Just-in-Time Inventory: What It Is and How to Manage It
Just-in-Time Inventory: What It Is and How to Manage It
Are you searching for ways to reduce your e-commerce inventory level and slash costs without affecting product availability and prompt order delivery? The just-in-time inventory management system may be your ideal solution.
This article will cover everything you need to know about just-in-time inventory management and answer questions such as:
- What is JIT inventory?
- What’s this system’s history?
- What benefits can JIT provide your e-commerce business?
- How does the JIT model compare with lean manufacturing and traditional inventory management systems?
- What are the advantages and disadvantages of the JIT inventory management technique?
- How can you effectively implement and manage the JIT system for your e-commerce store?
- Which companies and e-commerce brands have experienced success with the JIT system?
- What kind of business does the JIT model work best for?
As you’ll discover, businesses in different industries adopt the just-in-time method. But for this article, we’ll focus more on the e-commerce industry and how it can improve your e-commerce inventory management and order fulfillment.
Whether you already adopt just-in-time inventory in your e-commerce business, are preparing to set up a JIT inventory system or want to learn more about the just-in-time inventory method, this article is for you.
Companies that succeed with JIT inventory have the right software integrated into their e-commerce inventory and order fulfillment processes. Software like Finale Inventory can help you set up and enjoy the benefits of this efficient system.
What Is Just-in-Time Inventory?
JIT is an inventory management technique that enables manufacturers and e-commerce retailers to align their supply schedules with their customers’ demands. With JIT, you only purchase and receive items when you need them to fulfill your customers’ orders. This strategy enables you to keep low inventory, increase efficiency and decrease waste.
JIT inventory directly contrasts with other inventory methods, where businesses store extra stock just in case they experience an unexpected increase in demand for their product. The JIT inventory system sees inventory as a liability that takes money away from your company.
As you’ll learn shortly, many e-commerce retail companies — for example, Walmart — deploy JIT inventory management to increase savings in inventory storage and streamline their processes. Businesses in different industries — such as retail, apparel, food and restaurant, luxury products, etc. — now benefit from an inventory management system whose origins are in the automobile industry.
The History of Just-in-Time Inventory
The founders of Japanese automaker Toyota invented the just-in-time inventory system — also known as the Toyota Production System — to improve cash flow, eliminate waste in their manufacturing process, save on inventory storage cost and respond rapidly to customers’ changing preferences in car designs and models.
When you consider traditional Japanese culture, you can understand why JIT emerged there. The Japanese work ethic revolves around the following concepts.
- Workers feel motivated to improve existing products and meet high standards.
- Japan is a highly group-oriented society, which values teamwork and shared knowledge over individual efforts.
- Japanese workers have some of the longest working hours in the world. In 2020, the average for Japanese employees was 135.1 hours per month.
- Employees tend to remain with one company throughout their entire career, which allows them to continually sharpen their skill sets.
Toyota doesn’t store a massive supply of raw material in a warehouse to use in their production process. They also do not manufacture cars in bulk and keep them in a warehouse awaiting customers’ orders. Instead, Toyota only procures the raw material inventory needed to make cars drivers have already bought. The supplies arrive just in time to make new vehicles.
Though JIT inventory started with the automobile industry, e-commerce businesses also benefit from this technique. Let’s take an in-depth look at how it works for an e-commerce business. For example, Walmart implements an innovative form of JIT inventory known as cross-docking. With this approach, Walmart’s inventory managers move goods directly from inbound logistics into outbound logistics trucks heading to their stores, where they arrive in time to go on the shelves to meet incoming customer orders.
In the automobile and retail applications of JIT inventory, the benefits are similar.
Why Choose JIT Inventory?
Deploying the just-in-time inventory method in your e-commerce business brings many advantages. Fundamentally, this management philosophy is about continuous improvement and waste elimination. Removing variability is another fundamental component of JIT. Adopting this philosophy requires you to identify and eliminate any deviations. Some disparity examples include inaccurate or incomplete product specifications, vague customer demands and faulty production processes.
Unsold stock sitting on shelves increases inventory holding costs and takes up space. Any company looking for cost reduction inventory strategies can benefit from just-in-time delivery.
For Toyota, the innovation allowed them to adapt quickly to changing customers’ preferences and demands. Since they keep less inventory of parts or finished products, they can easily transition from one model to another without losing or wasting resources. Below, we share six additional benefits of JIT inventory for e-commerce businesses.
- Reduced operating costs: With just-in-time inventory, you only buy supplies and receive items when you need them to fulfill customers’ orders. Your business handles less inventory and therefore spends far less on warehouse and storage costs.
- Improved cash flow: Your business needs a positive cash flow to operate effectively. With just-in-time inventory, you do not tie up cash on storing stock in a warehouse. In addition to your savings in warehouse storage, this frees up money for other aspects of your business, like marketing, automation, hiring and purchasing the right tools.
- Increased efficiency: Since just-in-time inventory reduces operating costs and eliminates the need to pay for a warehouse or build one, your e-commerce operations run smoothly, helping you focus on your business’ mission and unique value proposition.
- More flexibility:When your e-commerce business doesn’t have to store inventory, you can readily respond to changing customer demand and preferences, without worrying about selling obsolete products in your warehouse or paying for storage for products customers don’t buy. Just-in-time inventory offers you the flexibility to stop ordering products that don’t sell and focus on ones that do.
- Higher profits: Better cash flow, less cost of operation, flexibility and higher efficiency can significantly improve your company’s bottom line and boost your overall productivity.
- Competitive advantage: JIT inventory gives your company an edge over your competitors.
E-commerce business leaders who want to streamline their operations while minimizing waste should consider JIT solutions, no matter what industry they are in. Just-in-time delivery increases transparency between suppliers and sellers, creating a seamless supply chain process.
To enjoy these benefits, you must optimize specific parts of your business supply chain management. We’ll specify these in the section on how to make a JIT system work for your business.
What is the difference between JIT manufacturing and lean manufacturing? Though you’ll sometimes hear these terms used interchangeably, they contrast in several ways.
JIT vs. Lean Manufacturing
Just-in-time manufacturing is not the same as lean manufacturing, though JIT is a primary component of lean manufacturing. The fundamental difference is that JIT production focuses on maximal efficiency to reduce operating costs, while lean manufacturing primarily aims to increase value for the customer. In other words, lean manufacturing is a customer-centric philosophy, and JIT is a business-focused mindset.
Why should e-commerce businesses like yours consider shifting to a just-in-time inventory model over the traditional system of just-in-case stocking? Here are the advantages and disadvantages of just-in-time inventory for e-commerce companies.
Pros of JIT Inventory Management
Below are three ways the just-in-time inventory technique improves upon traditional inventory management systems.
- Cost savings:Keeping less inventory eliminates storage costs and allows for better cash flow to fund other business operations.
- Better response to change:Having excess inventory creates the risk of wastage. With just-in-time inventory, you can abandon products that don’t sell and focus on those that do.
- Less waste:With just-in-time inventory, your company does not spend thousands on warehousing and the overhead that comes with it. Also, your company funds are not going toward “safety stock” you may never sell.
Just-in-time inventory is not a flawless solution. There are also downsides to this inventory management system.
Cons of JIT Inventory Management
Just-in-time inventory’s efficiency relies on many external factors that may be beyond your business’ control, which can pose challenges.
Here are five disadvantages of just-in-time inventory management.
- JIT requires precise and ongoing monitoring: JIT relies on your ability to accurately forecast demand, which puts a lot of pressure on your system and makes you more vulnerable to losses. Underestimate your inventory, and you lose money on sales. On the flip side, overestimate your stock, and you run the risk of damaged or unwanted products. In the perishable and consumable industry, this can be disastrous. However, with the help of tools like Finale Inventory, you can make precise forecasts.
- JIT inventory errors and delays are expensive: With the JIT system, a tiny mistake in your system can translate to thousands of dollars in losses. Also, in unforeseen circumstances such as delayed or missed supplies, your business may suffer severely for it.
- JIT inventory success heavily depends on reliable suppliers: Your JIT system’s success relies less on your company’s efficiency than it does on your suppliers’ ability to always meet your demands. Any disruption or delay in their operations or supply chain can lead to a lot of losses.
- JIT doesn’t provide pricing benefits: Since you buy products when needed to fill customers’ orders on time, you do not have the luxury of negotiating.
Though any business can adopt the just-in-time inventory system, it is an ideal fit for some industries.
Who Should Use JIT Systems?
The JIT method can benefit many industries, primarily those that rely on a production line or require keeping a stock of raw materials on hand. The JIT inventory system will work for your e-commerce business if you meet the following conditions.
- You can boast accurate and consistent forecasts: Use JIT if you can rely on your forecasting system to help you accurately predict your inventory.
