In today’s world, logistics operations are becoming more efficient using AI (Artificial Intelligence) and ML (Machine Learning), The industry has evolved through the years, using some of the most advanced technologies at that point of history. When it comes to technology, the logistics industry has always been one of the early adopters and in some case – Innovators. One such example would be introduction of Just-in-time (JIT). In 1950s-60s, an engineer at Toyota Motor Corporation called Taiichi Ohno in Japan, developed a strategy called Just-In-Time (JIT).
JIT is an inventory management system, in which inventory is procured as and when it is required. This eliminates the challenges of storing them over a long duration. The goal of JIT is to control inventory levels and minimize the time and resources required to produce and deliver goods and materials.
However, in the event of an order being cancelled or delayed, if the receiver is not holding any extra inventory – the entire production chain can get seriously hampered.
Pros and Cons
Companies using JIT have a number of benefits over conventional methods. This technique often helps bring down production timelines and also lowers expenses by reducing the requirement for warehousing space. Additionally, businesses save on wastage of raw materials because they only order and purchase as much as they need at that given time.
The risk for supply chain disruptions is one of big drawbacks of JIT inventory system. The entire manufacturing line may get halted if a supplier of raw materials is unable to deliver the products on time, hence reliable suppliers are a key for JIT system to work flawlessly.
Unforeseen situations can also result in these disruptions – A simple example would be COVID-19. Due to lockdowns, there was a chaos in the supply chains across the world. Companies using JIT faced long delays in their production cycle. While government allowed essential goods production to continue and they were exempted from the lock down, numerous of their suppliers were not part of these exceptions.
Essentials to have JIT
The following are the points to be considered before having JIT inventory management system:
- Turnarounds: How quickly can my products be produced or supplied?
- Forecasting: Do I have enough faith in my sales projection to reflect changing consumer demand, including seasonality?
- Flexibility: Can my manufacturing and supply chain respond to unforeseen events like supplier outages or natural disasters?
- Vendors: Can I always count on my suppliers to deliver on time? Is my system for fulfilling orders effective enough to ensure delivery of goods on time? especially when accounted for supply chain delays
- Workforce: Every operational division, especially employees, must fully support and comprehend the implementation of a JIT system. JIT system often depends on staff who are multi-functional and cross-trained to carry out a variety of tasks so that team members can step in as needed in the production line cell.
- Technology: Is JIT inventory management supported by your inventory management software?
JIT in Global Context
After it was pioneered in Japan, JIT inventory systems have been used by businesses all around the world. Countries like US, UK, Japan, South Korea have developed their own versions of JIT to fit industry specific purposes, by investing heavily in technology.
Today some of the largest manufacturers in the world use JIT inventory systems. By using this, Ford, Toyota and Unilever managed to thrive while maintaining a sizable market share. In the tech and hardware universe, Apple and Dell both use JIT and are at the top of their game.
JIT inventory management was upgraded by advanced machinery and lean manufacturing software to maintain its competitive edge.
JIT in India
Like their global peers, in India, Maruti Suzuki India Limited (MSIL) implemented the JIT system to boost operational efficiency increase ROI and cut back on in-process inventory and storage expenses.
The company provides preference to local vendors and suppliers as long as they match up to strict benchmark for operational capabilities. In fact, over 76% of suppliers of Maruti are based within a 100 km radius, of their assembly line. Suppliers are thoughtfully positioned near the manufacturing facilities across key components like instrument panels, fuel tanks, bumpers, and seats.
Companies constantly try to improve their efficiencies, and track the result very closely to give a perspective -Today Maruti produces over 3,100 cars per day – about 2.15 cars per minute. They are able to do this while maintaining 98% efficiency with less than 1.8 minutes of assembly line stoppage in a 480 min shift. If you add around 2,700 cars produced in Gurgaon plant, MSIL produces one car every 10 secs.
The next largest automobile manufacturer in terms of volume Hyundai has also set up their OEM and supplier ecosystem around their manufacturing plants near Chennai.
FMCG companies like Unilever also have also adapted JIT systems in different stages of their production process and have achieved exceptional operational efficiencies by doing so.
One of the key principles of Just in Time (JIT) manufacturing is the use of a pull-based production system. A pull-based production system is a manufacturing approach in which production is triggered by actual customer demand, rather than being based on forecasts or predetermined production schedules. Companies like Tata motors, Hero MotoCorp and Godrej Group apply pull-based production system, reducing their inventory and improving their efficiency.
A key watch-out while implementing JIT is to find a balance between transportation costs and storing expenses, simply to ensure that the cost efficiency achieved through JIT is not negated by the high transportation expenses due to frequency of ordering goods.
Today JIT systems are integrated with auto-replenishment inventory management tools. These software’s offer services like OTB suggestions, automatic order generation, demand forecasting and inventory management.
By using an auto-replenishment method, the minimum inventory requirements are set basis current demand, the software generates orders automatically considering multiple factors. For instance, a company’s net sales surged rapidly, which caused the warehouse’s inventory to deplete earlier than expected. Tracking, documenting and recording orders manually, in such situation is time-consuming, expensive and can potentially result in revenue loss.
Additionally, automated warehouses and production facilities offer real-time stock level information and automatically place orders when inventory levels go below a set threshold, alerting the supplier to a prospective purchase and allowing them to build and deliver the goods on schedule. As a result, it reduces the risk of a potential loss due to inventory overstocking or shortage.
Lastly, it reduces the danger of overinvesting in a product with relatively low demand and assists in allocating working capital across several product lines in accordance with real-time data.
The inventory management system of JIT has been in use since a long time. The method is practiced by many across the world, and has been adapted as per their specific requirements. Be it supplier to manufacturer, manufacturer to distributor or distributor to retailer. JIT can be practiced throughout to minimize storage, wastage and cost. Modern AI and ML have revolutionized JIT. SaaS business tools have made the job simple, faster and efficient, by providing features like demand forecasting, live inventory tracking, and automated order generation.
It’s imperative that the entire supply chain ecosystem works in tandem to make a JIT processes function smoothly. From the suppliers to the transportation companies each cog of the wheel must work in sync. The logistics partner’s role is critical in this entire system as they ensure pick-ups and deliveries are on schedule, eventually this lies at the heart of a successful just in time system.