In manufacturing, speed to market and costs of production can make or break a company. Just in time (JIT) manufacturing is a workflow methodology aimed at reducing flow times within production systems, as well as response times from suppliers and to customers.
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JIT manufacturing helps organizations control variability in their processes, allowing them to increase productivity while lowering costs. JIT manufacturing is very similar to Lean manufacturing, and the terms are often used synonymously.
In this post, we’ll discuss the ins and outs of JIT manufacturing, including its history, the basic concepts included in this methodology, and its potential risks.
It’s unknown exactly when Japanese manufacturers began adopting JIT manufacturing practices, but it is certain that they were triggered by the economic climate of the post-World War II era. Following the war, Japan lacked the cash to finance big-batch, large inventory production methods used by other developed countries. They also had high unemployment and a lack of abundant natural resources.
In order to survive, they had to “lean out” their processes. They built smaller factories, which focused on quickly turning small amounts of raw materials into small amounts of physical products. Processing smaller batches allowed the manufacturers to reduce financial risk, while slowing generating sustainable levels of working capital.
The system that they used came to be known as just in time manufacturing, popularized in Western media as the Toyota Production System.
Supporting a JIT manufacturing system requires discipline, structure, and explicit processes. In addition to strictly limiting inventory, the following methods are included in a true JIT system:
- Housekeeping – physical organization and discipline
- Elimination of defects
- Setup reduction and flexible changeover approaches
- Small lot sizes
- Uniform plant load – leveling as a control mechanism
- Balanced flow – actively managing flow by limiting batch sizes
- Skill diversification – multi-functional workers
- Control by visibility – using visual tools to improve communication
- Designing for process
- Streamlining the movement of materials
- Cellular manufacturing
- Pull system
- Kanban
When done well, adopting a Lean manufacturing or just in time manufacturing system can have a drastic impact on an organization’s productivity, risk management, and operating costs. Here are just a few of the quantitative benefits experienced by manufacturers worldwide:
- Reduction in inventory
- Reduction in labor costs
- Reduction in space needed to operate
- Reduction in WIP (work in process)
- Increase in production
- Improvements in product quality (lower rates of defects)
- Reduction of throughput time
- Reduction of standard hours
- Increase in number of shipments
In general, companies employing JIT manufacturing practices enjoy reduced cycle times, faster times to market, and reduced operating costs, although there are some potential risks, especially for smaller organizations. In order to find success with JIT, it’s important to find suppliers that are close by, or that can supply materials quickly with limited advance notice. Sometimes, minimum order policies can pose a risk to smaller manufacturers who might order smaller quantities of materials.
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One of the key features of the JIT system is a uniform production process. From the arrival of materials from suppliers to the delivery of goods to customers, the JIT system aims to prevent fluctuating production rates, which can result in delays and excess work-in- process inventories.
Pull-method
The pull-method contributes to this smooth production process, and it is a key feature of the JIT system. Under the pull-method, goods are produced in each stage only as they are needed at the next stage. This system eliminates work-in-process inventory between production steps, thereby reducing waiting times and associated non-value-added costs.
The pull-method also prevents wastage due to the production of defective products, since the output at every stage of production is inspected before passing on to the next stage.
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Reduction in storage and waiting time
Under the JIT system, materials are purchased and goods produced only as required, rather than to build up stocks for future use. This alleviates the need to make space for holding products and materials, and results in less time wasted waiting for large amounts of materials and products.
Relatedly, the JIT system encourages faster setups of production machinery. Producing small lots of product only as required demands a faster set up of machinery, resulting in more efficiency and reduced costs. The result is higher quality raw materials and finished products.
Maintenance of equipment
The JIT system requires strict adherence to routine maintenance schedules. Effective, preventive maintenance of equipment will allow the company to avoid costly down time from machine breakdowns.
Employee satisfaction and stronger relationships
The JIT system also encourages multi-skilled workers, flexible facilities and an atmosphere of teamwork. These things improve the production system to help the company maintain a competitive edge by seeking ways to improve its products, achieve more efficient operations, and eliminate non-value-added costs.
