The following topic will be addressed in this post:
What are the pro’s and con’s of JIT inventory control?
Empty your mind. Be formless, shapeless, like water. Now, you put water into a cup, it becomes the cup. You put water into a bottle, it becomes the bottle. You put it in a teapot, it becomes the teapot. Now water can flow or it can crash. Be water, my friend.- Bruce Lee in a Longstreet TV episode
In some ways, Just in Time (JIT) inventory control follows Mr. Lee’s advice. Since time immemorial, firms have needed to manage their inventories so they could have the correct products for their customers. For almost as long, firms have managed inventories by warehousing large quantities of products. With the advent of things like powerful computer systems, enterprise resource planning (ERP), six sigma quality control, and rapid transportation, however, firms are able to take a leaner and more nimble approach to their inventory management. One of these lean business approaches is JIT.
JIT allows businesses to greatly reduce their need to maintain and manage large inventories. But all is not wine and roses. Like any business process, JIT has positive features and potential pitfalls for the firm and the customer.
The most straightforward positive attribute JIT is the reduction of on-hand inventories firms must maintain. First, this reduces warehousing cost enormously (Byrd and Megginson). Also, risks of spoilage and theft are reduced. Because consumers are fickle beings, so firms have less chance of being stuck with inventories customers do not want. All of these factors reduce business operating expenses. Firms can retain these savings as profits in the form of higher margins and/or they can pass the savings to customers by reducing prices.
JIT has also change relationships with suppliers. Firms coordinate with suppliers to make the inventories as needed (Katz and Green). Often this coordination is accomplished through powerful computing and logistics management tools such as enterprise resource planning. Some suppliers go so far as to build facilities near the firms they supply (Nickels, McHugh, and McHugh). This procedure allows firms to identify and correct errors with their suppliers rapidly (Bateman and Snell). Moreover, firms can better respond to regional customer purchasing differences by sending inventories to the stores that need them.
Some potential problems emerge from the relationships with suppliers. In some instances, firms create exclusive relationships with suppliers for their JIT process. These relationships can maximize synergies when things go right, but can also create problems in cases of supply disruptions, insufficient production capacity, and souring business relationships (Arthur). These relationships can also reduce competition between potential suppliers that results in reduced innovation and price efficiency. Essentially, JIT reduces costs and increases efficiency but only if firms actively manage their relationships with their suppliers.
Firms can encounter difficulties with customers, too. Firms using JIT may not have suppliers with the excess capacity to respond nimbly to surges in customer demand (Arthur). While supply disruptions may be the primary problem, so can lack of choice as customers may desire more variations of the product than are or can be produced.
For better or worse, JIT is here to stay. I cannot identify any reason most firms would return to the old methods of inventory management. In fact, some people believe JIT can be applied to other business areas such as service and product development (Bateman and Snell). Most aspects of JIT are positive, but lazy firms can get into trouble. Firms must be proactive about their JIT management at every stage to create the efficiencies they desire.
Arthur, L. (2010) “Pros and cons of JIT inventory control.” Ehow.com http://www.ehow.com/about_7549016_pros-cons-jit- inventory-control.html
Bateman, T.S. & Snell, S.A. (2009) Management: Leading and collaborating in a competitive world, Eighth edition. McGraw- Hill: New York.
Byrd, M.J. & Megginson, L.C. (2009). Small business management, An entrepreneur’s guidebook, Sixth edition. McGraw-Hill: New York.
Katz, J.A. & Green, R.P. (2009) Entrepreneurial small business, Second edition. McGraw-Hill: New York.
Nickels, B., McHugh, J., & McHugh, S. (2008) Understanding business, Eighth edition. McGraw-Hill: New York.