JIT production is a manufacturing philosophy that focuses on reducing waste by receiving goods only as they are needed in the production process. This approach has revolutionized the way companies manage their supply chains and has become a cornerstone in the operations of many successful businesses. However, like any methodology, JIT production has its advantages and disadvantages.
What is JIT Production?
JIT stands for Just-In-Time production. As the name suggests, it is a system where materials and products are produced or acquired only as they are needed. This means that inventory levels are kept to a minimum, with goods arriving just in time for the production process or customer orders. The idea behind JIT is to increase efficiency and decrease waste by avoiding overproduction and excess inventory.
The concept of JIT was popularized by Toyota in the 1970s and has since been adopted by many other industries. It is closely associated with lean manufacturing, which aims to create more value with fewer resources.
Advantages of JIT Production
Reduced Inventory Costs
One of the most significant advantages of JIT production is the reduction in inventory costs. Since materials are only ordered and received as needed, companies do not have to maintain large warehouses filled with raw materials or finished products. This reduction in inventory lowers storage costs, insurance, and reduces the risk of inventory becoming obsolete.
Increased Efficiency
JIT production streamlines the production process by ensuring that only the necessary materials are on hand. This focus on efficiency could also mean that production runs are quicker, and there is less time wasted on moving and managing excess inventory. Workers can focus on producing quality products without the distraction of managing surplus goods.
Improved Cash Flow
With reduced inventory levels, companies can free up capital that would otherwise be tied up in stock. This improved cash flow allows businesses to invest in other areas, such as research and development, marketing, or expanding operations. Cash flow is the number 1 reason why businesses fail. You can therefore appreciate its importance.
Higher Quality Products
JIT production emphasizes producing only what is needed, which often leads to better quality control. Since production is more focused, defects are more likely to be detected early. This reduces the number of faulty products that reach the customer. Managing customers is imperative to the success of any business.
Flexibility
JIT systems allow companies to be more flexible in responding to customer demands. With lower inventory levels, companies can quickly adjust production schedules to meet changing market conditions. They can do so without being burdened by large amounts of unsold stock.
Environmental Benefits
By reducing waste and minimizing the amount of raw materials used, JIT production can have positive sustainable and environmental impacts. Less waste means fewer resources are consumed, and there is less material to dispose of. This can help reduce a company’s environmental footprint.
Disadvantages of JIT Production
Supply Chain Dependency
One of the main drawbacks of JIT production is its reliance on a smooth and consistent supply chain. If there are any disruptions, such as delays in deliveries or supplier shortages, production can come to a halt. This dependency on suppliers means that any hiccup in the supply chain can lead to significant production delays and lost revenue.
Limited Stock for Unexpected Demand
JIT production operates on the assumption that demand will be predictable and steady. However, if there is a sudden spike in demand, companies may not have enough stock on hand to meet customer needs. This can lead to missed sales opportunities and potentially damage the company’s reputation.
Higher Risk of Stockouts
Since inventory levels are kept low, there is always a risk of stockouts, where the company runs out of a particular product. Stockouts can lead to production delays, missed deliveries, and unhappy customers.
Pressure on Workers
JIT production requires a highly disciplined and efficient workforce. The pressure to meet tight production schedules can be intense, leading to worker stress and burnout. In some cases, this pressure can result in reduced morale and higher turnover rates.
You should at all times keep your employees motivated and productive. They are the backbone of your business.
Increased Transportation Costs
JIT production often requires more frequent deliveries of smaller quantities of materials. While this reduces inventory costs, it can lead to higher transportation costs. The need for just-in-time deliveries can also increase the carbon footprint of a company, potentially offsetting some of the environmental benefits.
Vulnerability to External Factors
JIT production can be particularly vulnerable to external factors such as natural disasters, political instability, or economic downturns. These factors can disrupt supply chains and cause significant challenges for companies that rely on JIT. Everyone remembers Covid19 being one of these factors.
A Balanced Approach
In the early years of running my manufacturing business, we adopted a Just-In-Time (JIT) production model with the goal of minimizing stock levels—viewing stock as “sleeping money on shelves”—and maintaining a robust cash flow, which is crucial for any business’s success. Each day, we created a production list that was handed over every morning to our production manager. This approach also ensured that quality was tightly managed since every product we made was custom made. The flexibility that came with JIT set us apart from our competitors, leading to increased sales and allowing us to price our products at a premium.
The Challenges
However, JIT production came with its challenges. The most significant downside was that our production capacity was limited to a certain number of items per day, which drove up manufacturing & production costs. Additionally, during our peak season, the sudden surge in demand led to production delays, resulting in lost sales opportunities. Our staff faced immense pressure and often had to work overtime to meet the demand, which further increased the cost of production.
Mitigating the Challenges
To mitigate these challenges, we implemented a balanced approach. We began manufacturing popular selling items during the low season and held stock of these items. This not only reduced the cost of production but also allowed us to produce 30% more than we could with JIT alone. By building up stock on popular items, we created a system that combined the benefits of both JIT and traditional manufacturing. This approach ensured that we had stock ready for the high-sales months, while our production team could continue with JIT production for other items without the stress, overtime, and additional costs associated with peak season demand.
So, whilst our business model initially followed JIT principles it evolved into a hybrid approach to address its limitations. We eventually found our “happy medium” and created a successful and more profitable business model.
Summing Up
JIT production is a powerful tool for companies looking to reduce waste, increase efficiency, and improve their bottom line. Its advantages, such as reduced inventory costs, increased efficiency, and improved cash flow, make it an attractive option for many businesses. However, it also comes with challenges, including supply chain dependency, the risk of stockouts, and increased pressure on workers. If not careful it can also increase manufacturing or production costs.
For companies considering implementing JIT production, it is essential to weigh the pros and cons carefully. A well-executed JIT system can lead to significant improvements in productivity and profitability, but it requires careful planning, strong supplier relationships, and a commitment to continuous improvement.
In the end, whether JIT production is the right choice for a company will depend on its specific circumstances, including its industry, supply chain, and market conditions. By understanding both the advantages and disadvantages of JIT, companies can make informed decisions that align with their overall business strategy.
Make sure to choose this method only if it aligns with your business strategy, not just as a reaction to challenges like cash flow limitations. The decision to implement JIT should be a thoughtful strategy, not one made out of necessity or desperation.
