Meeting customer demand requires you to fill orders — and quickly.
Because of this, many businesses stockpile inventory to have enough materials on hand to avoid production or fulfillment delays. But this strategy isn’t perfect. It ties up capital, increases storage costs, and risks items becoming obsolete.
That’s where just-in-time (JIT) inventory control comes in. JIT is a strategy that allows businesses to stock materials as needed, tailoring their reordering to match customer orders and manage inventory more efficiently.
In this article, we’ll explain how JIT works, its benefits and challenges, and how to implement it effectively. If you already use or know you want to use JIT, jump to the bottom to learn how Fishbowl can help you manage it.
Understanding JIT inventory control
Traditional inventory control methods maintain a buffer of excess stock, also called safety stock. Companies then “push” this excess stock out as customer orders roll in. In contrast, the JIT method “pulls” in just enough stock to meet immediate production goals and customer demand.
Here’s how JIT works:
- Your company receives an order.
- You order the necessary materials from suppliers.
- Your suppliers deliver the items you need to fulfill the customer’s order.
- If you’re manufacturing, your company assembles the products the customer ordered. If not, products are simply sorted and organized for shipment.
- You fulfill the customer’s order and deliver the products they purchased.
Advantages of JIT inventory control
JIT inventory control offers several key benefits that can optimize your business operations:
- Reduced dead stock and waste: JIT aligns your inventory levels with customer demand. As a result, it minimizes your risk of holding inventory that can’t be sold because it’s damaged, spoiled, obsolete, or otherwise unsellable.
- Lower costs: By helping you avoid overproduction, JIT reduces your overall inventory costs. You only order as many raw materials as you need, so you won’t waste money on excess supplies. Your carrying costs will be lower, too, so you’ll pay less for storage and may even be able to downsize your warehouse.
- Increased flexibility: JIT allows your business to quickly adjust to fluctuations in customer demand. By placing smaller, more frequent inventory orders, you can respond to changes in the market and reduce your risk of overstocking or understocking.
- Higher inventory turnover ratio: With JIT, products move through your warehouse faster. Since you’re producing or ordering items as they’re needed, you’ll maintain a higher inventory turnover ratio — a positive sign for your replenishment strategy’s effectiveness.
- Enhanced production: JIT streamlines the production process by acquiring materials just in time for use, which reduces the need for excessive handling and storage. With less workspace clutter and a more organized flow of materials, your team can produce goods more quickly and efficiently.
- Improved cash flow: Companies who use bulk buying for inventory control invest a lot of their capital in as-yet unsold inventory. In contrast, JIT frees up cash, which improves your liquidity and lets you invest capital in areas like growth, innovation, and marketing.
JIT inventory challenges
Despite its advantages, JIT can be difficult to implement efficiently. Here are some of the challenges you might have to navigate when using JIT:
- Supply chain disruptions are more impactful: JIT works best when you can depend on your suppliers to deliver high-quality items on time. If your shipments are delayed or damaged in transit, you won’t have excess stock to fall back on. As a result, you might face production slowdowns that lead to late order fulfillment and frustrated customers.
- Spikes in customer demand are harder to meet: JIT keeps your inventory lean, so if there’s an unexpected surge in customer orders, you may struggle to meet demand. This can result in missed sales opportunities, and customers may turn to your competitors to satisfy their needs.
- Your risk of stockouts is higher: JIT is an effective way to prevent overstocks since you operate with only minimal inventory on hand. But the downside of this is that you’re more likely to experience stockouts. Stockouts could happen due to supply chain disruptions, unanticipated spikes in customer demand, or inaccurate inventory records.
- Your employees must operate more efficiently: Since they’re working with limited resources on a tight schedule, employees have less room to waste time or materials. To maintain a smooth production workflow, each team member must be efficient and accurate.
- Shifting prices can eat into your profits: With JIT, you place smaller, more frequent inventory orders. This leaves you vulnerable to price fluctuations. Sudden rises in materials costs can erode profit margins, making it more challenging to maintain financial stability.
- You need more sophisticated inventory management: Since JIT relies on your ability to quickly procure the right materials, you must carefully track inventory levels and incoming orders. If there’s a problem, you need to identify and correct it immediately. This requires advanced inventory management software, like Fishbowl.
Example of JIT inventory use cases
Even though JIT can be challenging, several successful companies across various industries leverage it to optimize operations. Here are a few examples:
- Toyota: Toyota is renowned for being one of the pioneers of JIT inventory control. It uses JIT to minimize production waste by ensuring that parts are delivered only as needed for assembly. This approach helps Toyota maintain a lean inventory, reduce holding costs, and enhance production efficiency. It also enables the company to swiftly respond to changes in customer demand.
- Apple: Apple uses JIT to optimize its supply chain and production efficiency. The company schedules the delivery of components to coincide precisely with the manufacturing of its high-demand devices. This approach minimizes inventory holding costs and ensures that Apple’s assembly lines operate smoothly.
- Zara: Zara uses JIT to rapidly design, manufacture, and deliver new fashion items in response to real-time customer demand. The fashion retailer secures roughly half of its inventory before the start of each season and orders the rest throughout the season . This gives Zara the flexibility it needs to quickly adapt to shifting trends, minimize excess stock, and keep its product offerings fresh and relevant.
How to implement JIT inventory control
If you think your company would benefit from JIT inventory control, here’s how to get started:
Step 1: Set up your inventory management system
To use JIT efficiently, you need precise inventory tracking capabilities and an order system that supports small, frequent orders. Implement a robust inventory management system that provides real-time visibility into your stock levels and integrates seamlessly with your ordering processes.
To make JIT even easier, choose a solution like Fishbowl, which alerts you to low stock levels and automates reordering.
Step 2: Ensure supply chain reliability
If you already have suppliers, check in with them about their ability to support a JIT inventory control system. Make sure you have clear communication channels and delivery agreements.
It may also be helpful to choose some backup suppliers since delayed and damaged shipments are one of the biggest challenges associated with JIT.
Step 3: Streamline your production processes
JIT relies on your company’s ability to receive, handle, and assemble materials quickly and accurately. Production slowdowns are harder to reverse with JIT, and you don’t want to keep your customers waiting longer than necessary. To streamline your production processes, focus on improving manufacturing productivity and reducing bottlenecks.
Step 4: Optimize order fulfillment
With JIT, your customers are likely placing orders before you’ve assembled the products they purchase. You need an efficient order fulfillment system to ensure timely delivery. Take steps to optimize every part of the order fulfillment process, including receiving orders, picking, packing, and shipping.
Optimize your JIT inventory strategy with Fishbowl
Is JIT the right inventory control strategy for your company? Let Fishbowl help you put it into action.
Fishbowl allows you to manage inventory, track orders, and avoid stockouts with ease and precision. Plus, our software integrates seamlessly with QuickBooks, giving you the financial insights you need to make informed business decisions.
Discover how Fishbowl’s powerful tools can help you achieve lean inventory management and streamline your operations. Book a demo today.