a complete guide to just in time (JIT) production

The JIT system is an inventory management system in which a company receives goods or materials as closely as possible to when it needs them. The system is designed to increase efficiency, minimise inventory and reduce wastage, as well as to cut costs such as storage costs. If a client cancels an order or a manufacturer is unable to complete the order for some other reason, the business responsible for fulfilling the order doesn’t have lots of unwanted stock lying around on the shelves as a result.

The automotive industry is renowned for the implementation of this strategy. Car manufacturers keep their typically large inventory levels low but rely heavily on their supply chain to deliver the parts they need as and when they need them to make the cars. The manufacturer will only order the parts to make the car after they’ve received the order itself.

Ultimately, JIT production is what some might deem a 'pull' production system. The pull system order signals when production is necessary. The demand then directs the firm to produce the right amount at the right time. JIT production is, of course,  risky, as we’ll discuss later in this post.

How is it different from traditional manufacturing?

The answer is simple. Whereas traditional manufacturing involves building up large volumes of stock or inventory, based on what you think customers might want, JIT production is all about making exactly what the customer wants when they request it. This allows the manufacturer to focus their resources on what they’re going to be paid for, rather than on building inventory.

Risky as it might be, when implemented correctly, JIT production can be more advantageous than traditional inventory management. Let’s take a look at some of the benefits this management system offers:

Cost reduction

The fact that there’s a lower stock holding means there’s a reduction in storage costs, insurance, transportation and, since JIT production doesn’t require as many workers, labour costs. The manufacturer also saves money on the cost of raw materials because it’s only working with what it needs. Less of the company’s money is tied up in working capital.

Smaller investments

This style of management works well for smaller companies that don’t have the funds to buy large amounts of stock at once. Being able to purchase smaller amounts of stock as and when they need it allows them to keep their cash flow healthy.

Increased productivity

JIT decreases the time and resources necessary to manufacture the items, speeding up production and shortening production runs. It’s also possible to implement any changes to products quicker.  As a result, there’s less checking of the products and going back over them to correct faults and defects. This is because the manufacturer places the emphasis on assembling the product correctly the first time.

Optimised production

JIT can diminish product defects and automate processes, which eliminates bottlenecks and wastage across the production cycle. As a result, deliveries can arrive on time — especially if the manufacturer is sourcing materials or other necessary goods for production from local suppliers, shortening the waiting and cycle time between receipt and production — and customer satisfaction can increase. Scheduling means that jobs are performed exactly when they need to, and that production runs start and end just in time for shipping.

Less wastage

One of this model’s big advantages is that it prevents companies from overstocking and having surplus raw materials, reducing the risk of stock just sitting in a warehouse and not being used or sold. The manufacturer can minimise wastage further by being able to detect any defective products more easily and addressing the issue when the inventory items are low.

Better quality products

JIT allows companies to focus on optimising their processes and manufacturing high-quality products because there are fewer items on the shop floor at any given time. Defects are fewer and customer satisfaction can be higher. The model enables suppliers to guarantee more quality control, and there’s less wastage and fewer delays due to inspection. This production process enables a continuous improvement process and reduced obsolete stock as part of a circular economy, which in turn reduces lead times and improves quality assurance and quality control.

As you can see from above, JIT production can bring significant benefits to any manufacturer who implements the system; however, it’s a highly risky way to manage inventory and things can go horribly wrong if the business doesn’t call it right. Here are some of the disadvantages of JIT production:

Sensitivity to errors

The greatest risk of JIT production is that you’re storing the bare minimum of inventory in your warehouse or other storage facility. When manufacturing using this system, there’s absolutely no margin for error. The manufacturer must be able to predict demand accurately, highlighting a further problem with JIT: it relies too much on forecasts.

The manufacturer is at the mercy of the supply chain (and the suppliers in it)

For this system to work well, the supply chain must operate perfectly. Even minor disruptions can cause production to stop at very short notice. If a supplier doesn’t deliver materials on time, delivers the wrong amounts or even the wrong materials or goods, this can trigger delays in the process. Of course, since the manufacturer has no materials to fall back on because they’ve kept the inventory so low, delays can result in huge losses for the organisation.

Lack of preparation

Implementing a JIT model will force the business to switch its entire workflow to a lean framework, which will affect the entire organisation and the supply chain. Each is likely to have to change some of their procedures or practices, or all of them.  It could be difficult, not to mention costly, to carry out such an extensive overhaul.

Potential missed opportunities

The company will have few or no unfinished goods on hand. If a large or unexpected order comes in, the manufacturer might not be able to cope adequately with it. The major reliance on forecasting also makes it difficult to adapt to unexpected demands.

Unforeseen price changes

JIT production faces constant costs for parts. If costs increase, the company’s profit margins will drop.

Pressures of time

Time is of the essence in JIT production. Companies that implement the system face significant pressures of time. The scheduling can affect the cost of goods sold, too. The company has no guarantee it will get the best price when buying raw materials from a supplier.

