Just in time is a stock managing system that works on the basis of not keeping a buffer stock, it’s a ‘pull’ system of production so the order for a good, signals when a product should be manufactured. This system allows there to be low storage costs as spare parts arrive at the factory when they need to be used in the production line, which reduces the storage costs drastically.
Just in time works on the basis of not having buffer stock, this reduces costs, but it’s a hard system to keep in perfect sync with the production line, as spare parts should arrive as the final good is about to be manufactured, this means that an order must trigger the production process to start. The firm needs to order the spare parts from the supplier immediately as the firm will need it in a short time frame to produce the good. This means that there needs to be good communication between the firm and the suppliers of the firm, otherwise the firm wouldn’t be able to produce the good. This usually means that the firm has a maximum of 2 suppliers as the firm needs to have great communication to be able to keep up the constant request of new orders with short time frames.
Just in time is a stock management preferred for firms with good enough logistic, as the storage costs are reduced and this can sometimes make a big change in the profit of a company. But other reasons for using just in time as a stock management style, some companies make customized goods so the firm may need different spare part for the different customization that the consumer may require. A good example are customized cars, some high quality car producers allow customers to choose the different colors a car can have, and what the interiors would look like, ect. This requires machines in the firm to be able to produce a lot of similarly built goods (a range of products with little difference between them). This is also a good use of resources as only one machine can change the production of a good to do another, so no machine would stop producing.
In conclusion just in time is a good stock management, but only if the firm’s resources can support the requirements, it may be hard to have spare parts delivered in time so that would be miss communication between the firm and the supplier, this can result into dis-economies of scale and the firm may lose money because of these mistakes. This can further more cause the firm to bankrupt and loose business.
