipelago, so naturally Japanese prefered management style based on creating goods directly related to the orders being placed, instead of making extra goods to meet the needs of any potential orders that may be placed. The JIT method ultimately helps companies cut down on waste from making too many products (or supplying too many goods). Therefore, they don’t use up raw materials that may or may not actually be necessary to fulfill the orders they have. In turn, it cuts down on the costs they have for inventory, freeing up cash flow.
System JIT revolutionized approach to sales and production. Most companies create and hold inventory in excess, meaning they create goods in anticipation of other orders. The Just in Time method involves creating, storing, and keeping track of only enough orders to supply the actual demand for the company‘s products.
JIT model is based on the idea that clients should get:
- Suitable product / service
- Specified quantity
- in Agreed time frame
JIT implementation tips
It is highly recommended to run a series of different analyses before implementing the JIT model, which will help you to go through the whole process smoothly. To fully benefit from the JIT method the company should:
- Invest in analytical technologies, which will enable successful demand and supply forecasting;
- Make short production runs, which means that it has to quickly move from one product to another. Furthermore, the company should reduce costs by minimizing warehouse needs.
- Improve the flow of information (it should be smooth and without any communication breakdowns; the cooperation between suppliers, producers and end clients is key to achieve success);
- Eliminate potential disruptions in the supply chain. If a raw materials supplier has a breakdown and cannot deliver the goods in a timely manner, this could conceivably stall the entire production process. A sudden unexpected order for goods may delay the delivery of finished products to end clients. (The company should choose a right supplier and the pricing cannot by one of the most important criteria giving field to reliability and efficiency);
- Eliminate unnecessary processes ex. in the machine changeover procedure and improve the speed of maintenance tasks.
Not every supplier or manufacturer has the luxury of ordering only the materials they need to complete a specific order. A company must consider potential variables in the manufacturing process – such as inclement weather delaying receipt of inventory materials, labor strikes or supply shortages – before deciding if this inventory method is right for their organization. JIT cannot be implemented unless a company has high production, steady production, high quality output and stable suppliers. Otherwise there is always a danger of using up all supplies and complaints from the customers, because of delays, as timing was determined by prior orders and supply history.
The JIT method is advantageous to companies because of the reduction of waste it offers. The system highlights problem areas by measuring lead and cycle times across the production process, which helps identify upper limits for work-in-process inventory, in order to avoid overcapacity. The JIT production method cuts inventory costs because manufacturers do not have to pay storage costs. Manufacturers are also not left with unwanted inventory if an order is canceled or not fulfilled.
One of the essential steps in the JIT implementation process is introduction of the pull system. In contrast with the push approach, which is a synonym of passing on different goods from one workstation to the next until the final product leaves the production hall, JIT inventory method is considered a “pull” approach in manufacturing. When sales activities warrant more production, inventory is “pulled” and more manufacturing supplies are ordered. Separate workstations are treated as independent in company “clients”. In the “pull” system they are responsible for signaling demand for products and instigating the whole production process. It results in a smooth flow of production and reduced inventory costs. This method relies on signals given at different points in the production process that tell the manufacturer when to make the next part.
What are the advantages of the JIT method?
One major advantage of the just-in-time inventory management system is that funds that were tied up in inventory costs can be used elsewhere. Likewise, areas devoted to storing inventory are now free to be used in production or for other needs within the company. Other advantages include:
- Less waste and lower inventory costs, which result in increased profits for the organization;
- Better information flow, supply tracking, goods distribution;
- Employees skills are better utilized (multitasking, multi skilling);
- Production planning is synchronized with demand – when there is no demand for goods, they aren’t produced. It creates savings and better cash flow; inventory is reduced even by 30%;
- Utilizing the raw materials in a timely way so as to fill orders on a timely basis (the risk of goods being damaged or out of date is minimized);
- Suppliers get the raw materials to the company in a timely way, which results in an improved relationship. Potential conflicts are cleared straight away;
- A company efficiently using raw materials, leaving little to no raw materials left over after production;
- Possibility of committing to more orders;
- Shorten time of order delivery and completion.