Cost of local sourcing

Part of JIT production’s efficiency lies in reliance on local suppliers so that it can power forward with production and get items out to customers sooner. For different reasons, sourcing locally can cost more. Unfortunately, for a manufacturer working with a JIT model, this pursuit of reliability and efficiency can eat into their profits.

Acts of nature

Acts of nature that interfere with the flow of goods can bring production to a halt. Ultimately, this is a risk that many manufacturing businesses face, whether they’re implementing a JIT model or otherwise.

It appears that this style of manufacturing was born in Japan. Although there is confusion as to when it actually came about, JIT is thought to have developed around the 1960s or 1970s.

Just like manufacturers in many other countries, those in Japan came up against some major challenges following World War II. Lack of cash to finance huge purchases of inventory the way other manufacturers did; lack of warehouses and storage spaces; lack of natural resources; high levels of unemployment; these were all obstacles that had emerged in the post-war period.

Japanese manufacturers wrestled with all these problems until car manufacturer Toyota came up with a solution. (The Western media dubbed the method the ‘Toyota Production Method’.) Manufacturers then began building smaller factories, and these factories concentrated on transforming small amounts of raw materials into goods quickly. At the same time as reducing the businesses’ financial risk, processing these smaller batches enabled them to generate sustainable amounts of working capital.

As we’ve mentioned above, the JIT model is extremely common in the automotive sector, one of the most famous examples being Toyota, but you’ll also encounter implementation of JIT principles in computing and in the fast-food industry. Other types of companies that have benefited from the JIT model include retail, restaurants, on-demand publishing and tech manufacturing.

Both small businesses and large companies alike can make use of the JIT model and benefit from it, as JIT improves cash flow and reduces the capital necessary to run the business. Below we provide a few examples of companies who are applying JIT:

Often, you’ll see the concepts of ‘just in time’ production or manufacturing and ‘lean manufacturing’ used interchangeably, but they’re not quite the same thing. Whereas JIT production concentrates on efficiency, lean manufacturing channels its energies into using efficiency to add value for the customer.

 You could think of lean manufacturing as being more customer-centric, whereas JIT production is more business-centric. Each step in the lean manufacturing process must create some sort of extra value for the customer.

The first step in the lean manufacturing process

The first important step in lean manufacturing is to understand the true value of the product for the customer. If, for instance, the customer is wishing to buy a stereo speaker, they’re likely to be looking for good sound quality, durability and affordability.

Understanding the value stream

Step two is to examine all the different activities in the lean manufacturing process and determine which ones add value and which ones don’t. Continuing with the speaker's example, the use of high-quality parts would bring value to the product by working towards sound quality and durability, whereas transporting them from some remote warehouse would not. Switching to a JIT process would then add value by increasing efficiency and, because the manufacturer is reducing transportation costs, make the product more affordable.

When lean manufacturing and JIT production become the same

Once the manufacturer has stripped this value stream of everything that doesn’t add value, the lean manufacturing process should become more or less the same as a JIT one. That’s because the next step in the process is to only manufacture what the customer orders. This is the ‘pull’ part of the process and drives production. Ordering new parts short term is JIT, but remember that the focus in this style of production isn’t on driving efficiency to cut costs, but to increase value for the customer.

Switching to a JIT model can, as mentioned, be expensive and create a great deal of upheaval in the business because it can be hard to implement. Before taking the leap and employing JIT for your business, you should consider the following aspects:

• Turnarounds: Can I manufacture my products or supply them quickly?
• Forecasting: Are my sales forecasting good enough to predict rising and falling demand, including seasonality, accurately
• Flexibility: Are my manufacturing and supply chain flexible enough to adapt to supplier disruptions, natural disasters and other disruptions?
• Sellers and suppliers: Are my suppliers reliable? Will they deliver on time, every time?
• Workforce: A JIT system must have the support of all the operational divisions, especially the employees, who must be cross-trained, multifunctional and able to perform several duties. They must be able to fill in where and when the production line calls for it. Are the employees fully trained and fully committed to the process?
• Technology: Does the inventory management software support a JIT management system?

We work with several different car manufacturers, such as Nissan, Honda, BMW, Mercedes and others to help them deliver a JIT process to their assembly.  A separate manufacturing plant creates the parts and then shuttles them to the assembly plant.

If your business is about to implement JIT production, you can choose one of our automated loading solutions to help you get the parts to the line at the right time. Bulky doors, batteries and other parts can be heavy, and our solutions can assist you in handling these materials more comfortably and safely, as well as working towards greater efficiency in your process.

Using our automated loading solutions helps your manufacturing process remain efficient. Three main solutions are good for the task:

JIT production offers business significant advantages, but the company must apply it skillfully to succeed. Failure to do so can create a range of difficulties that, ultimately, can damage the business.

If you’d like to find out more about how our solutions can combine with your JIT production or manufacturing, contact us for a chat with one of our sales teams or our customer service team. We’ll be happy to help.