JIT stands for Just in Time. It refers to an inventory strategy that companies apply in enhancing efficiency while mitigating wastage via receiving inventory when necessary for the production process only. The effect of this is a significant reduction in the costs that are related to inventory. It also necessitates the ability of suppliers and producers to project demand precisely.
An automobile manufacturing company that operates with a low inventory is an example of this strategy. The implication of this is that the firm will depend on the supply chain while delivering parts of the car only when they are necessary for production. As such, the company’s supply chain is designed in a way that ensures timely delivery of the required inventory for the production process, not later or earlier.
JIT inventory has been considered as a shift from the Just in Case Strategy that was used in the past where large inventories were procured by producers while anticipating an increase in demand any time. In the event of an increase in demand, the company will be equipped with the required inventories for meeting the demand (Younies et al., 2007).
How JIT Inventory Strategies are applied in Organizations
The basis of the JIT inventory philosophy is the reasons why firms spend too many resources in storing inventory that they do not require yet they could be acquired later.
Companies that use these strategies also have incorporated strategies that enhance the identification and exposure of hidden costs in form of stored inventory. Nevertheless, implementing this system has proven difficult and an elusive solution for companies to adopt. Successful application and realization of these strategies require following different and new approaches that can mitigate consequences while enabling the company to manage change (Benoit et al., 2010).
The philosophy of JIT inventory combines different elements from varying fields including production management, statistics, industrial engineering, management science and behavioral science. It also entails different processes of making decisions that a company embarks on while making vital decisions. Approaches of JIT inventory are also employed while providing inventory to the strategic management as a way of ensuring that no unnecessary costs emerge from inventory.
Inventory is considered as waste and incurring costs. Inventory is also perceived as adding no value or store because it is different from the philosophy of traditional accounting. It should be noted that inventory consumes resources and these can be used in funding other operations of the business. It should also be note that eliminating inventory makes a company vulnerable to certain issues of production.
This means that the company must be strategic while implementing strategies of JIT inventory. A company has to eliminate inventory that gives no compensation for its production process. The firm will also be compelled to enhance its production processes continually in order to ensure that too much inventory is not required at once (Mackelprang & Nair, 2010).
Another fact is that a company that allows inventory to reach low levels suffers the impact of familiarizing its management with stock keeping. This way, production issues can be concealed by the management in form of keeping stocks. Such issues can incorporate work centers’ backups, inflexibility of machines and workers, inadequate ability, equipment reliability and process variability.
The implication of this is that JIT inventory concerns maintenance of the right material, in the correct amount and at the right time. This way, the organization operates without the impact of safety nets in its inventory system. There are broad consequences of the JIT strategy for firms that implement its (Dabee & Amer, 2013).
Implication for Management Science and Decision Making
Among the consequences of implementing JIT strategies that can be noted include a change in the management approach as well as how a company makes decisions. For example, companies need to be conversant with market trends. For this reason, companies that implement the strategies have to invest in market research so that they can anticipate a rise or decline in demand. This way, the firm can identify when increasing or reducing inventory will be necessary. The implication of this is reflected in different organizational departments.
These strategies affect not only the management, but the decision making process as well. For example, cost accounts must adapt approaches that enhance the process of making decision for the staff in line with forecasts concerning demand (Peng et al., 2012).
For JIT inventory to be analyzed effectively in relation to the process of making decision and management science, analyzing the automobile industry of the Japanese is important. This is because JIT inventory strategies have been introduced in this industry. This has had several effects as noted from the experience of car manufacturers in Japan.
Among the effects is a fall in response time by approximately a day for the producers. The effect of this is ensuring the satisfaction of customers on how they used to ship vehicles after placing their orders. The economic benefit that customers enjoyed was ensuring that the delivery of their cars happened with economic advantage of shipping in a day or two. The implication of this was an improvement in the management science based on the fact that the administration’s decisions assisted in the improvement of companies’ ratings by the customers (Dabee & Amer, 2013).
The number of the motor vehicles produced on order basis also increased. This was observed as a benefit for organizations due to the risk that is associated with the production of goods that might be sold and therefore eliminated. As such, the process of making decisions for the organization was enhanced because market demand led the organizations in making decisions.
The implication of this is the improvement of the organization in equity returns while ascertaining that the organizations might not incur losses due to the fact that production decisions are made on the basis of market demands. This implies that the process of making decision in an organization might not have caused losses for an organization (Younies et al., 2007).
Another effect is about perfection. Management science in an organization was required to ensure that all ordered parts are perfect fits for the models. JIT inventory strategies require manufacturing companies to choose inventory that they need for their manufacturing processes. This is because ordering the inventory occurs when products are required. However, the company is exposed to quality assurance issues. This means that a company’s management has to have statistical controls in place always to enhance its quality control. The management is therefore required to come up with decisions regarding products quality and this is very important (Peng et al., 2012).
Despite having several benefits, JIT Inventory system might also turn out to be a problem for the process of making decision and the management of an organization. It should be noted that the aim of all organizational decisions is to ensure better profitability and enhanced efficiency. Nevertheless, maintaining low stock implies that some parts might be shipped for several times each day.
This exposes an organization to the risk of interruption in the flow of its inventory. This can cause a situation in which the firm is unable to honor the obligation of meeting the delivery deadlines. In the same note, an organization has to make decisions based on the information regarding the shortcomings and capabilities of its suppliers. The firm must choose trusted suppliers to ensure timely deliveries. Nevertheless, this can be impossible causing problems that are related to inventory (Benoit et al, 2010).
Just in Time strategy is an inventory delivery strategy that has proven critical in improving equity returns and efficiency in organizations. The implication of this is that an organization gets a chance to ensure that resources are not wasted on resources. Inventory is among the ways that have been identified as the causes of hardships for resources’ management in organizations. The implications of this are felt by the management, processes of making decisions and production processes of a firm. This means that the management has to adopt business operations and processes that are in line with JIT inventory in order to enhance resources’ management.
Benoît, C., Norris, G. A., Valdivia, S., Ciroth, A., Moberg, A., Bos, U., … & Beck, T. (2010). The guidelines for social life cycle assessment of products: just in time! The international journal of life cycle assessment, 15(2), 156-163.
Dabee, F., Marian, R., & Amer, Y. (2013). An optimisation model for a simultaneous cost-risk reduction in just-in-time systems. Australian Journal of Multi-disciplinary Engineering, 9(2), 139.
Mackelprang, A. W., & Nair, A. (2010). Relationship between just-in-time manufacturing practices and performance: A meta-analytic investigation. Journal of Operations Management, 28(4), 283-302.
Peng, D., Guifen, W., & Dakou, W. (2012). Effects of Just-in-time Production and Inventory on the Production Cost——Carlisle Tire Company as an Example. Journal of Heilongjiang Bayi Agricultural University, 4, 028.
Younies, H., Barhem, B. E. L. A. L., & Hsu, C. (2007). A review of the adoption of just-in-time method and its effect on efficiency. Public Administrate and Management, 12, 25-46.
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