What is Just-in-Time?

What is Just-in-Time?

Within our series of Concepts of Economics we are going to explain what is the just-in-time (JIT) or just-in-time method. The JIT is a policy of maintaining inventories at the minimum possible level where suppliers deliver just what you need at the time you need to complete the production process.

In the past we explained the Concept of what the supply chain is and talked about logistics management. Inventory management is an important part of logistics management.

El JIT o Just-in-Time

The JIT is an inventory management system that was developed in Japan in the 1980s with the automaker, Toyota, as the star of this production process. It didn’t take long to see it spread in Japan, and since large companies had a lot of competition and high costs in those days and the need to reduce costs, these practices quickly spread further.

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As low JIT, the level of supplies that are maintained for manufacturing are at their minimum levels, it is important to be very organized to avoid failures, suspensions and delays due to lack of components or supplies to complete the productive step.

As we discussed in the previous article:

Any failure at some point in the chain will create a chain effect both backwards and forwards, causing jams and crashes. Hence the importance of regulating and controlling the flows within the system.

Each failure, suspension and delay negatively impacts costs and reduces or eliminates the advantage of maintaining the process of JIT.

Advantages of just-in-time

The JIT brings many benefits, including the following:

  • Reduce necessary inventory levels in all steps of the production line and, as a consequence, the costs of maintaining higher inventories, purchasing costs, purchasing financing and warehousing.

  • Minimize losses due to obsolete supplies.

  • It allows (requires) the development of a closer relationship with suppliers.

  • This better relationship makes it easier to agree insured purchases throughout the year, which will allow suppliers to plan better and offer better prices.

  • The system is more flexible and allows for faster changes.

Disadvantages of just-in-time

On the other hand, the JIT It is not only advantages, it also brings its disadvantages, which include the following:

  • The danger of problems, delays and suspensions due to lack of supplies, which can cause delays and suspensions of the productive line and negatively impact expenses.

  • Limits the possibility of reduction of purchase prices if the purchases are of low quantities although, depending on the relationship with the supplier, this disadvantage can be mitigated.

  • Aumenta el switching cost, the cost of changing supplier.

In its early days, the idea of JIT era get suppliers to maintain inventories of their components, financing them themselves, with the objective that the company does not have to do it and, when it needed something, it asked only what it needed at that moment and they sent it.

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It didn’t take long for the practice to expand and the suppliers acted in the same way, that is, the entire production process, the entire supply chain, kept their stocks to a minimum. This forced a much more efficient system with a quick response, so as not to have to suspend the production process in any of the steps in the supply chain. You had to be efficient or you suspended the production line, with their corresponding increases in expenses.

The process JIT that began its life in the different steps of the production process, extended to final products, limiting inventories of final products and, in some cases, getting customers to buy on plan or on catalog.

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What is Just-in-Time?

was originally published in

The Salmon Blog

by Onésimo Alvarez-Moro.

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