|← Global Financial Crisis||New Business Management →|
Conventionally many business enterprises have always been forecasting the demand of their products, thereafter attempt to smoothen production to meet the demand forecast. They engage everyone in the output production process with an objective of cost reduction and maximization of efficiency. However, this approach has its own demerits including prolonged time of production, large inventories, production obsolescence, increased defect rates, high cost (ironically) and failure to meet the company’s delivery schedules (TPS, 1989).
Just-in-time is an inventory and production control system in which the purchase of production materials and the subsequent production of units are centered on the actual demand of the customer. In the JIT system, inventories are lowered to the least minimum and in some instances to zero. This system can be of use in both merchandising and manufacturing companies, and is common in the industries that have its inventories divided into three classes. The classes include raw materials (Input), work-in-process and the final product. This is mostly profound in the manufacturing industries, because they maintain large amounts of the above inventories to act as a cushion for smooth continuity of company operations. An inventory of raw material class insures the company’s operation against failures by the suppliers in terms of goods delivery (Alan, 2002). Work-in-process is meant to cover the breakdown of workstation, while finished goods inventories target to insure the company against demand fluctuations. While the three classes of inventory play a critical role of cushioning the production process against uncertainties, they have a price tag. Apart from the huge sums of money tied up in the inventories, connoisseurs are convinced that inventories presence is an encouragement for sloppy work, inefficiency, increase in the level of defects, and prolongation of production time. Some of the cost that is associated with inventories includes storage, damage, handling, spoilage and obsolescence (Paul, 1997).
A company which is operating under JIT manufacturing system, under ideal circumstances, would only make raw materials purchases to meet the daily production needs. In addition, at the end of every working day, there would be no goods still in the production process and the ready goods would have been instantly delivered to the targeted population. Majority of the companies that have adopted the technology has been able to trim down their inventories considerably compared to their previous amounts. The outcome has been a substantial reduction in the warehousing and ordering costs, and much more effective and efficient operations. The pull approach in time environment is just the controller of the flow of goods. A signal from the final assembly stage is transmitted to the preceding stations of production, as to the precise amount of raw materials that are required to satisfy customer’s order, for some few hours. All stations act in real time, in response to the final assembly stage’s pull. The push approach is the mode that traditional manufacturing systems utilize. They result to excessive inventories mainly in the work-in-process class.
Through the reduction of inventory and relative carrying cost, JIT is aimed at enhancing return on investment of a firm. The whole process is signal reliant so as to meet its objectives in between various points, which commands the whole system, when to make a move. If the system is correctly implemented, it is focused on unremitting improvement, quality enhancement, return of investment and efficiency. Quality, flow, and employee involvement are the key factors to consider when the target is to improve continuously (Ruff and Stephen, 2008).
Since the main objective of just-in-time system is to minimize or prevent delay completely in the production process, it is only operational for goods and services whose production is on a timely fashion. This necessitates for companies employing JIT to have a strong linkage with the suppliers. Just-in-time process is likely to be damaged in the event that there is any interference in the supply chain. The suppliers stocking and manufacturing process partners must be able and willing to make available deliveries in smaller amounts and more frequently. When a small business can match up with the suppliers’ trend, it can minimize its inventory cost considerably hence increasing their return to investment.
Shortages or excess of inventory in a business can be extremely wasteful. The just-in-time aims at minimizing inefficient inventory use and increase return on investment and profitability through cutting down the carrying costs. Just-in-time ideally eliminates conventional inventory, because the firm’s only goods are the ones that set for delivery to respective customers.
Benefits of JIT:
Problems associated with JIT
Just-in-time system exposes customers and suppliers to supply shocks, and large demand and supply variations. Production leveling is the chief tool for managing the above weakness and for eliminating variations. The system is costly, in that it focuses on a long-term, strong relationship with countable suppliers unlike price-based relationship with numerous competing suppliers (Paul, 1997).