- Your suppliers are trustworthy: Succeeding with JIT adoption depends on your supplier’s efficiency and reliability. JIT works for businesses that build a network of suppliers they can always count on. Your suppliers must have a predictable schedule that meets your needs. They must also guarantee a short turnaround time in inventory production.
- You have an efficient supply chain system: Especially your logistics, your supply chain system must be reliable and must guarantee a smooth process.
- You run a prompt and reliable last-mile delivery system: Your last-mile order fulfillment system must be dependable to get the product to your customers on time once they order.
- You possess a robust software tool: You need the right software solution to help maintain and monitor inventory level with order fulfillment and help you correctly forecast which products to buy.
Generally speaking, JIT inventory helps brands in the following industries enjoy a substantial improvement in their efficiency and cost savings.
- Fast food
- Book publishing
Almost any business can use JIT to save time and money. However, the JIT system works best for medium to large companies that already have an established presence. For example, a small startup may not have reliable suppliers, a robust logistics system or effective forecasting.
Companies That Succeed With JIT Inventory Management
Here are six examples of companies in various industries that are doing a commendable job with JIT inventory management.
- Toyota: By now, you already know no one talks about JIT inventory without mentioning Toyota. With their JIT system, Toyota only orders raw material inventory when they receive new orders for cars. They do not keep fully assembled vehicles on hand or store an extensive stock of automotive parts.
- Grayton: For an industry like luxury watchmaking, a minor improvement in production efficiency can lead to a substantial increase in company revenue.
- Burger King franchises: If any industry needs freshness, it’s foodservice. The JIT system allows Burger King restaurants to prepare meals only when a customer places an order.
- Book publishers: To avoid printing books nobody buys, authors and publishers that use JIT have adopted a print-to-order model.
- Walmart: The retail giant aligns its inventory ordering and delivery schedule with customer orders. As demand declines, so does the inventory for that item.
- Apple: When CEO Tim Cook introduced the JIT inventory system, Apple’s inventory lifetime on the shelf moved from months to a matter of days. Instead of producing mobile devices in bulk, they closed their warehouses in favor of working with a set of reliable manufacturers who supplied them as they received orders.
JIT inventory can work for any industry. In the next section, we’ll explain how you can make it work for your e-commerce business.
How to Make a JIT System Work for Your Business
Here are five strategies you can apply to make JIT inventory work for your business and help you enjoy all the benefits of JIT.
- Partner with numerous suppliers: Build relationships with multiple reliable product manufactures and suppliers who can consistently meet your demands. Depending on only one supplier is a recipe for disaster if their company suffers a loss, experiences machine downtime or can’t access production materials.
- Reach out to reliable logistics companies: Your logistics plays a significant role in your JIT efforts’ success. Partner with reliable logistics companies that will ensure you receive your inventory on time. As with your suppliers, working with only one logistics company can set you up for failure.
- Collect and use sales data: Get familiar with your sales data to understand how sales trends fluctuate across the year and create accurate forecasting and demand prediction.
- Work with local or the closest suppliers: If your supplier is nearby, you do not need to wait days for your products to arrive, which means faster product delivery and substantial cost savings.
- Get the best software tools to help you: SaaS inventory tools like Finale Inventory can help you keep track of your inventory level, enabling prompt replenishment when stock levels are low and demand is pouring in.
Finale Inventory allows businesses of all sizes to set up and effectively manage their just-in-time inventory management system.
Use Finale Inventory to Power Your JIT Strategy
No matter what industry your e-commerce company is in, adopting just-in-time processes can be an ideal choice if you hold inventory on site. Your JIT inventory strategy’s success rests on consistent, accurate forecasting. Finale Inventory helps you enter, track and monitor your stock and make accurate predictions. Finale Inventory integrates with Shopify, WooCommerce, BigCommerce, Magento, eBay, Amazon and more than 40 other platforms. Finale Inventory provides the best features for e-commerce businesses handling high volume, multichannel and even multiple warehouse management.
You do not need a long-term commitment to use our lightning-fast, flexible and scalable solutions. We bill per month, so you pay as you go, and expand as your business grows. When you sign up, you get a dedicated customer relationship manager who guides you through every step of the way, providing the training, consultancy and assistance you need to succeed, at no additional charge.
Read the glowing testimonials our customers have provided about their experiences with Finale Inventory software. Then, book a demo or take advantage of our free trial to see how we can help supercharge your inventory management system.