The JIT system also encourages stronger relationships between suppliers and producers. Under the JIT system, communication and information flow between the supplier and producer are open, supporting strong supply coordination. These relationships are enhanced by long-term contracts.
Automated purchasing
Under the JIT system, if materials are required, the supplier will receive an electronic message to deliver them. This improves efficiency and reduces time wastage. Automated purchasing also means that existing inventory levels and production levels are calculated automatically, making things easier and more efficient.
Reliable vendors
Under the JIT approach, suppliers are limited. This reduces the amount of time spent on vendor relations, and ensures that the firm is working with only reliable suppliers who can deliver high quality goods on time.
Long-term benefits of a JIT system
A long-term concentration on production growth and supply requirements, and synchronizing changes in raw materials specifications with suppliers, provide many long-term benefits to the business. The JIT system can produce long-term benefits like cost savings, lower production costs and better customer satisfaction.
Why Do Companies Use the Just in Time Method?
Companies utilize the Just in Time method of inventory accounting so that it directly aligns with the goods they are producing. They create goods directly related to the orders being placed, instead of making extra goods to meet the needs of any potential orders that may be placed.
The JIT method ultimately helps companies cut down on waste from making too many products (or supplying too many goods). Therefore, they don’t use up raw materials that may or may not actually be necessary to fulfill the orders they have. In turn, it cuts down on the costs they have for inventory, freeing up cash flow.
Originated by Toyota, the JIT inventory/production system has since become popular with other major manufacturing companies such as Harley-Davidson Motorcycles and Dell Computers.
Advantages and Disadvantages of the Just in Time Method
Again, the Just in Time method of accounting for inventory is advantageous to companies because of the reduction of waste it offers. If, for example, a company produces six orders of one product – specifically created for Company A – they have successfully met the need they have.
If they went forward and created ten orders of the same product, they would be doing so with the assumption that one (or more) other companies would be submitting an order for the same product. If no other company (or companies) submit an order for the manufactured goods, they would then have four more products sitting in their inventory that are unnecessary. They would have wasted the raw materials on the additional products, materials that could have been used toward the creation of other goods.
The Just in Time method is reliant upon several factors, including:
- A company efficiently using raw materials, leaving little to no raw materials left over after production;
- Suppliers getting the raw materials to the company in a timely way; and
- Companies utilizing the raw materials in a timely way so as to fill orders on a timely basis.
A potential disadvantage is that the producing company rarely has any extra stock on hand to fill unexpected orders, which can create two possible problems. The first is that if a customer needs an order filled immediately, the company is unlikely to be able to provide the needed goods because they don’t keep a large, general inventory supply on hand.
The second possible problem may arise if there is a sudden, unexpected surge in market demand for the company’s products. Again, because the company doesn’t maintain a sizable stock inventory, it may be unable to meet the market demand on a timely basis.
Example of the JIT Method – Good and Bad
Let’s continue with the example mentioned above, where Company A ordered six pieces of a certain good. If the producing company only has orders from Company A, the Just in Time system is advantageous for them. They’ve successfully ordered enough raw materials to produce the goods for Company A, and that is the only order they have for those goods. They don’t end up paying for the production of a lot of unneeded inventory.
However, let’s say now that Company B and Company C then submit orders for 15 pieces for the same product as Company A. The producing company has only secured enough raw materials or parts to fill Company A’s order. Companies B and C must wait for raw materials to be delivered to the producer and for production to manufacture the needed goods.
The producing company may face a significant problem if, for example, the delivery of raw materials is delayed for some reason. There is also the customer service problem of trying to keep Company B and Company C happy while they are having to wait for their order to be filled. If the wait causes problems for the buyers, those companies may decide to use an alternate supplier in the future, which means that the producing company loses their business.
Additional Resources
Thank you for reading CFI’s guide to the Just in Time method. To keep advancing your career, the additional resources below will be useful: